Commonwealth Bank CEO David Murray has long been one of the crankiest business leaders in Australia and his hard-nosed approach has really annoyed staff, as Barry Teller explains.

Obviously no one on the Commonwealth Bank Board has stopped to ask themselves how the ANZ and St George Bank can continue to do well (even including acquisitions) while not terrorising staff to the point where they show up at the annual meeting and insult directors and show a touch too much spirit.

David Murray and his management team are obviously trying their hardest to subdue them with this “Which new Bank?” restructuring and job losses in the retail division, but it’s not working.

Here’s The Weekend Australian’s take on the protest vote aspect of the CBA meeting.

Not only did the Finance Sector Union manage to get a nasty resolution onto the notice paper for Friday’s meeting, some of these employees turned up and cast open proxies against David Murray’s latest enrichment scheme from the board, the granting to him of 250,000 free shares.

That resolution was defeated, but not without some sniping from the floor from the many small shareholders who just couldn’t wear it.

But did it occur to anyone on the board that those impressive results Gail Kelly has driven at St George involved treating staff decently and without the ‘take it or leave’ hardline approach of Murray and chairman John Ralph, an IR hard-liner who hails from Rio Tinto.

For example, this year St George freed up more than 100 front line staff through process change and other moves in the branches. Rather than retrenching them and cost cutting, which has been Murray’s preferred option, St George switched them into selling more of St George’s other products to customers.

It’s a bit of a no-brainer option at St George, but one that has so far not been acceptable at the CBA. And shareholders and others wonder about the poisoned relationship between the bank and its retail staff?

So news of an upturn in earnings will make shareholders less restive and directors will drift off again, with former Pioneer International and Esso Australia CEO John Schubert there as the new chairman.

With the prospect of those $7 million worth of new shares now in sight, it’s not surprising there was an outbreak of optimism from Dave and his departing chairman, John Ralph. Earnings up 10% until 2006, and the strong suggestion, dropped like a very large stone, that Mr Murray might go early. Then again he might not, but it was the first time at a CBA annual meeting that Murray’s departure had been openly canvassed and some suggestion as to its possible timing, given by the chairman.

And here’s a story from AAP about Murray’s “might go, won’t go, won’t say” effort from Saturday’s Sydney Morning Herald.

That means Murray has the chance to earn another $10 million or so in salary and bonuses, plus cash in more than $10 million shares and options in readiness for his departure, if he’s to depart by the end of 2006.

And why 2006?. He will be close to 60. But also he will have been CEO for the best part of 14 years by then. The stockmarket might have risen by enough then to justify the still high valuation on the books for the Colonial funds management business. A downturn between now and 2006 will stretch the patience of investors and the board, but I reckon there will be no significant change in valuation until after Murray has gone when the new bloke will do the traditional clearing of the decks.

But there’s another reason. Gail Kelly is about a year to go with her contract at St George and she has started discussions about its extension. ANZ CEO John McFarlane has been extended to 2007.

And John Mulcahy at Suncorp next year will be two thirds of the way through his contract with the Brisbane based bank.

Both are former senior executives of the CBA, and both left in the past three years to take their present jobs for career purposes, but also because they could not see any way of Murray leaving the CBA’s CEO role short of being blasted out.

There’s also both left because they knew they had no further to go at the CBA with Murray still there, and that Murray had others whose careers he was polishing, such as Retail Services head Hugh Harley.

There was a suggestion (which Crikey has reported on extensively, forcing BRW and others to follow this year) that both were or felt they would be on the outer with Murray at the CBA.

Could John Ralph and David Murray, by floating the 2006 date and hinting that the CEO may or may not go, be trailing a very big line to try and hook Kelly or Mulcahy?

Kelly would be a far better catch. She’s done wonders at St George by driving the sort of change management in its home lending and other retail businesses smoothly and without any significant damage to staff morale or brand.

In contrast David Murray’s restructurings and cost cutting have done the reverse, alientated employees and cause some executive tension, as we reported earlier in the year: https://uat.crikey.com.au/business/2004/06/22-0002.html.

The CBA is paying out 80% of earnings as dividends to shareholders to keep them happy during the Which New Bank? revamp. That has some big holders concerned and the ratings agencies have no doubt taken note.

The CBA needs to grow earnings faster than the industry average simply to reduce the pressure of the high payout ratio.

It will have another problem though. Its share of the small to medium business market has fallen in recent months as other banks attack its customers and hold those stupidly ditched by the NAB last year. The CBA’s share of home lending, now fairly low margin, has risen at the same time and banking analysts are not happy about that.

On Business Sunday last week the ANZ’s John McFarlane (who had the right strategy on funds management, push it out to a joint venture) made a very salient point that Gail Kelly at St George has understood for years.

It is no longer possible to continue to drive your cost to income ratio lower to grow earnings (ie you can’t cost cut you’re way to high profits every year). You have to invest more capital in your businesses, accept higher costs and watch revenue and earnings grow. He told Business Sunday that was what the ANZ had been doing.

The $1.5 billion that the CBA is investing in Which New Bank? seems primarily to drive down costs and undermine staff morale, hardly a clever approach to longer term growth.

Yet St George’s cost to income ratio fell to around 45%-46% in the most recent year because revenue grew much faster than costs, as did earnings. When will David Murray and the CBA board wake up to that no-brainer?