National Australia Bank the Foreign

¶ … National Australia Bank

The foreign exchange options trading disaster in 2003, along with other effects in the period from 2001 to 2003, were a clear indication that the internal structure, organizational culture and approach at the National Australia Bank (nab) affected its external performances. The unauthorized trading that caused large losses was only part of a larger picture which created not only a financial and economic prejudice, but also an important negative impact on the bank's public image.

The best start in the identification of the bank's issues and challenges at the end of that period (2003- early 2004) is the PricewaterhouseCoopers report that emphasized some of the problems that the bank faced in the sectors mentioned in the previous paragraph. There are perhaps three large categories that can jointly describe the list of issues and challenges that PwC found: risk management, internal control and feedback and communication.

From the first perspective, the PwC audit reported a failure of risk management systems, which were either not in place or not functioning properly. At the same time, this was corroborated with the internal control mechanisms: for example, traders had protected their bonus payments by not communicating important aspects of their activity, but there was no control and feedback mechanism to identify this as a problem and correct it.

All was exacerbated by the lack of communication between the different internal structures. The best example in this sense was the lack of proper communication between the body actually in charge of verifying the validity of different operations, the audit committee, as well as the risk management group, and the body in charge with making decisions, the board or the management team. The fact that the former did properly analyze the mechanisms and instruments that the traders were applying was useless given the fact that this group could only identify and not correct the problems.

As an initial conclusion of the identification phase, at times, the bodies necessary to supervise the trading activity did not exist. At other moments, these bodies existed, but they were not performing the assigned tasks properly. Overall, communication between all these different bodies did not exist, which made it useless that they occasionally did function properly and identified the errors that were being done, because these were not communicated to those who could actually make a decision as to what had to be done.

Other than these issues directly connected with the irregularities that were committed within the trading unit, there were several other significant structural problems at nab. One of these was the closed corporate culture, which did not encourage internal or external transparency. The other was the excessive bureaucracy that was present in the bank.

In terms of the first issue, the closed corporate culture could also be considered a fragmented corporate culture, one where separate departments functioned independent of one another and of the overall activity of the bank. A lack of transparency also meant that the bank did not properly communicate with its clients and customers, leaving an impression of being arrogant and, ultimately, unaccountable. The direct translation on the market for this was a decrease in the bank's market share.

At the same time, the enormous bureaucracy within the bank meant that some of the processes were very much slowed down. The fact that getting a laptop for the top manager of the bank would take three months showed that because of the bureaucracy, some of the functions within the organization, such as the logistics function, did not function properly.

As a direct consequence of the causes listed here, the turnaround strategy was necessary not only because the bank had punctual problems that could be solved individually, but also because the bank had structural problems that could only be tackled through an overarching approach, one that could encompass significant changes in the company's organizational culture.

The turnaround could only start with the restructuring of the management team. Among the different communication problems identified, one with most impact on the overall situation at the bank was the lack of communication between the managerial team and the board and, quite often, between the managerial team and the structures in its subordination (such as the auditing and risk management departments).

The new leadership had no problem to work the restructuring of the management team by simply headhunting capable people, with experience in troubleshooting, from other financial institutions. Such a complete change of the management team needed to be performed carefully, because entire personnel changes could very well have an impact on the morale of the entire bank. The challenge of the new management also became to glue together the new team.

Along with the organizational restructuring also came a need to tackle the bureaucracy that had hampered so many of the internal processes at nba, included communication between units. There were several ways to do this. First, necessary restructuring of personnel was performed not only to decrease the volume of fixed costs, but also to ensure that the organizational structure became leaner and more adaptable to changes on the market.

Restructuring included not only the personnel, but also some of the bank's assets. As such, it was important to sell off NAB's National Irish Bank so that the bank could be more focused on integrating and creating one business and retaining those assets that strictly fitted the new strategic perspective for the development of the bank's activity over the next period of time. The bank's strategy included several other sell offs, but also a prospective acquisition on the Australian market (a mortgage institution), one that would allow the bank to further diversify its activity.