The biggest remaining mutual in the country, Victoria’s RACV, is having a contested board election and we’d love you to vote for Crikey ahead of a former Tricontinental director.

A winning ticket should score about 12,000 votes in favour and given that there are 1.2 million RACV members, this is a board tilt that could well succeed with a decent campaign which we have not been able to do on this occasion.

Crikey is running on the platform that it is unfair that the RACV Club and its 18,000 members has 9 of the 16 directors when the 1.2 million road-side members have created the vast majority of the $600 million in net assets and only have 6 directors on the board.

We also believe that it is highly indulgent to spend $165 million of members’ money building a new headquarters and lavish club facilities which us ordinary roadside punters won’t get to enjoy even though we’ve paid for most of it.

There are six candidates for two spots in the road-side category and three candidates for two spots in the RACV Club category the first contested election for the club since 1973.

Whilst it is disappointing that candidates are not allowed to provide a platform or vision for the RACV to go to all those voting, the board is to be commended for the way they have conducted this election so far.

There was a 90-minute candidate’s meeting with the RACV chairman Max Lay and some other RACV directors and executives in late August.

It was an excellent process and they were very open about what is happening at the organisation. Costs have been cut by $38 million over the past year which enabled Australia’s biggest remaining mutual to report a marginal profit of $3 million this year despite copping negative returns of about 4 per cent from their investment portfolio.

However, if it wasn’t for a $12 million tax credit Australia’s biggest mutual would have been in the red and the revenue growth from financial services has really fallen in a hole at a time when the much-loved RACV brand should be kicking goals in the general insurance and financial services market.

Directors only started getting paid 7 years ago and the retirement schemes for directors where they get a lump sum of about $120,000 after serving two terms, was introduced about 4 years ago for the 15 non-executive directors who currently collect a tidy $36,000 a year.

In Crikey’s view it is poor corporate governance to pay directors large lump sums based solely on years of service.

And the board is too big. It should be cut to 11 at the most and they should abolish the retirement benefits. Surely, $30,000 a year would be enough for directors who only have to turn up one day a month.

Which incumbent director to back

Scrolling through the CVs of wannabe RACV directors the penny dropped – one of the incumbents up for re-election was a director of failed merchant bank Tricontinental, which collapsed in 1989 costing Victorian taxpayers almost $2 billion.

That’s right, 62 year old retired banker John Rawlins was head of treasury at the old State Bank Victoria from 1984 until 1991 and this role included sitting on the board of Tricontinental from April 1985 until April 1988 and then again from May 1989 until the sale of the State Bank to the Commonwealth Bank in 1991.

Unfortunately, this directorship is conspicuously absent from his CV posted to 1.2 million RACV members, but he can’t have been a bad banker as the ComBank kept him on until 1998 as a member of the bank’s executive committee and general manager of Commonwealth Financial Services.

It should also be stressed that Hugo Armstrong’s book “Tricontinental: the rise and fall of a merchant bank” portrays Rawlins as being the most critical director of maverick Trico MD Ian Johns and Rawlins’s departure in April 1988 was partly to stop increasingly tense boardroom clashes with Johns.

Still, if Rawlins had been less conservative and had taken his concerns direct to Cain’s cabinet and the public in April 1988, we could have literally saved the taxpayers from an additional $500 million-plus in losses.

The world changed after the October 1987 sharemarket crash and if Tricontinental’s board had pulled management into line straight away, we may not have lost the state bank the way we did.

There are six candidates for two “road service category” spots on the RACV board and forced to choose between the two incumbents, Crikey is recommending a vote for Paula Dwyer, a professional director and the wife of Age sports writer Charlie Hapel (sic?), ahead of John Rawlins.

What Hugo Armstrong said about John Rawlins

Just so we are not accused of being unfair to John Rawlins, here is the extracts from the Tricontinental book where he is mentioned:

Chapter 2 – Tricontinental before the Boom

Page 54

To complete the Board, Moyle and the State Bank treasury chief John Rawlins were added, while Arnold Hancock, whose accounting firm (then known as KMG Hungerfords) had long been Tricontinentals’s auditor..

Page 61

Smith (Chairman of Tricontinental) freely acknowledged to the royal commission that he was substantially ignorant of merchant banking, and after becoming chairman, did little to educate himself about the practices of the industry. His roll as he saw it was primarily to chair board meetings, and undertake other official duties. Hancock, who had already observed first-hand the differences between directors from a traditional banking background like Jack Ryan and John Rawlins on the one hand, and the feisty Johns on the other, impressed upon Smith the need to keep the Board running smoothly and openly, Smith satisfied himself by relying on Johns (with whom he quickly built a strong rapport) and Moyle to inject whatever specific knowledge was necessary. But while Smith drew reassurance from the expertise surrounding him, Moyle felt otherwise.

Chapter 5 After the Crash

Page 135-136

But Johns’ optimism that things would return to normal was not unanimously shared by his directors. All were frightened that things could get worse; some recognised it as a distinct possibility. But it is significant that it was only in the mind of the Board’s single stockbroker John Rawlins that the nagging sense of unease about the impact of the crash developed into outright concern at the easing of existing security guidelines. By December Rawlins, whose relationship with Johns was already poor, felt stirred to action.

Although the two men had worked closely together on matters such as annual budget projections, they had little in common. Rawlins’ classical education and subdues disposition made him a poor foil for the younger and irascible Johns. Furthermore, his experience as a stockbroker and position as head of State Bank treasury operations gave him strengths in the area Johns felt most vulnerable in an advantage the managing director believed Rawlins had deliberately sought to exploit. On at least one occasion, Rawlins charged Tricontinental 100 per cent interest on an overnight loan from the State Bank, despite being a director of the merchant bank. But Rawlins too had grounds to feel poorly treated at Tricontinental’s hands; when the two institutions had tried to merge their treasury operations in 1986, the project was promptly undermined by Tricon management.

At the December 1987 board meetings, Rawlins began to question a resentful managing director in detail about some of the specific problem loans. Accepting speculative mining leases confirmed Rawlins’ suspicions that the quality of the top-ups being offered was less than desirable. He requested a paper from Johns setting a limit on the total amount of top-up to be accepted in the form of mining leases.

But Rawlins did not stop there. Suspecting that the board did not have a full picture of the extent of security or repayment shortfalls, he demanded a full list of debts in default of their security obligation. Top Johns’ fury he also raised the question of power management (i.e. Johns) to change from the terms of existing loans without the approval of directors. The sniping also went the other way: Ziebell’s normally sparse minutes of the meeting took the trouble to record Rawlins stating that he ‘did not understand’ a paper presented by Ziebell on Tricontinental’s liability management despite it being in his area of expertise.

Rawlins was absent from the next board meeting in January 1988, at which the delegation of approval for loans was canvassed by other directors. Without his sharp views, the Board agreed the existing system was satisfactory. It did seta limit of about $300 Million On security taking in the form of mining leases, and lifted the ratios of security cover for loans secured by equities.

Page 141

The feisty and opinionated Jack Ryan regularly aired views contrary to Tricon management. But he did not always get support from other directors, and rarely forced the issue. The only director sufficiently worried about the way Tricon was dealing with its many pressing problems following the crash to reach a showdown with Johns was John Rawlins.

When Rawlins attended the February 1988 meeting, he found the Board fixed in its perception that Tricontinental could ride out the storm. Given plans then afoot at the State Bank to look to sell the merchant bank, a prolonged and vigorous discussion of its lending guidelines resulted in the directors opting not to set any limit on the size of exposures to individual clients. But what really upset Rawlins was the latest ‘Problem Loan List’ for lending secured by equities. The number of defaulting loans had grown since November from seven to just fifteen. Rawlins realised that this was a preposterously optimistic estimate, and tackled Johns.

Page 142

In the heated words that followed, some of Tricontinental’s core problems were aired. Rawlins accused Johns of maintaining a ‘cavalier attitude’ to doubtful debts, and not keeping the Board fully informed. But few of the directors seemed to give much ongoing attention to the substance of the debate. Jack Ryan, whose views were most in accordance with Rawlins’, thought it was just another verbal brawl between two men who simply didn’t get on. He believed Rawlins was ultimately satisfied with the explanations Johns gave to his queries. Moyle, the key player, took the view that Rawlins’ concerns about Johns were ‘reaching the disruptive stage’, and was making plans in his own mind to find an alternative posting for Rawlins. Chairman Neil Smith’s response was just peripheral, even if it stemmed from an opposite view: he simply did not notice any change in the nature or degree of Rawlin’s concerns over time. In fact, only Johns himself seemed to dwell upon Rawlins’ sentiments, by insisting that company secretary Ziebell include the ‘cavalier attitude’ comment in the minutes ‘I assume,’ Ziebell told the Royal Commission, ‘at some stage he would return the compliments to Rawlins’.

Just as surprising is the fact that Rawlins did not discuss his worries with other directors outside board meetings. Given the apparent lack of interest in the issues he raised, still less support for his position, there may not have been much to be gained from doing so. But he also seems to have been victim to the strange, conservative etiquette that governed the State Bank. He told the Royal Commission that he did not feel it appropriate to discuss his concerns privately with Moyle after having debated them within the board meetings, despite Moyle’s prime position within the group, and the fact that Rawlins normally reported to him. Nor did he follow the more traditional route, and speak with Tricontinental chairman Neil Smith. After all, Johns and Smith were recognised as being close, and during the first half of 1988 Smith was increasingly absent in Queensland, having been appointed Victoria’s ambassador to the Brisbane Expo. In Rawlins’ eyes, Smith’s lack of knowledge about merchant banking may also have made him less able to judge what was required of Johns.

Page 143

While Rawlins’ poor regard for Johns is well documented, circumstantial evidence seems to suggest he may have had his doubts about other directions too.

At the following meeting of directors, in March, Rawlins expressed his different attitude to management policies by voting alone to reject two credit submissions. But by then the position was clear: Rawlins was isolated on the Board. A few days after the meeting, he decided that he could no longer continue. In the comfort of that position, he then finally sought out Moyle, and gave him one last ultimatum to take action to bring Johns to heel.

Johns, he informed Moyle, seemed to think he was the only one making decisions for Tricontinental. Rawlins argued that Johns was failing to provide the service required to his fellow directors. Unless he was made to change his attitude, Rawlins would have no choice but to resign. Moyle claimed Rawlins had asked him to do something that was ‘not within my power to do. I do not know how I would have curbed Mr. Johns any more effectively than he curbed Mr Johns(TRC1.18.58.) Rawlins described Moyle’s response as being rather more blunt: ‘He said “You’d better go” (TRC1.18.56.)

Moyle had already been contemplating ways to shift Rawlins away from Tricontinental. The prime option was the stockbroking firm Burdett Buckeridge and Young, which the State Bank was in the throes of taking over. Rawlins’ stockbroking background made him an apposite appointment to the Board of BBY. In a sense it was too good a match: so neat that other Tricontinental and State Bank directors thought that he had swapped over. Few seemed aware of his conflict with Johns; none said they were aware of his concerns over the extent and quality of information being supplied to the Tricontinental Board. Nor did Moyle touch on them when he announced Rawlins’ move to BBY at the April board meeting.

Rawlins’ resignation demonstrated two of the Tricontinental Board’s greatest weaknesses: the ability of directors to talk openly and specifically with each other, and their failure to listen closely to the undertones of the debates in the boardroom. The truth was that the directors were much keener to back their feisty but vigorous managing director than the grey and prickly Rawlins.

Page 144

Moyle’s deputy at the State Bank, Max Carr, replaced Rawlins on the surprising understanding that: “It was put to me that he had not got on as well as he might have with Mr. Johns”.

Page 153

Rawlins and Ryan were largely alone in challenging the merchant bank’s practices.

Chapter 6 The Bubble Bursts

Page 185

The State Bank’s involvement in its subsidiary was also extending beyond financial support. Senior staff were spending more and more of their time advising and liasing with Tricontinental in many areas: Jim McAnany and Mick Leonard worked in detail through the loans book with Ken Mountford and Bruce Ziebell, and the State Bank treasury boss John Rawlins was spending more time dealing with Tricontinental’s fundraising problems than he ever has a director, as well as meeting almost daily with Bill Moyle to discuss them.

Chapter 7 The Bubble Bursts

Page 207

To facilitate the integration process, the State Bank divided up Tricontinental between its own divisional executives. John Rawlins returned to the Tricontinentals Board, accompanied by Jim Mc Anany, to take the places of Neil Smith and Ian Morton.