Luncheon with Michael Ullmer - Deputy CEO, NAB discussing the Role of CSR in driving Long Term Shareholder Value

Today I had the pleasure of attending the Australian German Association luncheon where Michael Ullmer was key speaker.

You may recall an interview I did with Michael on responsible leadership last year as shown here

Michael discussed with our intimate group of senior executives about how Corporate Social Responsibility (CSR) has a long term impact in driving shareholder value.

Michael has had a highly qualified career and somewhat tongue cheek, explained that in the way he was introduced it appears he has made a career of almost making it to the top job - which includes his time at Comm Bank and now at NAB, which many of you will be aware he is leaving the position of Deputy CEO in August this year.

In previous personal discussions with Michael he revealed that he enjoys positions like his Deputy CEO role as it gives him breadth of leadership and influence across all levels of the organisation - where he can have major impact in areas he believe are important and enjoys.

Michael began by explaining that many organisations view CSR as a necessary evil they need to include as part of their corporate governance. Alternatively, it may be driven by a particular passion of the CEO.

Non executive directors of NAB however are totally aligned with the strategic importance of CSR. They see CSR as not only having major impact on an organisation's reputation, but also a very important element in ensuring their people are engaged, as thus more productive and deliver better customer service.

Over the last 4-5 years NAB have put a lot of thought into aligning its community engagement with the Group strategy. A key input was asking their staff what motivates them at work every day?  This led to a formulation of the organisational purpose, which lies at the core of their strategy.

Overwhelmingly NAB's people were focussed on 3 areas: 
1.        Doing the right thing 
2.        Helping others reach their potential 
3.        Making a difference in the communities in which they live and work.

If you look back to the 50's and 60's banks did this. But over time this hypothesis was destroyed as branches were closed and operations centralised.

Now it is time for a 'Back to the Future' policy to restore reputation - because if an organisation's reputation is bad 
1.        New employees don't want to join 
2.        Regulators are more intrusive 
3.        Long term customer relationships come under threat.

During the GFC reputations were destroyed. Many companies reputations are still reeling.

Back in July 2007 the banks realised that liquidity was drying up in the global markets as it became more difficult to raise term funding. NAB realised they needed to focus on two key things:
1.        Keeping the bank safe (by significantly building up liquidity buffers and extending the term of wholesale borrowings) - all major banks did this 
2.        Providing funds to front line bankers so as to support their customers through the difficult times that lay ahead (NAB grew lending over 10 billion in the GFC with this strategy, while the other banks in Australia reduced their lending by over $50 billion in aggregate)

So the focus is on:

1) Helping People realise their potential

This stemmed from supporting SME's through to corporates during the GFC in providing funds for projects that were analysed as being a 'good risk'.

2) Doing the Right Thing

Banks are policy rich - nearly everything is covered by a policy.

But at times the best way to approach a problem is to ask the question 'are we doing the right thing'.

NAB were the first to eliminate exception fees on transaction accounts.

Customer service staff at the coal face with customers were constantly finding anger and resentment with customers for these fees that were typically $30 and with some banks up to $50. These fees were often out of the customers control and if they kicked up a big enough stink, were often reduced - which suggested the bank didn't even believe in them - a moral hazard.

Industry practice is for credit card interest on cash advances to be charged at a higher rate than credit purchases and when repayments were made, these typically went first against credit purchases rather than cash advance payments - making the client pay more interest. NAB have reversed this policy.

These changes took more than $100 million off NAB's revenue. Staff expected new fees would be introduced to replace the revenue. When this didn't happen - they were surprised and delighted, lifting their engagement.

NAB executives were also surprised that their key bank competitors didn't follow suit - instead reducing rather than removing fees.

But the overall impact has been to grow the business and boost shareholder value - 40% reduction in calls to their call centres - enabling reduction in contractor wages and more time available for outbound sales calls.

The key result of these changes focussed on 'doing what is right' has been a net increase in new transaction accounts - over 145,000 in the last 6 months - a significant increase in the previous run rate.

To complement the program NAB decided they were not getting the story out enough so they started their Break Up media campaign on Valentines day this year - HUGELY successful with very powerful social media and word of mouth - #1 You Tube downloads in Australia.  The out come has been a massive lift in customer business - 40% increase in mortgage enquiry and 50% increase in credit card applications.

NAB now have set the premise of 'Doing the Right Thing'. With significant results this is planned as a sustainable change in their business strategy.

3) Make a Difference in the Community

a) Micro financing

Total Executive have reported several times previously on how micro-financing has made massive changes and benefits in global areas in need of support. Many of our members see this area as a key area requiring support by responsible leaders as exposed through our responsible leadership survey results.

NAB unearthed the need for micro financing in Australia.

This can for example help a single mother with a broken down fridge to find a replacement with low or no interest.

Through partnering with The Good Shepherd who are a not for profit receiving government support, NAB are finding ways to make micro financing commercially sustainable and plan 12,000 loans in 2011 with 1,000 loans for small business. They have made a commitment to $130 million of funds to be available for this activity.

b) Indigineous inclusion

Finance is being made to remote communities in the Northern Territory through the 'Traditional Credit Union'. NAB are supporting the TCU to lift their capability to broaden their reach into other communities.

c) Education (Ties in with reaching potential)

The NAB schools first program provides $5 million a year as an awards program.

Awards of $50,000 to $500,000 are paid to schools to help them connect with their community.

Winners are also assigned an NAB bank representative to help them get the most of their $$.

In the first year 20% of all schools in Australia applied for an award.

Over 1,400 staff are providing their time to mentor their schools on running an effective community program.

So, the nett result of redirection and focus on the 3 key areas explained above has been seen in their people. Staff with NAB for less than 12 months say a major factor for choosing NAB was these core areas.

Over 80% of staff with NAB for over 12 months say they have been a key factor in staying with NAB. Given replacing each staff member costs on average across industries over $50,000 - this is very important.

More important - more engaged staff provide better customer service.

Customer service survey's have also been highly positive.

Michael is grounded enough to recognize they still have a long way to go and 1 mistake can set you back.

The key is to have these policies embedded in a sustainable way - for the long term.

During question time Michael went on to further explain NAB are committed to providing 1% of pre-tax profit to community (excluding sponsorships like the AFL). This amounts to $60 million currently and over the last 2 years they have met this benchmark.

They have also been working with industry to encurage this approach to banking with their competitors. They see it as very important with these discussions and discussions with media to - tell the truth - or suffer the consequences.

Social responsibility is about transparency that needs to be lead from the top. It includes everything from environment to profit. NAB have found that by being more environmentally conscious and going carbon neutral since September 2010 they have also saved a lot of money.

Most importantly, CSR is about lots of little things, that accumulate and grow into a transformation of culture that engages people.

If you liked this interview, you are also likely to enjoy other reports we have done with AGA presenters, including...

A Luncheon with Graeme J Kraehe - Chairman Bluescope Steel and Brambles

A Luncheon with Dr Bob Every - Chairman of Wesfarmers and Boral

A Luncheon with Bill Evans - Chief Economist for Westpac

A Luncheon with Professor Roy Green - Dean - Business UTS

A Luncheon with Graham Bradley - President, Business Council of Australia

Future AGA luncheons include:

9Jun: Graeme Samuel, Chairman ACCC

28Jun: AGA Annual Dinner Arthur Sinodinos (key note) & Anthony Ackroyd (MC)

To receive your Total Executive benefits when registering for future events, mention Total Executive when you contact:

Mathias Kopp

Director, Advisor & Investor

Mob:        +61 417 692 858       

Office:      +61 2 9016 4057      

Fax:         +61 2 9475 4348

Another Directors Report by Grant Crossley