Case studies
Case: Westpac

In 1817, when Governor Lachlan Macquarie established the Bank of New South Wales (later renamed Westpac), there was no currency in Australia. Believing that the new nation required a monetary system, Governor Macquarie founded the country’s first company and first bank. Over time the bank became known for its commitment to regional Australia and its strong focus on customer service.

In the late 1980s and early 1990s, the industry was undergoing deregulation and Westpac, dazzled by opportunities to cut costs and boost stock value, made some missteps.  For example, the Australian government had historically mandated welfare monies automatically be deposited into the recipient’s bank account. However, with the advent of transaction fees for all customers, welfare recipients had to pay to access their welfare benefits.  Management didn’t consider this aspect, being focused instead on the surging stock value.

David Morgan, then Westpac’s president[i], recalled that, “People had lost sight of our underpinnings. We weren’t unique: partly from deregulation, partly technology and partly globalization, we were an organization struggling with new freedoms and misunderstood the responsibilities that went with it. Hubris and a few other things took over.”  In the mid-1990s, management got a wake-up call as the customers and even some investors were making their views known.

The customer feedback was reflected in the staff jumping the counter and identifying with the customer.   The branch staff wear uniforms. The staff was so fed up with being abused on public transport, that quite a few of them began wearing their civilian clothes to and from work, only changing into their uniform once in the branch.

In 1996, when the CEO announced record profits, investors shocked the board when they didn’t respond with acclaim. In fact, the community was in open outrage about the behavior of banks overall, and Westpac as one of them.  Banks were closing unprofitable branches with the assumption that technology advances could substitute for a brick and mortar location in the affected communities. The bank was not being socially responsible and there was a clear lack of trust with the community.  Record earnings were not reflected in Westpac’s stock performance.

By highlighting the gap between community perception and the bank’s underpinnings, the senior management team was able to persuade the board to rethink the bank’s course and take decisive action. For example, Westpac put a moratorium on any further removal of face-to-face banking services.  In areas where conventional branches were “unprofitable,” Westpac got rid of multi-story free-standing branches, and partnered with local retailers.   Where branches had already been closed, they were reinstated in retail buildings with extended hours.  The solution reduced costs by about 17 percent.

In addition, the bank developed a set of principles that included a commitment to build financial literacy throughout the community to help citizens develop “more effective money management skills,” and, hence a better quality of life. Complementing the bank’s financial literacy programs is its drive to ensure transparency in pricing and marketing, including fees and charges.  (Morgan noted that had banks in the U.S. been more committed to financial literacy and absolute transparency perhaps the current sub-prime crisis could have been avoided.)Westpac also has systematic triggers in place that prompt it to contact its borrowers in financially stressed situations before it is too late to avoid default by offering “payment holidays” and other options to relieve temporary problematic conditions. 

Westpac’s community investments and focused investments in its staff have turned around employee perception of the bank as well. Management learned that if your own staff is not advocating for the company, it will be in trouble. Westpac’s investments in its people indicate the bank’s understanding that the advent of educated knowledge workers has shifted the initiative from the employer to the employee.   Today’s educated workers rightly resist being managed; they need to be largely self-managing.  Shared values, transparency in communications, and mutual respect are requirements for effective self-management, and Westpac’s principles support all three. Today, Westpac is considered one of the most desirable employers in Australia.

In 2005, Westpac expanded its CSR focus to include environmental investments.  Concerned about climate change, the bank asked six companies, in industries ranging from insurance to packaging to energy, to investigate the need for a carbon-trading consortium.    They concluded — in direct opposition to government policy — that a carbon trading system is imperative, and noted the economic and environmental impact by major industry sector.  Although several customers expressed outrage and threatened to take their business elsewhere, Westpac’s effort was effective. The Australian Federal Government is now committed to a national carbon trading emission scheme to be implemented by 2010.

CSR is now firmly embedded in Westpac’s DNA. Westpac is careful to track and monitor its performance against its mission and values. According to its own measurements, it took 5 years to return the bank to favor in the court of public opinion. In the current market turmoil, Westpac is 'weathering' fairly well.

[i] David Morgan became CEO in 1999 and retired in 2008.

Posted on 4/20/2008