Don Argus was Chief Executive of National Australia Bank from 1990 to 1999, a period of growth and rising share prices after the 1991 recession. In the Royal Commission's 10 days on superannuation, NAB was in the witness box an amazing five days. Banks such as Westpac and Macquarie did not appear at all. What did Argus tell The Australian about the evidence he had seen?
"There is a need for basic tenets of honesty, integrity and accountability. Regulations without a spirit of morality do not work ... Having a dense legalised disclosure statement for consumers to read, so organisations can protect themselves, is not the answer."
The worry is that Commissioner Hayne and regulators will stifle business and innovation in response to the poor behaviour, especially when added to the plans to embed regulators within major institutions. There is no doubt the Royal Commission will sharpen up some lazy boards and better principles of governance will be introduced, but regulation is not the only response needed.
Graeme Samuel was President of the National Competition Council in 2000, and he said:
"I defy the best legal minds to produce a set of rules that will compensate for negligence, ignorance, apathy or the many characteristics that will render a board of directors dysfunctional. No process of box ticking will overcome fundamental dysfunctionality of a board of directors."
It's difficult to place the Royal Commission revelations in historical context without sounding nostalgic about the good old days. Bankers were no angels in the nineties. Coincidentally, Cuffelinks' co-founder, Chris Cuffe, joined (Colonial) First State 30 years ago yesterday. As CEO for 12 years, he merged First State with Legal & General, Prudential and Colonial, and often made decisions to close inferior products, even when the margins on the old products were better. He worked on a principle of investor first and corporate second, regardless of the short-term impact on profit when new products were cheaper and better for clients. But Chris has not worked at CFS for 15 years now, and he is too modest to claim 'the old CFS would never have done that'. Indulge us a little on Chris's anniversary with Warren Bird's article on the 'old CFS'.
We have collected examples from two weeks on superannuation at the Royal Commission using dialogue from the witness box to allow readers to consider the evidence.
Politics and the need to plan for Labor policies
With the Liberal Party tearing itself apart in Canberra, investors should pay more attention to Labor policies. SMSFs in pension mode with heavy franking credit refunds are especially exposed, and companies like BHP with about $15 billion in franking credits may push them out to shareholders in advance of a change. Last week's detailed summary of this policy is here. Labor's Chris Bowen still says the policy will commence from 1 July 2019.
In this week's edition ...
Investors focus more on returns from investments than risk, but there is obviously a risk/return tradeoff in all portfolio decisions. Miles Staude makes the case for understanding risk better.
Exchange Traded Funds and index investing have been a success story of the last five years, often bringing lower costs and greater choice to investors. Dugald Higgins says that like managed funds, there are consequences if an ETF does not reach a critical size supported by a strong issuer. Then Winston Sammat gives a short summary of conditions in the Australian REIT sector.
The recent cap on concessional contributions for everyone at $25,000 a year will mean many people exceed this limit. Graeme Colley explains what happens next.
Lucy Brogden is Chair of the National Mental Health Commission, and Jeannene O'Dayinterviewed her on the links between mental and financial health. Donal Griffin takes us through the drama of the challenges to the will of famous author, Colleen McCullough.
This week's White Paper from Clarion Partners (a property affiliate of Legg Mason) shows how disruptive technologies are changing commercial real estate. This is an asset class worth knowing more about. The July 2018 Listed Investment Company Review from IIR below looks at small cap successes, how banks dragged down large caps and the growth of international.
Graham Hand, Managing Editor
Edition 268 | 24 Aug 2018 | Editorial | Newsletter