Banker David Morgan Takes a Positive Look at Failure
April 2009
STANFORD GRADUATE SCHOOL OF BUSINESS — Before he costarred
with Olivia Newton-John and long before he ran the biggest bank in Australia, David Morgan got a life lesson that was every bit as valuable as it was brutal.
When he was 10, his mother left, his father went bankrupt, the bank sold their home, and he had to leave the private school he attended. But, as the retired CEO of Westpac Banking Corp. told Stanford Graduate School of Business students April 30, the trauma also led him to a first-rate government high school in Australia, and to a teacher who even helped him finish school by correspondence after he had to drop out at age 16 to work full time.
"This childhood trauma forged in me a steely determination and drive that would stay with me all my life," Morgan said. "I was absolutely determined to work incredibly hard to overcome that terrible feeling of not being able to pay the rent or having to cross the street to avoid the butcher because we couldn’t afford to pay the weekly meat bill."
When he dropped out, Morgan went into acting. He had already appeared on Australian television and ended up with a few roles, including 1965's "Funny Things Happen Down Under" with Newton-John, but he decided after three years that he couldn’t make it.
"I saw so many much more talented actors than me who were unemployed for long periods," he said, adding that even talented people often need luck. "The important thing is to stay optimistic and keep searching."
But out of adversity came more opportunity. He studied economics at the university and played Australian-rules football, being good enough at it to become a professional. Then came a time when his talents clashed: He got a scholarship for the master’s program at the London School of Economics but had to start a month late because his football team made it into the playoffs.
That gave him a built-in excuse for failure, but it gave him another lesson instead: "Don’t let fear of failure hold you back, but rather use it to drive yourself."
He thrived at the school, and went on to work at the International Monetary Fund and the Australian Federal Treasury. In the early 1990s, he started at Westpac, and in 1993 he found himself working under Stanford Business School Dean Robert L. Joss, then Westpac's CEO. When Joss left in 1999, Morgan took over.
Under their leadership, Westpac developed a reputation for social responsibility and ethics, and it grew to be one of the largest banks in the world. In 2008 Morgan left Westpac, where he had served as managing director and CEO, and today he is director of BHP Billiton Limited and BHP Billiton Plc and chairman of J.C. Flowers & Co. LLC, Australia.
Morgan said having workers who like and trust the company not only makes them more loyal, but also it makes customers more loyal. "It is a total fallacy to think that you can micromanage individuals and determine the way that they think, especially our younger generation," he said. "Strong corporate values are the glue that knits together the company’s social system and the economic machine. Winning the trust of our people was fundamental to our success—trust that you care about them, that you'll listen to them, that it's safe to speak up, that you care about what they think and value and believe."
Morgan acknowledged that corporate credibility in the banking industry has weakened dramatically because of the global financial crisis, which he attributed largely to lenders taking too much risk because they were overconfident, and to companies not sufficiently linking management compensation with long-term profitability.
"The conversion of mortgage securities from huge, illiquid assets owned by local banks into liquid financial instruments that could be sold across the world combined sophisticated U.S. financial services dangerously with relatively unsophisticated financial services elsewhere."
He said he understands the need for government intervention, particularly late last year as the global banking system threatened to collapse. Morgan said that if an institution such as Lehman Brothers grows so big that it threatens the system, "there’s a prima facie case for it to be supervised."
Morgan said regulators also need to watch private equity funds and hedge funds, but added that over exuberant regulation throughout the industry could limit innovation. He said having elected officials in the mix also can lead to decisions based on politics rather than business, such as limiting foreclosures.
Regulation should be the third line of defense, behind management and corporate governance, he said. As it stands now, Morgan said, regulatory agencies don't pay their workers as much as the people they regulate, making it hard for the government to compete for top talent.
That's one reason it is so important for corporate management to behave ethically and focus on long-term gains rather than short-term bonuses, Morgan said, adding that corporate boards of directors also must make sure they focus on the needs of shareholders rather than managers.
"It’s not unknown," he said, "for board members in many companies to be cheerleaders for the CEO."
—Dave Murphy