ANZ bank chief urges Australia to use its intellectual capital.
This article is from the December 2013 issue of INTHEBLACK.
The most highly remunerated bank chief executive in Australia is the grandson of a coalminer.
But to his university‑educated parents of the 1950s, there was no question that a young Mike Smith would be chairman of a bank one day.
When he travelled from London to the Far East more than 30 years ago to work for HSBC, it launched a successful banking career that now sees him leading one of Australia’s big four banks, ANZ.
Smith is one of the most influential, outspoken and successful bankers in the Asian economic bloc.
In late October, ANZ reported record full-year cash earnings of A$6.5 billion, sweetened by a 13 per cent increase in the dividend.
Smith has led the charge into the geopolitically and economically crucial Asian financial sector, using his vast knowledge gleaned during 29 years at HSBC.
He is a pioneer and, serendipitously in today’s environment, a natural at forging business relationships in a region that demands you either jump on board or get left behind.
In a conversation with former CPA Australia chief executive Alex Malley, Smith made plain his argument for making Australia more competitive, described how technology must be harnessed for good and said how frustrated he is by the poor representation of women in corporate boardrooms and executive roles.
: If I had spoken to Mr and Mrs Smith many years ago about their son, would they have told me he would become a banker? Was there an ambitious drive in your youth that told your family you had plans?
: They expected me to go into business. I started off by going into the navy, which didn’t last very long. The idea of time served, lack of meritocracy, didn’t really sit too well with me. My first posting overseas was Hong Kong – that would have been in 1979 – and my mother said to me later she always expected me to become chairman of that bank, so I obviously had that ambition early in the piece.
My mother was a pretty ambitious person, still is, actually. She has a degree and went into teaching, but gave it up when she had kids. I think she’s resented that in life, quite rightly. She’s had a very nice life, but I think she really does feel she never recognised her potential.
Both of my grandmothers were very strong women. It was all there, they had an incredible view of the world and the opportunities.
: Tell me about your drive to build your Asian business, and about the nuances of living and working in the region, derived from 30-odd years’ experience.
: There’s been an obvious economic move from West to East. Asia was always going to be a region of enormous economic strength, it always had been in history. If you think about the amount of the world’s population that live in this region and you think about the evolution of these economies and the quality of life, growth of the middle classes and how that has all moved and changed, then you have to say that as an economic bloc, Asia is a fascinating and interesting place. The question is not, “should you be in Asia?”. The question to ask is, “can you afford not to be?”.
For me it was the cultural curiosity. Curiosity is a fundamental attribute for anyone. People who aren’t watching what’s going on are never going to get as far as people who have got that curiosity. Asia’s cultures are just so different, wonderful and diverse and rich. It’s the history of the value system, the philosophy, theology as well, which are just so different. I am fascinated with the fact that in one land mass you’ve got places like Korea and Thailand that couldn’t be more different.
: What was Asia like when you first worked there, not just from an economic perspective but in the way people dealt with issues?
: I arrived after they had gone through the post-World War II readjustment and all that entailed. You have to remember Asia was severely affected by the war, almost to the same extent as Europe. There was this sort of awakening of the region, which was still pretty raw. A lot of the institutions were not well bedded-in. There was still a lot of learning going on.
Some of the political systems were incredibly fragile. Economies were often very dependent and there was too much concentration around agriculture or particular industries.
I got there in the late 1970s when the first pains, the first problems, were evolving. But the region was beginning to emerge as an interesting area in which to modernise. Hong Kong was establishing itself as an international financial centre, I think Hong Kong really got it. When I arrived I thought, “this is where it’s all going to happen, this is where I belong”. It was a fascinating time.
: Like CPA Australia, you have raised in public forums significant concerns about Australia’s competitiveness in the future. What do we need to do from both a business and governmental perspective to get the focus right on maintaining our competitiveness?
Smith: We absolutely don’t have a God-given right to success. We have to make it happen. We have to understand that we are in a globally competitive world, we are in a global market, like it or not. The argument is over: we are there and we have to play in that market. Therefore, we have to do everything we can to remain as globally competitive as we should be.
There are fundamental issues we have to understand. One is that capital goes where it’s most welcome. It’s like water, it goes to the place of least resistance. It trickles down to the place where you don’t have regulation and bureaucracy and hurdles.
Second, productivity has to improve and with technology today, the way it moves, it’s impossible to say that we’re as productive as we can be. Impossible. That just defeats the laws of physics. The third thing, and this really is for the government to sort out, is that we have to redesign our tax system. It’s Byzantine. I’ve never come across a more complex tax system anywhere and that in itself is highly inefficient.
Somebody asked me the other day, why aren’t there any large multinational Australian companies? Why, of the five largest companies in the country, are four banks? The banks are a protected species, you can’t buy a bank as a foreigner. So why has Australian business basically been hollowed out?
Well, it is much easier for an international company to buy an Australian company because of things like the franking credit, than for an Australian company to buy an overseas company because you then dilute the franking. No investor wants that to happen. Through the tax system we have actually hollowed out Australian ownership. Why would you do that?
And my next point is, we have to work out whether we want to be an international player or whether we want to be consumed by other international players.
: Let’s consider the balance between running your business today and having a long-term view. We are concerned that because of the nature of leadership in politics these days, which is weaker than we can ever remember, that fundamentally the chances of building a long-term future are under pressure. Somewhere in the mix, our view is that leaders from all sectors need to debate these issues publicly. Do you see a long-term strategy in place? Is Australia positioned well for the next 10 to 20 years?
: Australia manages itself by muddling through. What Australia needs is a vision for what it wants to look like in 2050. We can then work backwards in terms of what does the financial system have to look like to actually support that vision. Which industries should be encouraged and which should we be getting rid of: we need to be appropriate for the 21st century, not the 20th.
It’s a need for business to work with government and the education sector. That’s the other big problem – we keep turning out lawyers and accountants and bankers. Trying to find electrical engineers, IT development, scientists … the R&D or the medical people, they all go offshore.
We should be looking at how to create value from our intellectual capital in this country. We don’t do that well. If you look at Silicon Valley, that was created by a working partnership between government, business and education. It’s a brilliant model. You can’t tell me that can’t be done here. I actually blame business a lot for this, because we tend to complain rather than do.
Within the bank we’ve tried to provide material suggestions rather than just being openly critical. We’ve been doing that for the past three to four years. Some of them, like the Asian White Paper, have hit fertile ground. That White Paper was incredibly well-meaning and covered a lot of ground. It actually got the debate in public and it raised the issues. The Asian Century is not debated any more. Everybody knows that that’s happening.
: I guess it’s up to us as to whether it’s the Australasian Century or it’s just the Asian Century we’re going to watch on television.
: Absolutely right. My feeling there is we’ve probably gone a little bit backwards the past few months. There’s been a paranoia about China, which is really driven by the US media and is being picked up here.
It is uninformed, it’s alarmist, it’s quite worrying. China does not have the problems people seem to think they have. For Australia, if China grows at 7 per cent a year that’s like adding the whole of the New South Wales economy or Switzerland’s economy.
China’s urbanisation has reached about 52 per cent. They want to get to 75 per cent by 2025. So much more needs building, they need steel for the cars, washing machines. This is going to continue. Is that good for Australia? Of course it is.
: In 10 years, what will Mike Smith be doing?
: I feel I’ve got much more to give. I’d like to do some form of public service, it would be a waste not to use my experience, so something for the government. I’d love to make a difference to something like the World Bank or IFC [International Finance Corporation].
I think they’ve lost their way completely in what they’re trying to do. I would like to give something back, do something more for society. And my kids are in their 20s and they are all still on the payroll in some form or another. I will be pleased when all that stops.
This article is from the December 2013 issue of INTHEBLACK.