2001 Annual Review - Macquarie Bank

2001 Review

Review of business operations
Highlights
Chairman's & MD's Report
Structure
Community
Group Reports
Division Reports
Corporate Governance Statement
Image Library
Concise Report
Directors' Report
Board of Directors
Profit & Loss
Balance Sheet
Cash Flows
Discussion & Analysis
Notes
Directors' Declaration
Independent Audit Report
Investor Information
5 Year Summary
What We Stand For

Corporate Governance Statement

The Board of Voting Directors (the Board) is responsible for Macquarie Bank Limited. The primary role of the Board is to ensure the long-term health and prosperity of the Company, which it accomplishes by:

–

setting objectives, goals and strategic direction for management, with a view to maximising shareholder value

–

adopting an annual budget and monitoring financial performance

–

ensuring adequate internal controls exist and are appropriately monitored for compliance

–

ensuring significant business risks are identified and appropriately managed

–

selecting, appointing and reviewing the performance of the Managing Director

–

selecting and appointing new Voting Directors

–

setting the highest business standards and code for ethical behaviour.

The monthly Board papers make Directors aware of current and forthcoming issues relevant to the Bank’s operations and performance. These contain the monthly and year-to-date performance of all Divisions compared with budget, a prudential report from the Risk Management Division and papers relating to particular issues. Senior management are often invited to present and discuss these issues with the Board. The Board may seek further information on any issue, including requesting that a particular Division or Group Head present to it on performance, strategy or outlook for that Division or Group.

An annual Board strategy meeting is held in conjunction with senior management at which the strategic direction for the Bank in the short-to-medium term is discussed.

Board composition

Director	Board Membership		Committee Membership
			Nominating	Audit and Compliance	Compen- sation

D.S. Clarke	Executive	Chairman	Chairman	Member*	Chairman
A.E. Moss	Executive	Managing Director
M.R.G. Johnson	Executive	Deputy Chairman
B.N. Kelman**	Non-Executive		Member		Member
J.G. Allpass	Non-Executive			Chairman	Member
L.G. Cox	Non-Executive
B.R. Martin	Non-Executive		Member	Member*
H.K. McCann	Non-Executive			Member
H.M. Nugent**	Non-Executive

*Barrie Martin replaced David Clarke as a member of the Audit and Compliance Committee in May 2001.
**Helen Nugent will replace Bryan Kelman on the Nominating and Compensation Committees on Bryan’s retirement from the Board in July 2001.

At the date of this statement, the Board comprises three Executive Voting Directors and six Non-Executive Voting Directors. The members of the Board and their committee membership is outlined in the table opposite. Brief resumes of the Voting Directors are contained in the Directors’ Report.

The Bank, while a public listed company, has many characteristics of a large diversified professional services firm including an unusually high dependence on the performance of its staff and a ‘partnership’ view of the firm by its employees. The Board has fostered this professional services view of the Bank to the great benefit of the Bank’s performance and shareholder returns. This, and the complexity of the Bank’s operations, have been the prime reasons why the Bank, in common with many global investment banks, believes it to be in shareholders’ interests to have an Executive Chairman, an Executive Chairman of the Board Compensation Committee and representation by Executive Directors as Voting Directors on the Board.

The Bank currently also has a number of Non-Voting Executive Directors. Pursuant to the Bank’s Constitution, they have no right to attend or vote at any Board meeting. However, they do have the power to exercise management powers delegated by the Board including to sign and countersign the Bank’s common seal.

The Bank’s Constitution provides that:

–

the maximum number of Voting Directors shall be fifteen

–

one third of the Voting Directors (excluding the Managing Director and rounded down) must retire from office at the annual general meeting each year; such retiring Directors are eligible for re-election

–

Voting Directors appointed to fill casual vacancies must submit to election at the next general meeting

–

the number of Voting Directors necessary to constitute a quorum is:

not less than one third of the Voting Directors currently in office, and

the number of Non-Executive Voting Directors present at a meeting must be greater than the number of Executive Voting Directors present.

Terms and conditions of appointment and retirement of Non-Executive Directors

The terms and conditions of the appointment and retirement of any new Non-Executive Voting Directors are set out in a letter of appointment, which prescribes:

–

remuneration

–

term of appointment, subject to shareholder approval

–

expectation of the Board in relation to attending and preparing for all Board meetings

–

procedures for dealing with conflicts of interest

–

availability of independent professional advice.

The Bank’s Constitution provides that a Director may enter into an arrangement with the Bank or with any controlled entity. Directors or their firms may act in a professional capacity for the Bank or its controlled entities. However, these arrangements are subject to the restrictions and disclosures in the Corporations Law applicable to public companies and common law directors’ duties.

It is the practice of the Voting Directors that when a potential conflict of interest may arise, the Voting Director concerned does not receive a copy of the relevant Board paper and withdraws from the Board Meeting while such matter is being considered.

The Board has a policy of enabling Voting Directors to seek independent professional advice for company-related matters at the Bank’s expense, subject to the estimated costs being approved by the Chairman in advance as being reasonable.

As described in the Directors’ Report, the Bank’s Constitution provides an indemnity to past and present Voting Directors. As with other insurable risks, the Bank has insured itself against payments under this indemnity to the extent considered prudent. Individual directors and officers of the Group are insured by and pay the premium on a Directors & Officers Liability policy which is coordinated by the Bank. Voting Directors are parties to the Deed of Access, Indemnity and Insurance approved by shareholders in 1998 and have the benefit of the Indemnity and Insurance Deed Poll approved by shareholders in 1999, as described in the Directors’ Report which follows.

In order to encourage long-term commitment and more closely align the interests of the Board with shareholders, the Board introduced a minimum shareholding requirement for its Non-Executive Voting Directors (NEDs). All NEDs are required to compile and maintain a shareholding in the Bank approximately equal in value to a NED’s annual base remuneration. This minimum holding may be accumulated over three years and may be contributed to via participation in the Non-Executive Director Share Acquisition Plan. Under this plan, NEDs may contribute a portion of their remuneration from the Macquarie Bank Group to acquire Macquarie Bank Limited shares at prevailing market prices.

Shareholders also approved last year the Non-Executive Director Share Option Plan whereby each year, provided the Bank had met a predetermined performance benchmark, the Bank will issue a small number of options over unissued shares to each Non-Executive Director.

Board committees

Three Board committees have been established to assist in the execution of the Board’s responsibilities, as described below. The Bank also delegates substantial management responsibilities to the Executive Committee as described on page 8.

In May 2001 Barrie Martin replaced David Clarke as a member of the Audit and Compliance Committee. Helen Nugent will replace Bryan Kelman on the Compensation and Nominating Committees on Bryan’s retirement from the Board in July 2001.

The Nominating Committee periodically reviews the composition of the Board and ensures that the Voting Directors bring a mix of qualifications, skills and experience to the Board. When a vacancy exists or whenever it is considered that the Board would benefit from the services of a new Voting Director, the Committee selects one or more candidates with the appropriate expertise and experience. The Committee may use the services of a professional recruitment firm. Candidates are then submitted to the Board.

Audit and Compliance Committee meetings are held periodically throughout the year and attended where appropriate by the Managing Director, the Chief Financial Officer, the Head of Risk Management Division, representatives of the Bank’s external auditors and, as required, other Bank executives and external advisers. The Head of Operational Risk Review acts as secretary to the Committee and attends its meetings. All Board members are free to attend any meeting of this Committee.

The main objectives of the Committee are to assist the Board in:

–

assessing the appropriateness of accounting policies, practices and disclosures and whether the quality of financial reporting is adequate

–

reviewing the scope and results of internal, external and compliance reviews and audits

–

maintaining open lines of communication between the Board and Operational Risk Review, the external auditors and the Group’s compliance officers

–

assessing the adequacy of the Group’s internal controls based on information provided or obtained

–

making informed decisions regarding compliance policies, practices and disclosures

–

reviewing any matters of significance affecting the financial welfare of the Group.

To fulfil these responsibilities the Committee meets with and receives regular reports from Operational Risk Review, the external auditors and Risk Management Division, dealing with matters which arise in connection with their reviews, audits or other work performed. The Audit and Compliance Committee is also responsible for the review and nomination of external auditors.

The Bank’s external auditor, PricewaterhouseCoopers, has provided various non-audit services to the Group for which it has had to compete on an arms-length basis against other external firms.

The Compensation Committee reviews compensation arrangements for all Voting and Non-Voting Directors and also reviews and approves recommendations by the Bank’s management for annual staff remuneration. The review includes allocations made to Directors and executive staff under the profit-share and option schemes. The Committee obtains the advice of external consultants on the appropriateness of remuneration packages and other employment conditions when required. It meets annually and as the need arises. Committee recommendations are submitted to the Board for approval.

The Bank’s remuneration policy for Directors and senior management is discussed later in the Directors’ Report, but it should be noted here that these policies are designed to encourage long-term commitment to the Bank by senior executives. The Bank maintains sufficient depth of management to ensure adequate candidates for succession when senior management depart. The Bank has a preference for filling vacancies from within.

Identifying significant business risks

There are many risks in the markets in which the Bank operates. A range of factors, some of which are beyond the Bank’s control, can influence performance. In many of its businesses the Bank constantly and deliberately assumes financial risk in a calculated and controlled manner. It is the Group’s policy that any proposed new transaction, market, dealing operation or business is fully analysed in order to understand the risks involved. The Bank has in place limits and an extensive range of procedures to monitor the risk in its financial activities, and these are periodically reviewed by the Board.

The Bank’s Risk Management Division is responsible for the review and analysis of prudential and risk issues across the Group. This Division, and the Bank’s approach to risk management, are described earlier in this Report and also in the Bank’s 2001 Financial Statements booklet.

Ethical standards

Macquarie Bank Directors and staff are required to maintain the highest ethical standards of conduct. The Group’s code of ethics, Macquarie Bank – What We Stand For, covers the Bank’s dealings with external parties and how the Bank operates internally, and enshrines the high standards that the Bank requires. It is continually reviewed and fully endorsed by the Board. What We Stand For is distributed to all staff and its standards communicated and reinforced at Bankwide induction programmes, presentations to workgroups and annual staff meetings.

In order to strengthen the Bank’s commitment to high ethical standards, it has appointed an Integrity Officer, who:

–

provides education, advice and counselling to management and staff regarding integrity issues

–

ensures that claims of integrity breaches are dealt with impartially, promptly and confidentially

–

sees that staff who bring forward complaints of this nature are not victimised.

Commitment to shareholders and an informed market

The Board firmly believes that shareholders and the investment market generally should be informed of all major business events that influence the company. In 1994 the Board instituted a Continuous Disclosure Policy, which in March 2001 was widened into a Policy on Disclosure of Bank Matters (Disclosure Policy).

The policy outlines a formal procedure for dealing with potentially price-sensitive information and involves referrals to a Continuous Disclosure Committee. The Committee comprises the Chairman of the Bank, the Deputy Managing Director, the relevant Group Head and the Company Secretary. The Committee is responsible for ensuring the Bank meets its disclosure obligations under Australian Stock Exchange (ASX) Listing Rule 3.1.

The Bank produces two sets of financial information annually: the Interim Report for the six months to 30 September and the Concise Report and accompanying Financial Statements for the year to 31 March. These are prepared pursuant to the Corporations Law and provide shareholders with an overview of the Bank’s performance and operations twice a year.

Shareholders are invited to attend the Bank’s Annual General Meeting (AGM), usually held towards the end of July. Shareholders are provided with notes on all the resolutions proposed through the Notice of AGM each year. Unless specifically stated in the Notice of AGM, all holders of fully paid ordinary shares are eligible to vote on all resolutions. In the event that shareholders cannot attend the AGM they are able to lodge a proxy in accordance with the Corporations Law. Holders of Macquarie Income Securities and the Bank’s Converting Preference Shares have limited voting rights as set out in their terms of issue.

The Disclosure Policy also states that the Bank will publicly issue market-sensitive information including annual and interim profit announcements, financial reports and analysts’ presentations as soon as available to ASX.

Investors can obtain up-to-date information on the Bank’s various activities from its website (www.macquarie.com.au/investorrelations). The site contains recent announcements, presentations and reports, including all relevant ASX notices which are posted as soon after lodgement with ASX as possible.

This Corporate Governance Statement reflects the practices in the Bank during the year. Unless otherwise indicated, they operated for the Bank’s entire financial year.

Disclaimer