Legitimate business interests? 

Your letter (bottom page 2) considers the possibility that many of the cases that I described in my dossier may be the consequence of the NAB ‘implement[ing] and review[ing] its procedures to manage its lending risk, and are therefore a product of ‘legitimate business interests’. 

One shouldn’t have to point out that there is wide latitude for a bank to manage its lending risk without resorting to oppressive practices.  Adherence to first principles in managing risk would point to the necessity for appropriate training of relevant staff, for appropriate management structures for deliberation, communication, information and documentation flows, for appropriate audit procedures on lending managers’ books, for functioning human resources management procedures in the credit hierarchy, for relative stability in personnel placement both for customer relations and corporate memory, and so on.  This is bread and butter stuff.  It was not in evidence in the NAB’s ill-considered cleanout of its loan book in 2002 (some say inspired by exert insider fear of a global downturn post-September 11!).  It is not in evidence in the Walter and McMinn cases (as per my dossier) where the customers faced high turnover of branch lending managers as a prelude to foreclosure.  A lateral thinker would infer from high staff turnover that there are other explicit priorities regarding staffing and procedures that displace sound risk management, including the reproduction of incompetence as a practiced art but not restricted to that time-honoured imperative of large organisations.

More dramatically, the same paragraph in your letter canvases the possibility that oppressive conduct may be graced with the tag of legitimacy, that s.51AC allows such a judgment, and that ACCC culture is prepared to absorb such a judgment.  Quoting your letter: ‘certain conduct, or a course of conduct, might be detrimental to the interests of the small business concerned, however if it is referable to the stronger party’s legitimate business interests, this may indicate that the conduct is less likely to contravene section 51AC’.  Similarly, the details of the McMinn case (bottom page 4) are considered ‘unlikely to be construed as going beyond tough business practices or hard bargaining to breach section 51AC’.

Frankly, I find this line of reasoning disturbing.  It is not in the spirit of the exemplary 1997 Reid Report, Finding a Balance, which finally put small business concerns against corporate business predation on the political map, and which is supposed to have generated an ACCC administration more understanding of and sympathetic to the small business environment.  One expects the support of ‘tough business practices’ to emanate from the Business Council of Australia (and its Law Council of Australia minders), which has been strident in its opposition to reform of s.46 or s.51AC, but from such a source the view is transparently recognised as self-interest.

It is pertinent to highlight that small business bank victims have perennially succumbed to a permanent state of shock after confronting the dishonesty and duplicity of their bank and its personnel, and the realisation that their business practices to that date had been based on a flawed because overly generous understanding of human nature.  Some of these victims had had a relationship extending over decades, indeed over generations.  The key word here is ‘trust’. 

The structured imbalance of power in banking relationships is a product of the intrinsic nature of the debt instrument itself, the occupational positions that carry a professional status, the attendant possession of knowledge and information not possessed by the borrower, and the discretion over the use and disclosure of knowledge and information and in the terms placed on the debt instrument. 

All bank borrowers know implicitly that they are to place themselves in a dependent subordinate relationship, but they have also implicitly rebalanced the equation with the trust that bank personnel will act as ‘professionals’, that is, that bank personnel will fulfil their privileged role with integrity.  Imagine if a person’s GP or recommended specialist had decided to leverage their professional status and its associated culture of trust by advising the client that their health was dependent upon the removal or an organ or limb or two, of course in a private hospital, with the prospect of the medicos gaining a tidy sum from the exercise.  Unthinkable?  Well we have the equivalent in banking, and nobody turns an eye.

Bank personnel have strategically leveraged the inherited culture of trust to engage in calculated fraud and defaults.  They have abused the unspoken trust in the professional status of ‘banker’, and trust in the status of the institution itself.  In the early 1980s, Westpac and CBA personnel, who threw their companies into the deep unknown waters of foreign currency loans in a floating rate regime, brought in unsophisticated small business borrowers on the reputations of, respectively, an institution almost synonymous with the history of White Australia and of a publicly owned institution, the People’s Bank.  The borrowers, knowing nothing of the mechanics or perils of foreign currency denominated debt, were led into disaster on the basis of misplaced trust in long-established institutions and in the professionalism of their staff.  That the banks advertised their non-existent skills in foreign currency management and displayed their whiz-bang dealing rooms to prospective borrowers as symbols of a chimera further enhanced the deceit.