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Ken forgot it was Kenneth’s stage

In March 1976, Ken Henry and I, both aged 18, started our commerce degrees at the University of New South Wales. Some 42 years later in November 2018, Ken stepped into the witness box at the Financial Services Royal Commission. What had happened over four decades of an incredibly successful public career that led Ken to give evidence in such an incendiary way that two months later, he would be forced to resign as Chair of National Australia Bank (NAB)?

Under the steely glare of Commissioner Kenneth Hayne, Counsel Assisting Rowena Orr had been interrogating witnesses since the beginning of 2018, drawing embarrassing admissions from cowering senior executives. Ken Henry would have none of that. He had been Treasury Secretary for 10 years, facing off senators in Estimates Committees and imposing his policy views on the nation’s finances. He had seen bank executives at the Commission forced into humbling one-word answers, but that was not his style.

So when Rowena Orr pushed him on the poor performance of NAB’s board, of which he had been a member for seven years, he could barely control his disdain:

Orr: Do you accept that the board should have stepped in earlier?

Henry: I wish we had, let me put it that way. I wish we had – I still don’t know.

Orr: I would like you to answer my question, Dr Henry. Do you accept that the board should have stepped in earlier?

Henry: I have answered the question how I can answer the question.

Orr: I’m sorry. Is it a yes or a no, Dr Henry?

Henry: I’ve answered the question the way I choose to answer the question.

Looking on, Kenneth Hayne made a mental note. Nobody, but nobody, acts with such disrespect on my stage. Ken Henry forgot who was setting the rules. In the Final Report handed down on 1 February 2019, Hayne delivered a crushing judgement on the Henry performance.

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A stellar career began in a humble way

Ken majored in econometrics while I studied economics. The fourth year of the honours course was mainly thesis work, and at the beginning of 1979, I was still finalising my topic. I had a chat with Ken:

Should be a busy year. How are you going with your thesis?” I asked.

Almost finished,” he said. “I'll submit it soon.”

It was not boastful or arrogant. It was matter-of-fact. I hardly saw him for the rest of the year. While the other five students in the honours year worked on their thesis, Ken was in Canberra, already on the next step of his career. He graduated with First Class Honours.

Many of the comments this week said Ken was ‘always the smartest guy in the room’. He was certainly quick and intelligent, but at university, he faced an equally formidable competitor: Warwick McKibbin. My recollection is that Ken was not close to anyone at university, and there was a friendly but determined rivalry between these two men who would become Australia’s leading economists over the next few decades. The University Medal was awarded to Warwick.

I recall a class where Ken, Warwick and a professor in the first year of his tenure, John Hewson, covered the board with numbers while arguing fiercely. I did not have a clue what they were talking about.

After his undergraduate degree, Ken gained a PhD in 1982 while lecturing at the University of Canterbury, then he joined the Federal Treasury in 1984 and was a Senior Adviser by 1986. He served as an adviser to the then Treasurer Paul Keating for five years until 1991. He was Head of Taxation Policy by 1994 and Secretary to the Treasury in 2001. He stayed in that role for an amazing 10 years, collecting a Companion of the Order of Australia in 2007. He is credited, along with others, for leading Australia’s policy response in the GFC with his famous “Go early, go hard, go households” rescue package.

Ken left Treasury in 2011 and joined the NAB board in the same year and the ASX board in 2013. He was appointed NAB Chair in 2015. His other appointments and social contributions are too numerous to list, but include receiving the Centenary Medal in 2001 and chairing the Henry Tax Review from 2008 to 2010.

All this from a boy who grew up on a leased dairy farm near Taree, where his father was a timber cutter. He never lost his interest in wealth distribution and economics after seeing his father work hard for little reward. His Treasury work often focussed on wealth distribution, government funding and taxation reform. He always had a strong sense of social responsibility, including indigenous policy and wildlife welfare.

I have spoken to Ken only once since our university days. Our careers went in different directions. Despite his great success, my judgement is that he’s a reserved, often quiet and perhaps shy person, a view supported by people who know him better now. He was always friendly and personable, but I don’t recall him hanging around the university canteen at the end of a day of studying.

Strong views and 23 Senate Estimates Committees

Over the years, Ken argued economics and policy with McKibbin, Keating, Hewson, Cormann and Howard, to name a few, and fronted 23 Senate Estimates Committees including angry exchanges with Liberal Senators, especially Eric Abetz. At a 2008 meeting, Senator Mitch Fifield accused him of "defying the committee". The SMH reported, At times during his evidence, Dr Henry groaned audibly”  and "This account was W-R-O-N-G, he told the committee, spelling out the letters and adding ‘with an exclamation mark’.”

In 2009, the Crikey Newsletter said of him:

“Henry isn’t always a fan of public debate … has a decidedly unbureaucratic manner of public speaking and a willingness to have a go at critics …” 

Facing criticism of the Henry Tax Review in 2010, he said:

"Whenever an idea is ventured publicly by a person, whether that person is a policy advisor or whether it's a government minister, there's at least a handful of academics who will contest it. I've seen it on both sides of politics - this is not a partisan comment at all - but for governments, government ministers who are seeking to get ideas legislated - it is unbelievably frustrating, incredibly frustrating."

Anyone who manages the nation’s finances for 10 years under no less a person than Paul Keating and holds a formidable public record of policy implementation must become familiar with power, dominating arguments and convincing people to understand his position. And with this comes an impatience when other people are too slow or too narrow to appreciate his view.

NAB was already on notice

The Royal Commission was particularly punishing for NAB long before Ken Henry reached the witness box. NAB’s wealth management business in MLC and NULIS was a prime offender in the ‘fees for no service’ disaster which became one of Kenneth Hayne’s biggest targets. As Chair of the Board, Ken must have watched the evidence of his executives in horror, including a severe dressing down for the QC who was supposed to be guiding NAB’s witnesses.

At one stage, Neil Young QC, questioned Kenneth Hayne on why his client needed to return the next day. Young said, “On our instruction, her answer will be that she had no involvement in these matters.

Hayne hit the roof. “You will not give her her answer, Mr Young. You will not. Do you understand me?” he said as he jabbed a pointed finger towards Young.

What to make of Ken’s Royal Commission performance

On the ABC programme The Drum on 8 February 2019, veteran journalist Geraldine Doogue responded to a question on why the behaviour that had pushed Ken to the top of the public and private sectors now lead to his downfall. She said:

“I’m a real fan of Ken Henry. What he did in the GFC was an incredible contribution to Australia. I’m in the minority but I heard that interchange with Rowena Orr. I didn’t like her style at all. Others rolled over, people like Shayne Elliott said ‘I plead guilty, sir. Don’t send me to the colonies.’ He (Ken) just didn’t play that game. He did say ‘I wish we had’. Did he have to do it exactly with the tone? … it was a star chamber, and if you didn’t exactly deliver the tone as requested, you paid a price.

Will the NAB be well-served by the departure of those two men, in terms of trying to get themselves in a new position? The reporting has been bloodsoaked and I don’t like a lot of the reporting.”    

We could examine Ken’s entire testimony line-by-line, and there’s no doubt he was in a bombastic and impatient mood. But consider the extract at the start of this article. Rowena Orr asked if the board should have stepped in earlier. Ken replied with “I wish we had.” That was a solid answer. He added “I still don’t know.” Fair enough, he did not know why they did not act. Then Ms Orr demanded he answer her question with a yes or no. This was more point-scoring than genuine enquiry. She had what she needed without demanding a yes or no.

In the Final Report, Kenneth Hayne attacked Ken Henry, including:

“I was not persuaded that NAB is willing to accept the necessary responsibility for deciding, for itself, what is the right thing to do, and then having its staff act accordingly. I thought it telling that Dr Henry seemed unwilling to accept criticism of how the board had dealt with some issues.”

There. Judge and jury. Guilty. Henry then issued a reply which in the eyes of many people proved the Commissioner was right:

“Commissioner Hayne said I seemed unwilling to accept criticism of how the board had dealt with some of the issues raised by the Commission. I am disappointed the Commissioner formed this view. I know that it is not so.”

Which was Ken Henry true to form. Disappointed by the Commissioner. Ken knew better. Same as in 23 Senate Estimates Committees. He was still not reading his predicament well, but he had won these arguments for 42 years. Kenneth Hayne would not even need to defend his position. His work was done and there would be no follow up.

By the end of the week, both Henry and his Managing Director, Andrew Thorburn, had resigned, and Henry gave an interview to Leigh Sales on ABC’s 7.30. He was humble and contrite, but it was two months too late. He said of his brief time at the Commission:

“I can't tell you how many times I've re-lived that appearance. I really should have performed quite differently. I should have been much more open.”

Where to now for Ken Henry?

Ken’s achievements and contribution to the country are too significant to allow a poorly-judged appearance to dominate his legacy. It is highly doubtful he achieved what he hoped for at NAB, but Kenneth Hayne could have looked beyond the hearings for evidence of Ken’s values and intentions. For example, in a speech on the future of banking on 5 April 2016, he said:

“The importance of a deep interest in the aspirations of our customers is being driven, Board down, through our business. We are determined to be customer-focussed. We know that this is what will drive our success.

Successful businesses put the customer at the centre of everything they do. In a successful business the customer drives product design and the suite of products offered. No customer is encouraged to buy something they don’t need or charged more than they need to be charged to cover the cost of providing the product. No customer of a successful business buys something that they don’t understand well enough to have a high degree of confidence that the product will deliver what they want, when they want it.”

In a speech in December 2009, he mused that his generation had not delivered on the social ideals of its university days:

How else might one explain our failures? How do we explain the failure to prevent the continuing destruction of habitat, vital to the survival of many of our endangered species of native flora and fauna? And how do we explain the failure in dithering for decades about an appropriate response to climate change?''

Do we want our leaders to take instructions from QCs who tell their clients to cower to a Commissioner, or rather, to stand up for what they believe and speak their minds? After watching many bank executives unable to explain the decisions they made and resort to one-word answers, I know which I prefer to hear.

 

Graham Hand is Managing Editor of Cuffelinks. For further commentary on some implications of the Royal Commission, Graham recorded a podcast here.  

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32 Comments

D Ramsay

February 24, 2019

Great article Graham. A good read too - Thanks
I also concur with Ms Doogue's comments as well as yours.

Dean

February 21, 2019

The treatment of Ken Henry really highlighted how much the Royal Commission was a media showcase for lawyers. As Hayne's insipid final report showed, it was ultimately little else.

Jeff

February 22, 2019

PS - Henry (and NAB Board) again wrong.

At announcing his resignation, Henry said that he was staying a few months to appoint the next CEO. Oh dear - more arrogance ....poor governance from Board!!! (It's a key task for the new Board!)

And now under shareholder pressure, NAB Board announces this week - Henry not on selection committee!!!

As i expressed below, hopefully we will not need a smart lawyer with the power to subpoena evidence and bring Boards/CEOs to account for their poor performances in the future in a very costly RC .....but we probably will!!

Justin

February 20, 2019

I've always liked the statement that "hindsight is the cheapest wisdom of them all". After the fact it is easy to say that these 3, 5 or 10 facts should have been acted on at this time in in this manner from the thousands of bits of information processed over time. The interchange with Rowena Orr reminded me of the interchange between Alan Jones and Malcolm Turnbull when Jones wanted Turnbull to "repeat after me" like a 5 year-old. It may have been Kenneth's stage but few like to be told what to say and how to say it. If this is what we want from a Chairman maybe it's best he has resigned.

Louise Watson

February 18, 2019

Throughout the Royal Commission, thousands of news articles have been dedicated to recapping Ken Henry's appearance.

Few have been able to shine a light on Mr. Henry than Graham Hand in this article.
Having known each other since university days, I found Graham's observations incredibly interesting, for example: 'Anyone who manages the nation's finances for 10 years under no less a person than Paul Keating and holds a formidable public record of policy implementation must become familiar with power, dominating arguments and convincing people to understand his position. And with this comes an impatience when other people are too slow or too narrow to appreciate his view.'

Thanks for the insight Graham...

Graham Hand

February 18, 2019

Thanks for your kind comments Steve, Kim, Leeanne, Jeff, GG.

Steve Martin

February 17, 2019

Great article Graham!
It seems to me that often I have seen the arrogance that comes from someone with intellectual superiority in their exchanges. My respect for their intelligence leaves me with some forgiveness of their shortfalls with emotional intelligence. Both Hayne J and Dr Henry seem to have the same types of demeanour, and the conflict was always going to play in favour of the person with the power in the argument - the Royal Commissioner. I suspect that Dr Henry will be feeling the impact of such a huge fall from grace. If he reads this article I hope he takes on board the wisdom of one statement in particular in your excellent article:
"Ken’s achievements and contribution to the country are too significant to allow a poorly-judged appearance to dominate his legacy."
I hope he continues to contribute to our country.

Kim

February 17, 2019

Great article as usual Graham.

John Sanders

February 17, 2019

Great article. Puts some important details into context.

Leeanne

February 16, 2019

Interesting perspective Graham - thanks for adding to the debate with this well thought out commentary.

AM

February 15, 2019

Similar thoughts to many others.

The NAB executives singled out were no better or worse than those at the other banks, or the ASIC and APRA executives who stood by and let it all happen.

Henry was being bullied, his responses were pompous (it's not a crime), but were adequate and honest.

Jeff Parker

February 15, 2019

Great article,Graham,thanks!
There is a lot of discussion about Ken's alleged personality shortcomings as largely contributing to the unfavorable findings against NAB.
It is a sign of our pathetic times that trivia dominates so much discussion, highlighting a general demise of our intellectual capacity.
No mention whatsoever about any shortcoming on the RC attack team regarding arrogance,insolence, anger,etc etc.
Why?
If Orr had deigned to question Henry in a fitting and less aggressive,more intelligent manner,then no doubt Henry would have responded differently and Hayne would not have issued his petulant remarks.
Orr has been adulated by the media for her aggression and no doubt wouldn't have minded claiming another scalp on her way to becoming a judge-heaven forbid!
Ken,don't change anything whatsoever about your personality!

Bruce Gregor

February 15, 2019

When I look back on the Hayne Royal Commission I ask myself what was achieved.

1. Did it point the way to how all people can have access to financial advice in future when they need it cost effectively?
2. Did it expose the environment financial advice firms had to operate in with Labor/Liberal goverments flip flopping on FOFA and trail commisions with an incompetent ASIC and Minister?
3. Did it substantiate why ASIC should be given even more powers rather than abolished and rebuilt from the ground up?

Could we please have Kenneth Hayne and Roweena Orr give give a yes/no answer?

Beatrice Blanks

February 14, 2019

I have the utmost respect for Ken Henry, his worst decision was to move into banking, which always has had a deplorable reputation. I cannot understand that decision, it was to me that he had sold out. Maybe I am wrong and that is just a superficial criticism, maybe he thought he could make a difference and it would be easier for him to get his views across in private enterprise, who knows, but I must thank him for the years he held the line against the politicians when they wanted to bend him for political reasons.
His greatest contribution to Australia was to get us out of the devastating damage of the GFC.

Chris S

February 14, 2019

Well, after reading these responses, it’s pretty clear how the banking industry is going to attack the RC recommendations. How dare Ms Orr, a lawyer, and Hayne, a former High Court judge, sitting in a Royal Commission, question these upstanding members of our community in a lawyerly manner? How dare they ask witnesses to actually answer the questions put to them?

How dare the RC expose outrageous greed, massive conflicts of interest, larceny on an industrial scale, lies and dishonesty to the regulators, churning, fake fees – the list goes on and on and on. And of course we should feel sorry for these poor bankers, who earn more in a year in salary, bonuses and expenses than I have earned in my life.

How dare Rowena Orr, who had the job of extracting the truth from the witnesses, dare expose the sullen, angry and arrogant demeanour of Ken Henry.

I will continue to read Cuffelinks with interest, as the attack strategies to be used by the financial industry will clearly be telegraphed here first.

MikeyF

February 14, 2019

It is galling that no respect was shown to a man of Henry's stature-Hayne certainly demanded it but amazingly didn't reciprocate.
In any case how can a Royal Commissioner decide that because of a persons demeanor and one or two flippant asides,he has to be punished,surely that's outside his jurisdiction.
Henry is accused of being insolent-who can blame him?
He obviously doesn't suffer fools gladly and there were certainly some at the RC.
In this PC world any perceived arrogance or insolence is automatically considered a grave offence,no matter the circumstances.Pathetic.
The highlight of the RC for me was watching the Henry v Orr tussle.
My money was firmly on Henry.
What an interesting knowledgeably character ,not many left,we cant afford to lose him.
Wish him the best of luck!

Rob Jones

February 21, 2019

Interesting article,I think the RC was handed correctly. What people have been put through by the Banks is a disgrace. How Dr Henry gave his responses was also a disgrace he should have resigned before hand and the to want to pick the next CEO this is and all about greed and power .

John

February 14, 2019

" Dividend imputation should be retained in the short to medium term, but for the longer term, consideration should be given to alternatives as part of a further consideration of company income tax arrangements. "

The recommendation re imputation(and refund of credits effectively) was accepted in that imputation was not changed.

Henry covered how other countries dealt with removal of imputation and clearly held that any review should be wide.

Don Williams

February 14, 2019

This was like a criminal trial, where Ken was supposed to humbly answer yes or no to carefully prepared questions from an arrogant Orr,which with others had invariably led to a stage managed and gleeful climax of guilty-why should he play that stupid game?
Ken has incomparably more financial knowledge than Haynes or Orr,whose only expertise is the law,but this didn't go well with Headmaster Haynes who demanded complete subservience.
Very upsetting! Once again lawyers have vastly exceeded their limited capabilities.

Nicki

February 14, 2019

Fair to say it is a very underwhelming final report from the Royal Commission to say the least.

Michael

February 14, 2019

Thank you.

I felt exactly the same for Mr Henry.

He was expressing his opinion and I felt was being increasingly bullied by Ms Orr. Perhaps she had grown to accustomed to the headlines of her dressing down executives.

And yes, perhaps he could have rehearsed a little more and talked with a conciliatory tone a little more. But I appreciated his thoughtful responses.

Greg

February 14, 2019

Henry was right to stand up to the RC. He answered truthfully and was subject to bullying by the attention seeking Orr. On a power trip, demanding that all cower before her. Then Henry is singled out and sent to the gallows for not kissing the feet of Orr and Hayne. It is obvious that NAB was trying just as hard as the other banks to address the errors of the past. This was an irresponsible act by an arrogant judge. Henry should hold his head high and be proud that he did not cower to bullies.

GG

February 14, 2019

Graham, that is a quite outstanding piece on Ken Henry. Stunning. GG

Chris S

February 14, 2019

Graham, I disagree with you on one interpretation of what Ken Henry said. The extract is:

"Rowena Orr asked if the board should have stepped in earlier. Ken replied with “I wish we had.” That was a solid answer. He added “I still don’t know.” Fair enough, he did not know why they did not act. "

I watched this exchange, and I understood that when Ken Henry said "I still don't know", he was actually saying he didn't know IF the board should have been involved, rather than why it didn't. With that interpretation, Ms Orr's follow up was quite legitimate, as was Hayne's scathing report.

I agree with you about Ken Henry having misread the RC - I worked at Parliament House for 20 years, including most of his term as Treasury Secretary. He certainly showed aspects of insolence toward Estimates hearings. Having fronted the old Public Accounts Committee hearings when Bronwyn Bishop was in full cry, I can say that this is not always a good move.

I also met Kenneth Hayne several times, and he was not a man to be trifled with. I think Ken Henry very much brought this on himself. A shame, as I think on balance, his solid reputation should have been preserved.

jeff

February 14, 2019

A smart, shy and arrogant person is not a well credentialed Board member or chairperson.

Boards have failed and its been costly to stakeholders - an expost "sorry" does not fix the past nor the risk of future failure.

And the Treasurer failed in his oversight of ASIC/APRA too - and no one seems to point this out!!!

We need Boards to bond and engage with all stakeholders and to manage the residual risks of their missions. The market for corporate control does not work effectively. Boards are currently given three strikes over three years etc etc - slow, opaque, untimely and costly!

For key systemic sectors/institutions, we need an independent third party to monitor and report on Board conduct and performance to the community.

Add whistle blowers too...and hopefully we will not need a smart lawyer with the power to subpoena evidence and bring Boards/CEOs to account in the future in a very costly manner.

Kerry Sourasis

February 14, 2019

How do you change a legal system that is founded on domination and power play? Our legal system is no longer interested in the truth, only in winning a case at whatever cost.

Why do we allow one man to change a system they don't even understand? Why do we give so much power to one man to make irrelevant public statements in writing without consequences for defamation? Why should one man have the power to decimate individuals who just didn't bow low enough or were silly enough to stand up to nonsense been thrown at them? Surely its time to have a Royal Commission into our court system and how its people behave.

SR

February 14, 2019

Hayne's skills as a lawyer shone through to find the facts, the bad guys, the bad behaviour. This was all good work and should be applauded. His opinions on how industries should be structured however are flawed and should just be viewed as 1 mans opinion not as a gospel to follow to the letter.... His recommendations in this respect need to be debated and all repercussions need to be considered.

Wayne

February 15, 2019

Only those with a perceived grievance were invited to attend.
The outcome is now we have policy being determined by the minority with an unsubstantiated grievance.
The majority will pay the price for appeasement of the minority.
Hayne found nothing that wasn’t public knowledge.
Refer the terms of reference. Only those with a grievance were heard. These was no substantiation of these grievances as this would have detracted from the theatre of the RC.

Gary M

February 14, 2019

The Henry tax review was an interesting, and I wonder if shaping moment in Henry's career. In effect a review is your crowning moment, a thesis in the public policy world for all to see. Yet this one was brushed under the bed. Of (roughly) 137 recommendations I think only 5 received any attention. What impact did this have?

Bob

February 14, 2019

I think the Henry Tax Review had no impact at all. If I remember correctly, the terms of reference didn't include negative gearing and capital gains tax, and only one of the 139 (?) recommendations was acted upon - the Mining Tax, which was supposed to generate bucket loads of revenue. Only the big miners were invited to the conference ( the minors were ignored ). BHP and CRA then proceeded to roll the then ALP government and next to no tax was collected.

Christopher Sharp

February 17, 2019

When it was first announced by Wayne Swan as the Resources Super Profit Tax it was at a 40% rate on profits after allowance for a "normal capital return" at the Long Term Government Bond Rate which at the time was 6%- its now about 3%.

How the Labor Govt could say that was a "Super Profit" I think only they could explain.

The Henry review recommended a Resources Rent Tax and gave different ways of implementing same- it was the politicians that decided the final form it was to take.

Frank

February 14, 2019

Can a technician lead cultural change? Culture is driven by people who are passionate and actively share, engage and inspire people that a particular culture is the right way forward. Culture has cultural champions, who can relate from those earning $4m to those earning $40k. Is Henry the man who can lead that change?


 

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