Ann Sherry's address to ERBEI Forum, September 2001

Ann Sherry

GROUP EXECUTIVE, PEOPLE AND PERFORMANCE WESTPAC BANKING CORPORATION AND CEO, BANK OF MELBOURNE

Speech Delivered to Edmund Rice Business Ethics Initiative Forum, September 2001

Introduction

Trust. We demonstrate it every time we pocket the grocery change -- without counting it. When we relax on the sand because the surf-life savers are there to watch out for our kids. When we provide our credit card details to the local Chinese restaurant over the phone. Every day of our lives we trust others - and every day we, in turn, honour someone else's trust. That's how we create a pool of social capital.

Trust is not an optional extra in a successful society, it's a vital ingredient. The social theorist Francis Fukuyama has forcefully argued that liberal political and economic institutions rely upon a healthy and dynamic civil society for their vitality. "Democratic political institutions no less than businesses" he declared, "depend on trust for effective operation…."

As a nation, Australia enjoys a high degree of trust. We see it in times of disaster when communities pull together to fight fires and floods. We saw it at a time of joy, as tens of thousands of Australians volunteered to mount the Sydney Olympic Games. In London late last year, one management consultancy was heard to describe Australia as the headquarters of social capital in the world. Perhaps we don't fully appreciate how rich we are in this precious resource.

And banking, my focus this evening, is all about trust. If you go around the corner to Martin Place you'll see those grand Victorian bank buildings in prime commercial locations. Those palaces were designed to engender institutional trust - to let customers know that their funds, like those buildings, would be safe and solid forever. Today, the message is conveyed through the careful management of brands, but a core goal of all banking communications remains the same - to let customers know their money is safe. And one of the strengths of our national economy is the confidence that Australians can, and do, place in their banking system.

So what's changed? Why are we here talking about trust with a question mark? And worse, why are we talking about solutions to a perceived erosion of trust?

What's changed? The new pluralism

We live today in a pluralist society. Power in Australia is far less centralised than even thirty years ago. It is dispersed through governments, businesses and non-government groups. This process of diversification can be attributed to unstoppable forces of change like globalisation and information technologies. It has also been propelled by active policy decisions such as privatisation and deregulation. Our nation's increased pluralism has led to tremendous benefits - a more efficient economy, a more free-wheeling and open society, an Australia which is flexible, creative and innovative. These are good things.

But there has been a cost. A society that is less paternalistic and more individualistic can be a stressful place. It means we focus more on individual good and less on the common good. And there's more change and uncertainty. Jobs are for now, not for life. People are expected to take charge of their own personal financial destinies. For each one of us there's a lot more risk - and risk, as we know, can easily undermine trust.

Eminent business thinker Peter Drucker has succinctly summed up the challenge for those of us in leadership roles in this pluralist age. He says: "All earlier pluralist societies destroyed themselves because no one took care of the common good. If our modern pluralist society is to escape the same fate, the leaders of all institutions will have to learn to be leaders beyond the walls…it is not enough for them to lead their own institutions, though that is the first requirement. They will also have to learn to become leaders in the community. In fact, they have to learn to create community. "

Those of us in the banking industry are, right now, at the front line of this debate on trust. Whether we like it or not, whether it's justified or not, we confront a moment of truth. How we respond is important - and we need to ask ourselves whether we have the courage to step forward and embrace a new style of leadership for a new era.

Peter Drucker's message is salutary. His is no nostalgic call for the past, or rant against the future. It's a call for a new kind of leadership suited to this pluralist age - leadership which creates, restores and sustains trust.

I readily acknowledge that there are arguments against corporations taking up a broader community role. Some will argue that governments must take full responsibility for the common good, ensuring equity by using tax payers dollars or regulatory mechanisms. Others will emphasise that the sole proper function of corporations is to focus on creating value for shareholders -- that expenditure to nurture trust is economically irrational and therefore a breach of faith with investors.

But one thing we can all agree upon is that, in this pluralist era, power has transferred to customers. At a time of choice and diversity, customers - and through customers the community -- have the ultimate say. And what they are saying to us in business is simple - they expect more. They want us to redefine our roles - to develop leadership that does go beyond the company walls. It could be argued, I think, that our customers and the community understood the implications of the new pluralist paradigm faster and more clearly than our political and business leaders.

A few years back, when Westpac held a series of town hall meetings to discuss branch closures, typically 80% of the people who attended were not Westpac customers. And yet those same people took a powerful interest in Westpac's actions and believed they had every right to do so. At that point, it was clear that Westpac's walls no longer separated us from the wider community. The old demarcation lines had disappeared. It was time for leadership beyond the walls.

As I said at the outset, if any industry should know about trust - it's banking. We don't have a choice - we can't trade off trust to gain efficiency. We stand or fall on the long-term trust relationship that exists between ourselves and our customers, and our employees are the key mediators and messengers of that trust. Those 19th century bankers invested in extravagant buildings to demonstrate trustworthiness to their customers, even though, strictly speaking, cheaper buildings would have made better economic sense. Today our customers expect us to demonstrate trustworthiness in other ways. That's how we can prove ourselves to our staff, our customers and to the wider community. And that's ultimately how we can earn the customer loyalty which will create long term value for our shareholders.

Staff

Trust starts inside a company. With nearly 25,000 staff in Australia, Westpac is not only pervasive in Australian life, we are a microcosm of Australia itself. Creating trust does not mean returning to the past. It doesn't mean that jobs will never disappear or change. That old paternalistic model is gone. But it does mean scrupulous honesty and clarity about the changing arrangements for employment. At Westpac we offer our people employment, but more importantly, we offer them long-term employability. We try to help people flourish in their individual careers while delivering service and business outcomes for the company as a whole. It's a new contract, offering development and opportunity in place of rigidity and permanence.

Customers

The long term trust relationship with our customers is critical to our business. That's the only way we can hope to provide a range of services across customer lifetimes. Yet people feel particularly vulnerable and sensitive when it comes to their finances. If a customer loses faith in any one aspect of our operations, then their trust in the total relationship is diminished.

That's why we have to do better at the most basic level of services. I readily admit we have a way to go, but we are taking important steps.

A key goal we have is greater transparency. If we are straight with our customers, then they can trust us to deliver what we promise. To borrow a phrase from American politics: sunlight is the best disinfectant.

Here's an example. Westpac has launched a customer charter to tell our customers and the community what they can expect us to deliver. We have committed ourselves to providing simple, practical and ethical banking solutions to all customers. And we expect our customers to hold us to our promise.

Here's another example. Currently, customers pay more to use ATMs of other banks. We have proposed that the industry should reduce these fees, with savings to customers of up to 20% on existing charges. In the meantime we are posting clear signs on our ATMs to let people know the true cost of the transaction.

We are also trying to restore the circle of trust with our vulnerable customers. We have announced that there will no more branch closures and have added 183 in-store banking services and thousands of ATMs and Eftpos terminals. In rural areas these are backed up by telephone services. We also have mobile personal business and agribusiness managers. And in areas where customers don't have access to our lower cost ATM transactions we price branch transactions at the lower ATM rate. We provide fee-free banking to pensioners, the disabled, students, young people and people on social welfare to ensure they don't get left behind.

We do these things because they enhance trust, which is good for our business and good for the overall society in which we do business.

Community involvement

Now let me turn to the challenge of leadership beyond the company walls. Not so long ago, corporate philanthropy was a top-down process. Senior executives made decisions. Cheques were made out and handed over. The relationships between donors and recipients were cordial but remote. And staff were informed but not involved.

At Westpac, we are rapidly moving to a new model of corporate philanthropy - one that better serves the company, our staff, the community organisations we support and, indeed, the broader community. From the old model of top-down donations, we are moving to people-lead community partnerships. It's an approach based on commitment, engagement and encouragement.

Matching Gifts is a program by which the bank matches donations to the charitable organisations of a staff member's choice, dollar for dollar. The guidelines are simple. The selected charity must have qualified for tax deductible status. It cannot be either a political organisation or a environmental group. The Bank will match all individual payroll deductions, individual one-off donations and team-based internal fundraising.

In the nine months to March 2001, a total of $900,000 was passed to 260 charities -- $450,000 of that total represented Westpac staff contributions, and the other $450,000 was the Bank's matching contribution. Between December 1998 and March 2001, a total of $2.5 million was distributed to charities selected by Westpac staff.

Staff Volunteering builds upon a strong tradition in Australia. Many Westpac staff have quietly devoted time to their communities over many years. With this program, the Bank actively encourages people in their volunteering efforts and recognises them for their achievements. Now some 11,000 Westpac staff are actively involved as volunteers in their communities. All staff are entitled to one paid day off per year for volunteer work. The Bank is also flexible about working arrangements to accommodate volunteering commitments.

Operation Backyard encourages staff to apply for funding support for local environmental projects in which they are participating as volunteers. Project proposals must demonstrate that the project can deliver a genuine environmental benefit. It must be designed in consultation with a local environmental group, such as Landcare. The Bank provides up to 50% of the maximum cost of the materials required for the project, to ensure that the project is demonstrably supported by other community groups or individuals. Between 1998 and 2000, Operation Backyard supported 130 projects, to a value of $600,000, with over 80% going to projects in rural and regional areas.

We took a similar approach with our Olympic Games sponsorship. Extensive internal consultations gave staff the opportunity to participate in the planning processes and get involved in all activities. When Westpac became a major financial supporter of Olympic Landcare, Westpac staff identified 26 target sites around Australia, and staff and their families joined in tree-planting events at the designated locations. When Westpac undertook to help members of the Sydney 2000 Paralympic Team manage their work/life/training balance, staff accepted donations and sold pins through the branch network. A total of 500 staff were chosen to be Olympic volunteers, as a reward based on their track record of voluntarism. And a total of 12,000 staff actually attended the Olympics - they were selected by work colleagues in recognition of their contribution to the company's values of integrity, teamwork and performance. Wherever possible, we brought our staff deep into the processes and encouraged them to participate.

As we go forward we aim to continue the transformation away from top-down corporate philanthropy and towards building deep partnerships between the Bank and our people, and the community organisations and communities that we support. Our market research supports this move. It reveals that consumers are 2.5 times more likely to favour a company that contributes time and expertise to address community issues, rather than just donating money.

And there are very strong organisational benefits flowing from a strong corporate commitment to the community. Like many companies, Westpac is engaged in vigorous competition for talented people. Great people make their employment decisions based on a range of factors -- one factor is a desire to work for a reputable company alongside other motivated and talented people. An organisation which encourages and supports such people in their work endeavours and their community life is more likely to be an attractive employer. In addition, our community activities are demonstrably raising morale across the Bank.

Regulation v Responsibility

Before I conclude I want to address the question of regulation. At Westpac we think that there is a real risk of re- regulation. We accept that this is a possibility.

But we also think the major parties will be loathe to go down this path. In practical terms, it will be very hard to regulate effectively in such a diverse marketplace. But more profoundly, aggressive regulation will be a confirmation that the community and the government don't find banks to be trustworthy. Once we head down that path it will be very hard for banks to rebuild that confidence and trust. For instance, it is hard to imagine how banks would be able to demonstrate that regulations should be pulled back. Re-regulation will only heighten the erosion of trust, leading us towards more bickering and confrontation. While the purpose of regulation would be to increase the pool of social capital in Australia, it may, paradoxically, only contribute to the long term dilution of trust.

At Westpac we think that it's up to us in the financial services industry to show leadership. We need to demonstrate to the community and the government that aggressive re-regulation isn't necessary.

But at this stage it's not clear whether this will be possible. Debates and discussions like the one we are having tonight may help point the way for us all.

Conclusion

Let me conclude. In his book Trust Francis Fukuyama makes a compelling argument. He says, "Rational utility maximization is not enough to give a full or satisfying account of why successful economies prosper.….just as liberal democracy works best as a political system when its individualism is moderated by public spirit, so too is capitalism facilitated when its individualism is balanced by a readiness to associate."

Westpac is Australia's oldest company. We are intimately enmeshed in Australian national life. As one of the nation's top ten companies, we are bound up in this nation's economic prosperity today and into the future. We rise or fall with the Australian economy, with the health and vitality of our society. For us, trust is central to the process. In a pluralist age it's time for a new kind of leadership, one in which leaders from all areas take greater responsibility for the creation and sustenance of trust.

At Westpac we know we have a long way to go. But we accept the challenge. And we firmly believe that in doing so we will benefit our staff, our customers and our shareholders - and the whole Australian community of which we are proudly a part.