In 2020, Financial Services was one of two losing sectors in the S&P500 shedding 9% market cap (sector median) vs. 2019 according to Bain.  Only Energy and Natural Resources fared worse with a 12% loss; however, in the ASX Financials sector, Banks lead an unanticipated recovery in 2021 with the Big 4, Macquarie and Regional Banks consistently surprising analysts during recent results presentations.

Over the last 12 months, the Big 4, Macquarie, Bendigo and BOQ outperformed the ASX200 by up to 36% with most building momentum in Q1’21.  Moving from strength to strength, CBA’s market cap has stabilised at 154B AUD with BHP a distant second at 138B AUD and the nearest sector rival Westpac at 91B AUD.

Outperformance is not limited to the larger banks with Auswide Bank (273M AUD) outperforming the Financials sector and the ASX200.  In the depths of the pandemic, Judo Bank raised 230M AUD in equity despite the risks COVID-19 presented to business banking, and Judo’s performance since appears to vindicate investor confidence with a post-money valuation of an estimated 1.6B AUD (+60%) in the seven months from May through December 2020.

The Big 4 have made some interesting organisational moves in the last 18 months.  Executive hires into Westpac include Chief Executives in Consumer, Business and Institutional Banks along with the CFO all of whom appear to be new to Westpac.  Though not quite as sweeping, CBA replaced the departing Group Executive Business and Private Bank in February 2020 with a candidate who had no CBA or Australian banking experience.  BOQ replaced vacancies in its CEO, BOQ Business and Chief Customer Officer roles in the last 18 months with external candidates, and Suncorp placed external candidates into the CEO Banking and Wealth and CIO roles mid-year.  In 2018, ANZ and CBA created a Deputy CEO role which includes a remit to engage with regulators.

The Big 4, BOQ and Suncorp selected external candidates for their COO/CIO or equivalent roles over the last three years.  While many C-suite roles were internal promotions, it’s also true that some of the most critical were external hires (examples above extend to Q3’19).  One might argue that these changes represent the considered introduction of diversity into these organisations if proper time and energy were invested to ensure the best fit possible.  Assuming most of these positions were reactive searches triggered by an unexpected departure, it is unlikely adequate time to identify the best available candidate was available in some instances.

One might argue that these changes and the need to source talent outside Australia were unique events in the case of CBA, NAB and Westpac assuming the proximate causes of these executive movements were either regulator reports or the Royal Commission’s findings.  The COVID-19 pandemic is indeed without precedent in the last century save Spanish Influenza; however, we can safely assume the future will bring new crises.

Absent significant systemic changes, it is likely future needs will continue to require access to a pool of diverse executive talent from adjacent sectors and outside Australia.  Over the last few years, the Big 4, Bendigo, BOQ and Suncorp sourced C-suite executives from outside the company and increasingly from adjacent sectors and outside Australia.  Auswide and Bank Australia have also sourced C-suite executives from adjacent sectors.

Investment Banks also performed well registering a record 2020 with momentum into 2021.  According to Refinitiv, Australia ECM raised 35.4B USD through 1,035 issues in 2020 compared to 23.6B USD in 2019.  Some of this volume was secondary issue in Q2’20 to bolster capital positions as the pandemic worsened; however, the market experienced significant increases in M&A and IPOs in 2H’20, and recent conversations with executives in Private Equity, Venture Capital and Investment Banks all point to continued growth to support a “very robust pipeline”.

In 2020, ASX Financials experienced almost 200 movements of Board and C-suite executives.  In non-ASX listed Investment Banks, Jarden and Barrenjoey pre-empted the bonus season in Q4’20 raiding established global Investment Banks as they rapidly established themselves in the market.  Both continue to accelerate hires in Q1’21.

I will restate for emphasis, the only premise we can assert with almost absolute confidence is that crises will continue to occur.  History teaches us that resilient organisations will meet these crises and emerge stronger and better positioned while those who lack the requisite resilience will likely weaken – sometimes fatally.  As a mentor once advised, “You cannot change what has happened.  Focus on what you can change.  How will you respond?”

What makes for a resilient organisation?  Optimising opportunities in a crisis requires nimble organisations lead by visionaries with a bias to action.  These visionary leaders are almost always Strategists as defined by Rooke and Torbert in their classic HBR article “Seven Transformations of Leadership”.  Successful Strategists in turn require diverse teams to outperform, but if these teams are not exceptionally well lead, they almost inevitably fail and do so dramatically.  In Good to Great, Collins referred to Strategists as Level 5 Leaders.

High performing, diverse individuals are necessary and provide the cornerstone to success.  Executive leaders capable of moulding talented and diverse individuals into cohesive, effective teams are sufficient.  One must satisfy both necessary and sufficient requirements to create an environment conducive to sustained excellence.

Quoting Collins, “leaders of companies that go from good to great start not with “where” but with “who.” They start by getting the right people on the bus, the wrong people off the bus, and the right people in the right seats. And they stick with that discipline—first the people, then the direction—no matter how dire the circumstances.”

Blenheim Partners occupies a lead position promoting diversity in the Executive as an essential characteristic of the most effective and successful teams.  We believe diversity is a multivariate attribute that includes gender, ethnicity, experience, history, language and other factors.

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