Ann: Results of Meeting, page-3

Macquarie should do better than a tokenistic rap of the knuckles

There was ample opportunity for chairman Glenn Stevens to dish out some real executive accountability. He didn’t. Will 2026 be different?
When Macquarie found itself in hot water with the corporate regulator in 2011, initially, those at the top of the company found no evidence of wrongdoing. But the corporate regulator kept pressing its case and eventually then-chief executive Nicholas Moore decided to conduct a covert fact-finding operation. What was really going on in private wealth?Moore sent a team of people to Macquarie’s head office over a weekend to scour paperwork and adviser files, determined to get answers. After that deep dive, Moore made it clear to the board that the private wealth unit was riddled with compliance and governance issues.Investors sent Macquarie chairman Glenn Stevens and CEO Shemara Wikramanayake a strong signal this week - with a first-ever strike against the group’s pay report. Nick FarncombBy 2013, Macquarie was hit with an embarrassing enforceable undertaking by the Australian Securities and Investments Commission, relating to accusations of the misclassification of clients, sloppy paperwork and rampant cheating by advisers on professional development exams.Moore then left no stone unturned in an attempt to clean up the mess and clear out executives, managers and problem advisers in order to to hold those who oversaw the issues accountable. The Kevin McCann-led board called for heads on sticks, and they were delivered relatively swiftly.
Eric Schimpf, who hadn’t been at Macquarie long as global head of private wealth, was shown the door, and within a few months, his boss, head of banking and financial services Peter Maher, had also departed. Maher’s share of Macquarie’s annual profits, a key part of the group’s executive pay structure, was halved.
Macquarie’s issues require real action
The bank now finds itself arguably in a worse position, being sued by ASIC, subject to additional licence conditions and also in trouble with the Australian Prudential Regulation Authority over lax compliance.Macquarie chairman Glenn Stevens and Moore’s successor, Shemara Wikramanayake, should now unleash a similar set of tough calls on executives and their pay to those undertaken by Moore and McCann. Accountability is required for the reputational hits the company has endured over the past 18 months.Investors certainly sent Macquarie a strong signal this week – with a first-ever strike against the group’s pay report – that tokenistic raps across the knuckles will not suffice when it comes to holding executives accountable for regulatory failings.Stevens’ argument about the timing of ASIC’s latest regulatory action falling after Macquarie’s March 31 year-end does not pass muster either.While ASIC’s three latest actions were lobbed in April and in May – which sandwiched the group’s 2025 annual results – what about the April 2024 fine issued to Macquarie by the corporate regulator?In September that year, Macquarie’s investment management unit also agreed to pay the US Securities and Exchange Commission $US79.8 million ($121 million) to settle charges for overvaluing thousands of largely illiquid collateralised mortgage obligations. Two months later, the company was fined by Britain’s Financial Conduct Authority over failings that allowed an employee to record more than 400 fictitious trades.Given those issues alone, there was ample evidence for Stevens and the board to have taken a brutal approach to Macquarie’s 2025 pay outcomes.Stevens on Thursday told investors that a number of staff lost their jobs as a result of the SEC fine, and outlined that Macquarie was still withholding profit share for some executives related to APRA’s 2021 action.“Now [chairman Glenn] Stevens and the board have a chance to take decisive rather than tokenistic action.”But the consequences dished out to members of Macquarie’s executive committee in 2025, including Wikramanayake and head of the bank, Stuart Green, were paltry and underwhelming.Pay consequences are a lever for boards to ensure those in positions of power are across the inner workings of their business units. At Macquarie, where the executive pay packets are huge and typically multiples of those paid at other large domestic banks, this is even more important.If Stevens was serious about accountability, he could have issued an addendum to the already printed 2025 annual report covering deeper pay consequences, or made it more apparent at the annual results that material remuneration cuts would follow in the 2026 year.ANZ similarly felt investor fury at its annual meeting in December, with shareholders delivering a strike over insufficient accountability related to a string of regulatory issues. Then-chief executive Shayne Elliott had already lost half his cash bonus because of a bond trading and workplace conduct scandal, but investors wanted the bank to go much further.Elliott ended up surrendering a $3.2 million longer-term bonus package, including performance rights, in an attempt to soothe concerns.Macquarie CEO Shemara Wikramanayake. The bank’s risk, compliance and market conduct are under scrutiny by regulatory authorities in Australia, Britain and the US. David RoweBut it was Commonwealth Bank chairwoman Catherine Livingstone who set the standard and took drastic measures in 2017, when she completely axed the short-term bonuses of the bank’s group executives and cut non-executive director fees by 20 per cent. That was after the bank was taken to task by the financial crimes regulator over more than 50,000 breaches of anti-money laundering laws, culminating in a $700 million penalty.Asked whether Macquarie’s board should consider similarly severe pay consequences, Stevens was defiant on Thursday: “What CBA did, what Catherine did at the time, is a matter for them. I don’t think Macquarie is in that position at all, to put it quite bluntly. We do consider the consequences very carefully.”Stevens also defended his actions, saying he “wasn’t asleep at the wheel”, even though there was some admission of the reputational and governance damage on his watch. Now Stevens and the board have a chance to take decisive rather than tokenistic action.The risk management ethos at Macquarie is a key tenet of the group’s DNA, and surely that should be sacred and of the highest priority for Macquarie’s board to protect from slippage.
Proxy and governance firm Ownership Matters, which, alongside CGI Glass Lewis, advised investors to vote against Macquarie’s remuneration report this week, noted in its report that the company had delivered pay consequences to individuals below the executive committee.
“In making these adjustments, the board had wanted to balance accountability for regulatory shortcomings with retention and incentive considerations,” the report said.Retention should not, in this columnist’s view, factor into deliberations about accountability, but Macquarie has a point in treading cautiously to not create a chilling effect on employees, bringing forward compliance issues.
Heads in the sand
On Thursday, Stevens told investors he had spent an hour with the relevant people involved in rectifying Macquarie’s short-sale reporting issue, which he said had been remediated.To recap, in May ASIC lodged proceedings in the NSW Supreme Court alleging Macquarie misreported millions of short sales to the market operator for more than 14 years. ASIC’s press release at the time cited alleged “systemic misleading conduct” by the company.Macquarie had, to be fair, self-reported the issue, but it was clear a series of fixes attempted by the group had not ironed out the problems.“To the best of our knowledge, those problems have been dealt with,” Stevens said on Thursday. “This [compliance] journey never really ends.”He said the board was “trying to balance that accountability with also the need for procedural fairness”.On the issue of a $500 million capital impost forced on Macquarie by the prudential regulator in 2021, Stevens told investors four of seven workstreams had been completed. The board received regular reporting on this work, aimed at ensuring Macquarie doesn’t repeat the multiple breaches of prudential and reporting standards which resulted in the capital overlay.Interestingly, when addressing the shareholder meeting on Thursday, Macquarie director Jillian Broadbent said determinations within the group’s pay framework would continue to be reviewed. She also chairs the remuneration committee, so her thoughts on the matter are pertinent.Macquarie made some modifications to its remuneration structure in 2022 and the major change for key executives was to shorten the vesting period of granted shares at the firm by two years. The amounts retained under Macquarie’s profit share structure were also trimmed.That was partly because of a competitive hiring landscape. Macquarie’s most radical overhaul of its pay structure occurred in 2009, shifting more towards longer-term share-based incentives over cash bonuses.As the company navigated an investor backlash in the years preceding that change, then-chairman David Clarke warned such a change would dent Macquarie’s profitability. Stripping out the global financial crisis, that obviously didn’t occur.Along with the laser-like focus on Macquarie’s governance and compliance issues and the potential for even higher costs related to them, overall returns are also being closely scrutinised by investors this year.Quizzed about Macquarie’s return-on-equity on Thursday, Stevens said the group was “very actively” assessing the path back to higher returns.Macquarie’s return-on-equity in the year ended March 31 was 11.2 per cent, notably lower than the average annual return-on-equity over 19 years at Macquarie at 14 per cent.Analysts expect Macquarie will post a 2026 profit of $4.1 billion, up from $3.7 billion this year.There was clearly a negative reaction to Macquarie’s softer quarterly trading update this week, prompting Wikramanayake to stress to investors that Macquarie was sticking to its annual guidance.That means there’s a lot to do from here to make up for lost ground. That needs to occur while Macquarie traverses investor fury about its pay outcomes and mends relations with regulators.