The value of culture in guiding a business through COVID

In the early to mid 1990s, I could see that Australia had the potential to become one of the world's largest retirement savings and financial services markets with the introduction of the Super Guarantee legislation in 1992 and the acquisition of wealth management businesses by the major banks. I actively pursued a career in financial services and was fortunate to secure a Group Manager, Marketing role at Perpetual Trustees at the time just prior to the launch of Perpetual Funds Management. This was followed by my appointment to the role of General Manager for MLC's Business and Trustee Superannuation Division and to the role of Chief Manager for Managed Funds at CBA.

After spending 5 years at CBA, I accepted a senior leadership role at ANZ which encompassed developing the wealth strategy for the bank in addition to managing financial services reform; a number of major transformation initiatives; sales and marketing across the banking network and numerous major streams of work across the ING joint venture.

Venture capital investing involves funding scalable start-up enterprises which have been built using inherently disruptive innovative technology and business models to dramatically change industries or create new ones. This may involve having a longer liquidity horizon and taking a greater degree of uncertainty than investing in mutual funds and traditional growth assets such as global and domestic shares, property and infrastructure. Venture capital investment decisions are based more on an analytical assessment of trends and less about past performance. For investors in venture capital assets to accept a higher risk, there needs to be an expectation that they will receive "outlier" returns, which would ideally be 10 times valuation prior to an "exit event" which in most cases will be a trade sale or IPO. There are many instances where highly successful globally scaled enterprises have demonstrated the potential to deliver 50-100 times in valuation since their inception.

Typically, successful start-up companies have identified a universal problem worth potentially billions or trillions of dollars and which has not been solved by traditional competitors. Examples of well-known "unicorns" are Ant Financial, Uber, Airbnb and most recently from the Australian marketplace, Afterpay, Canva and Airwallex.

Venture capital funds are not easily bought or sold in a liquid way and valuations of the assets are undertaken not on a daily basis but following each successive round of investment. In terms of a venture capital company making a decision to invest in a start-up enterprise, "Bottom Up" valuation tends to be more relevant as is an assessment of the composition and complementary nature of the skills of the founders and their leadership teams. The earlier the stage of the investment, the greater the emphasis is placed on the quality of the founder and their team. Some venture capital funds also take a more active stance in relation to their investments by playing a "hands-on" role in management, operations and their representation on advisory boards, more akin to the approach taken in private equity investment.

There have been a number of structural changes which have occurred across the financial services industry and which commenced prior to COVID-19. These included banks divesting their wealth businesses or "Wexit" as it has so fondly become known; consolidation/mergers across superannuation funds, Mutual banks and credit unions and the divestment of life companies by banks and other Australian life companies. From my observation, COVID-19 has served to accelerate a number of changes which were already underway in terms of the digitisation of banking and investment platforms which also led to the acquisition of digital platforms by NAB and Bendigo Bank. Major investments have been made into technology solutions and BNPL platforms by CBA with Westpac also forming alliances with Afterpay and Humm.

In my view, start-up companies invested in by institutional non-institutionally owned venture capital funds, will be the new product development "power houses", allowing financial services providers to access "best of breed" solutions in payments, platforms, analytics, new asset classes and software both from within Australia's burgeoning start-up ecosystem as well as from global players. The acceleration of digitised trading platforms and a demand for alternative asset classes has resulted in the emergence of more than 4,000 cryptocurrencies and 504 cryptocurrency exchanges with 259 being tracked on CoinMarketCap.

The Big Four banks have continued to perform strongly during the pandemic and emerged with strong capital positions which has resulted in an announcement that they will be undertaking $15 billion in share buybacks over the next year. The development of and acquisition of digitised platforms by the banks to both acquire customers and provide them with personalised services has been accelerated by the pandemic. While it has been challenging for neobanks to gain scale given the significant market share held by the major Australian banks, the introduction of open banking last year, could see renewed competition from a range of new players. These could include health funds, telcos, technology companies and BNPL platforms all wishing to provide financial services solutions and "product adjacencies" for their existing client bases.

From early in 2020 at the start of the COVID-19 pandemic, we have experienced extreme volatility and the accumulation of massive Global Government debt levels, GDP growth spikes and retractions and the incidence of "lock downs", both across Australian states and overseas. At the same time the technology sector has become the most productive and wealth creating sector in the world with technology company stocks such as Amazon, Apple, Google, Facebook and Tesla growing their respective valuations to all-time highs while other industries such as travel and hospitality have suffered and contracted significantly.

Across the US, venture capital investment has seen a surge in non-dilutive financing options amid the pandemic as many start-ups have avoided raising equity in a challenging market. While macro uncertainty has remained high, the larger venture capital companies in the US have had "dry powder" to continue to invest in technology-based and healthcare start-ups and have attracted investment from non-traditional investors as well as institutions given historically low interest rates and growth being at a premium. In the near term, venture capital funds have increased their investment in companies facilitating the rise of remote work, the proliferation of cloud computing and the demise of brick-and-mortar retail.

At the outset of the pandemic Australia has experienced similar trends to those impacting venture capital investing in the US. Non-dilutive financing options have gained in popularity with many start-up enterprises and venture capital firms in Australia have similarly had access to "dry powder" to continue to invest in technology-based ventures. Venture capital firms have worked closely with their startup companies through the pandemic to ensure they had adequate cashflow "runways"; that they were focused on profit rather than generating revenue at any cost; and that the start-up enterprises were able to adapt swiftly to changing market conditions. During the ongoing volatility and uncertainty caused by the pandemic, there continues to be a trend to "top up" investments in existing portfolio companies. This is largely due to perceptions of certainty being linked to the continued growth in currently funded digital platform-centred business models which have reinvented traditional business models.

The greatest lesson I took away from my time at Elders and Elders Financial Planning has been adeptly summarised in a quote from Steve Jobs, the co-founder of Apple who was one of the most visionary and entrepreneurial leaders of our time. One of his quotes for being a successful leader has always resonated with me, "You can't connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future".

The first strategy I developed and submitted to the Elders Board for approval involved divestment of Elders Wealth Management's non-scalable assets and a very sizeable investment in a large scale listed wealth management organisation. The global financial crisis intervened during the due diligence process and the Board came back to me requesting a totally revised strategy which did not involve a significant capital investment. I looked at the dots I had connected looking back and based on my experience, I used this methodology to develop a number of alternative proposals for the business with the recommended option being a joint venture with a scale financial services provider.

I have always had the greatest success as a leader when I trusted in my judgment and intuition after analysing all the data and research regarding a major decision. The global financial crisis forced me to embrace change and do something different, trusting that the dots would connect in the future.

I have experienced a number of highlights throughout my career at American Express and then at MLC, CBA and ANZ in growing substantial businesses with large teams, sizeable M&A and operating budgets and existing governance structures. After working in venture capital, it occurred to me that one of the major highlights of my career also included the establishment of the joint venture, Elders Financial Planning, which was very much like one of today's start-up enterprises. I had two primary investors, a new joint venture Board governing the business, an outstanding leadership team and a highly skilled and productive team of financial advisers. The quality of my teams and the investment made by shareholders allowed me to scale the business based on the Elders brand and distribution footprint combined with ANZ's breadth of dealer services and organisational infrastructure.

I have had the honour to work with a number of outstanding leaders throughout my career. While it's hard to mention them all, three immediately come to mind. I had the great fortune to meet Elizabeth Proust, AO, Chairman of Cuscal and Non-Executive Director of Lend Lease when I moved to Melbourne to take up a senior leadership role with ANZ. As Managing Director of ANZ's finance arm, Esanda, Elizabeth's business was a key customer for a number of the transformation initiatives I led and during this time, Elizabeth not only assisted me with my transition from another state, but also became someone I regarded as a mentor and role model for women aspiring for careers as senior executives and as Board Directors. I also recall Elizabeth stressing the need to network - that doing a great job in itself is not enough to win your next role. Elizabeth always impressed me by her authentic leadership style and the fact that she knew all members of her team and something special about each of them.

Another financial and professional services leader, who has had a major influence on my career is Peter Wilson, AM FCPA FAICD. I met Peter in his role as the Chairman of the newly constituted Board for CPA Australia in 2017, as one of the nine newly appointed Directors. Under Peter's leadership, the Board and management commenced the exercise of re-shaping CPA by re-engaging and listening to our members and putting them at the centre of everything the organisation does. That included developing and implementing a new global strategy; addressing the findings from an Independent Inquiry; and upgrading CPA's governance systems and practices and re-investing in members so that they remain highly relevant as finance and business professionals in a rapidly changing global economy. Peter has been a great Mentor to me in my first Non-Executive Director role and I have admired his conviction in recommending that the Board make a number of tough decisions in order to restore CPA members' trust and faith in the organisation and to attract new cohorts of members to the CPA brand.

The third leader I would like to mention who demonstrated remarkable strength and fortitude during and post the global financial crisis is Malcolm Jackman, former Chief Executive Officer of Elders and Non-Executive Director to a portfolio of companies. Malcolm assumed the role as Chief Executive of Elders in 2008, following the initial impact of the GFC and showed great leadership as he embarked on an "agenda for change". This involved the task of paying down more than $1.2 billion of debt on the balance sheet, restructuring the Elders conglomerate to a rural business, divesting Elders' equity stake in Rural Bank and establishing joint ventures in general insurance and wealth management with QBE and ANZ respectively. In my capacity as Chief Executive Officer of Elders Financial Planning, the joint venture between Elders and ANZ, I was invited to attend key Elders management meetings and treated by Malcolm as one of the Elders leadership team members. I always recall Malcolm, in his capacity as CEO of Elders, offering to attend key forums with prospective licensee groups to reinforce Elders' commitment to growing the business after I had embarked on a program to rapidly increase our number of financial advisers.

I have known Bob McKinnon since I reported to him as my Chief Executive Officer at MLC in my first General Management role leading MLC's Business and Trustee Superannuation business. We subsequently worked together when Bob was Chief Executive Officer of State Street Australia and when he joined CBA as its Chief Information Officer. In recent times, we have worked in disruptive technology and innovation in the start-up ecosystem. Currently Bob runs a boutique tech consultancy (Mirin Digital) and is a Non-Executive Director on a number of boards, including Sydney Metro, AMP Capital Funds Management and the New Payments Platform Australia.

Bob has given me two really great pieces of advice over the years. One piece of advice is along the lines of the Winston Churchill quote 'I never worry about action, but only inaction' i.e. not making a decision is in fact a decision not to act. We shouldn't be afraid to make a decision based on the best information available and if that decision proves to be wrong based on new information (and many will be), then you should just make another decision. This certainly rings true in the cultures of many start-up ventures and technology companies where making a mistake is not seen as a weakness but as a source of new learning.

The other piece of advice Bob has given me is that all leaders have supporters and detractors and to not spend time worrying about detractors. In many instances, hard decisions need to be taken that won't please all constituencies all the time and the main thing is to effectively engage with and communicate to all parties who will be impacted as part of the process.

I haven't had a great deal of work/life balance over the past 18 months or so like many of my friends and colleagues however I have re-started virtual pilates training with my friend and former pilates instructor who is based in Adelaide. Post-COVID lockdown I am hoping to get back into gym training and skiing as I am an avid snow skier and while I was lucky to have been able to ski last year at Perisher in Australia, this year's lockdown has precluded any snow trips.

Regardless of the leadership role I have undertaken, culture is one of the critical issues for me whether the organisation is a Board, a corporate institution, a start-up enterprise or a Venture Capital/Private Equity group. Integrity, ethics, respect for the team and a strong inclusive culture is important for me in any organisation as is the desire for the Board and leadership team to take opportunities to scale the organisation and act "entrepreneurially" to create new products and markets. I certainly wouldn't have gained the additional skills and experience working in what I call the "New World Order" characterised by the new disruptive technologies, had I remained in an institutional leadership role over the past 6 years. I believe this experience and the learnings gained through working with global partners, technology companies, investors and rapidly scaling start-up enterprises has added greater depth and value to me as a financial services leader.

Increasingly, c-suite leaders in financial services organisations will need to be agile, resourceful and have the ability to be highly responsive to changing market conditions and customer expectations which will often mean needing to pivot in terms of product design, pricing and speed to market.