Rebecca Macfie, Listener writer and author of two previous articles on Allan Hubbard – A South Canterbury Tale and Counting the Cost has another article on the Bank of Allan in the new issue of The Listener, not on line as yet.
This article entitled – A law unto himself – has the lead in:-
Allan Hubbard thought only he could save South Canterbury Finance, but insiders had been challenging him for years. Rebecca Macfie looks at what was really going on.
Interestingly as the Hubbard saga has progressed the tone of Macfie’s articles has become more questioning of the Hubbard myth.
Macfie’s article leads me to think that Hubbard ran SCF very much as a personal fiefdom. These comments in the article certainly seem to suggest so:-
extract #1 Rebecca Macfie - NZ Listener 18 - 24 Sept 2010
This relates to 2004 after the departure of his partner Mr Rolleston. Now why would the controlling shareholder and key director come in and open all the mail? It defies logic, especially given that SCF was not a small operation by then.
Then Ms Macfie reveals later in the article:-
extract #2 - Rebecca Macfie - NZ Listener 18-24 September 2010
So as late as the end of 2009 Hubbard was controlling loans and accounting for them in a ledger he kept personally. This seems to somewhat contradict an impression put about by Mr Hubbard’s supporters that all the problems were down to someone else. Though at this time we do not know whether the Hubbard ‘hard ledger’ was where all the ‘good loans’ were.
Hardly sound governance I would suggest, nor normal business practice. The term ‘hard ledger’ suggest to me that it was hand written. Furthermore, questions arise in my mind as to how it was integrated into the enterprise’s overall books of account and whether best practice internal control was exercised. I wonder what the auditors made of this practice?
Then Ms Macfie turns her attention to the question of Aorangi Securities, on which the statutory managers have had quite a lot to say. So has Mr Hubbard who refutes their statements. Yet, Ms Macfie writes:-
extract #3 - Rebecca Macfie - NZ Listener 18-24 September 2010
This seems to be in conflict with much that has been said by Hubbard in more recent times.
The article repays reading.
To me, and in my opinion based on reading the article and other prior ones, plus other media comment, it reveals a pattern of:-
1. Lax or lacking governance
2. Poor internal control in certain areas
3 Dominance of process by one person, which is normally seen as a control weakness and business risk
4 Business processes inadequate for the scale of operation undertaken
5 Management weakness, as it could be inferred that to an extent lending operations were the province of indvidual fiefdoms, especially given Mr Maier’s comment on Lending Officer control.
The points above leading to a personal view that business risk was being incurred which was capable of being reduced and or avoided.
These thoughts are to my mind borne out by the comprehensive revision of past financial statements by Ernst & Young after their appointment – plus the fact that they queried whether SCF was a ‘going concern‘. It would be fascinating to know what was contained in any post audit letter on suggestions for improvement.
It would be fascinating as well to know what KordaMentha had been reporting to Treasury in respect of the way in which SCF had conducted business.
I tend to wonder about the role of the board of directors in all this. Just what reports and information were they receiving? After all as Cadbury stated in 1992 (Sir Adrian Cadbury’s seminal report on corporate governance in the UK):-
Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board’s actions are subject to laws, regulations and the shareholders in general meeting.
It has been axiomatic for some time, I believe, that this means ensuring that there is an appropriate level of information for the supervisory role to be effectively performed. In addition that management must have put in place the processes which are appropriate to enable informed decision making to take place. Such processes would not, I suggest, include the chairman opening the mail and keeping a hand written loan book, which it would appear he kept very much under his close personal control.
In my view, there is much to suggest that Corporate Governance as defined by Cadbury was not as rigourous as it should have been.
I suspect that there is much more to emerge as to how SCF conducted business and how decisions were made.