Q&A with Michael Hawker

With an illustrious career in rugby and financial services, the chairman of Australian Rugby Union spoke to Alan Deans about the lessons he has learned on his rise to the top.

There is a club of Australian business leaders known for their illustrious sporting careers. One of the most prominent members is Michael Hawker AM FAICD, who wore the green and gold as vice captain of the Wallabies even when he was serving on his first board at a local subsidiary of Citibank. It was polished Oxfords one day, studded boots the next.

“Sport gave me personal disciplines, such as hard work,” says Hawker. “Nothing comes without hard work. You have to turn up on time, you have responsibilities to the team, you get knocked over and you have to get up again when it hurts. You lose, and you learn to live with the defeats as well as the wins.”

But like all sporting careers, Hawker’s was not without its disappointments. “In 1984 I lost my spot in the famed Wallaby Grand Slam team to another number 10, Michael Lynagh. He was moved into my spot not only because he was a great player but he could also kick goals. That happens.

“It teaches you to keep learning. If you think that you know everything, it’s time to retire because you will become quickly out of date. The world will pass you by. You will become a dinosaur.”

Off the rugby field, Hawker’s career was forged in banking and financial services. At 26, he was thrown into the deep end when he was made a director at Citibank.

“You pretty quickly find out from the other directors around the table when you are wasting their time or your comments are not relevant, because they take no notice of you. So you learn from a ‘school of hard knocks’ process. But you learn skills about what is required to be a director, as opposed to being an executive in a firm. It broadens you in terms of governance and forces you to review a business from a different perspective.

“These oversight skills were very valuable as an executive, when I eventually reported to a board of directors, and quite frankly, it made me a more effective executive. It also gave me exposure to regulators at a young age,” he says.

Business skills

Hawker became deputy managing director in Australia before heading to Citibank’s London office, where he was also director of the UK arm.

His next move was to Westpac, as global head of financial markets and then as group executive of business and consumer banking. Then came the role that he is perhaps best known for, CEO of Insurance Australia Group (IAG). It was a hectic seven-year tenure.

IAG was a listed entity for a year, after the demutualisation of NRMA Insurance Group, before Hawker joined. In his first year at the helm, they bedded down the purchase of New Zealand’s largest general insurer, State Insurance, and later bought CGU in Australia (including Swann Insurance) and New Zealand Insurance (NZI). Then came Asia. Joint ventures were added in Malaysia and India, and NZI Thailand was purchased.

Hawker was also beavering away in China. He believed that as an emerging global player, China’s GDP would surge and create tremendous growth for insurers that had cultivated the right connections and bought into the right businesses. After four years of effort to purchase 25 per cent of China’s second largest general insurer, China Pacific Insurance Company (CPIC), the terms of a deal were never able to be agreed.

Hawker resigned from IAG in 2008 after defending the company from a hostile takeover from QBE, and shareholders became concerned about the performance of businesses he purchased in Britain. (Notably, both these businesses have been recently resold for over £1.6bn).

He left IAG well capitalised and in good shape to be successfully managed through the global financial crisis (GFC), which brought down many global competitors. On leaving IAG he intended to have a year off, but with too much time on his hands he decamped to London in search of post-GFC bargains. While there, he was offered his first non-executive directorships – first with Aviva and then with Macquarie.

In 2012, he returned to Australia to live after accepting the role as chairman of the Australian Rugby Union (ARU). He also serves on the board of Rugby World Cup, the executive committee of World Rugby, is a director of investment company Washington H Soul Pattinson and is chairman of the George Institute for Global Health.

Here is an extract of Hawker’s interview with Company Director.

Company Director (CD): Does Australian business have a realistic view about what it takes to succeed in China?

Michael Hawker (MH): I spent four years going to China to buy 25 per cent of their second-biggest general insurance company. After four years we had a good sense of the process. We understood the politics, the financials, the regulatory aspects and the various power bases within China that might impact any transaction. We understood the potential downside, that in China your partner will just leave if they no longer believe they are getting value out of it. The deal didn’t eventuate, because they changed the chairman of the company. The new chairman wanted a different structural outcome.

Instead of buying into the general insurance subsidiary, we were offered 5 per cent of the group company, which included a life company and a funds management company, and we lost all governance controls. That did not suit us. We let it lapse.

CD: What advice do you have for Australian companies going there now?

MH: You should not enter into a transaction without understanding the power bases within China that may impact it. You have to understand the regulatory forces, the political forces, the party forces and the value proposition that you are offering. You also need a clear line of sight on how long you are likely to be able to add value, and how you are going to extract value. It’s a time-bounded value proposition. You need to have your eyes wide open. There’s a lot of risk but it’s not impossible.

CD: What drives you as a director and what satisfaction do you get out of it?

MH: Primarily to help organisations develop, not to make the same mistakes that I have made, and to add value. I am also keen to keep learning, and the changing nature of commerce is fascinating.

There are also many different types of directorships, from wholly owned subsidiaries to listed public companies, private companies and not-for-profits. Directors require a broad range of skills. At my age, becoming a director at Citibank was fantastic. It broadened me in terms of governance and brought a set of oversight skill sets, which you need to be an effective executive.

My first experience of public company directors was attending board meetings at Westpac as one of the executive team. It gave me a real sense of how boards operated and for the first time I saw non-executives operating with an executive team.

That gave me a lot of insight for when I was CEO at IAG. CEO and managing director roles expose you to many different stakeholders, including the board, investors, customers, activists, politicians, media and regulators. These interactions give you a sense of what information each stakeholder wants to know and how best to present it.

You need to convert the management information flow coming up through the organisation into a form that is useful and efficient at the board level and for all stakeholders.

In the move from executive director to a non-executive director, the most critical decision is no longer wanting to be an executive. You are not “doing the business” – you are overseeing it and governing it on behalf of investors. You have to learn not to go down every rabbit hole, but sit at a more macro level and focus on where the material risks lie.

CD: Were you mentored at all?

MH: No. I have never had a mentor. I do mentor others. I believe mentoring is an individual preference, and a choice of mentor is as well. Probably the best thing that happened to me was that I had seven bosses in the first three years of working. They all had good attributes and bad, and they kept changing the strategy which was fascinating. I tried to observe what I thought was effective, what worked for me, what worked for others, and what worked for the business.

I also learned from bitter experience to concentrate on communication – one of my weaker skills – realising that some comments went pear-shaped if not prefaced correctly. So my progress came not from mentors but from having the opportunity to make many mistakes and learn from them. It’s like playing golf. Once you miss a ball in front of whole lot of spectators on the first tee, you work out how not to miss again.

CD: How did your experience as a Wallaby influence what you do in business?

MH: Hugely. Sport builds resilience. It also exposes you to value systems – particularly rugby union. You learn to be humble in victory. In rugby union the laws say the referee is the sole judge of fact. Even if they are wrong, they are right – a great lesson in life. Those experiences are incredibly valuable to directors.

You also get a great understanding of teamwork. Teamwork is not being nice to people. It is doing your job phenomenally well, so that every other team member can trust you in working towards a common objective.

Sport also made me comfortable in my own skin. By the time I was 24, I had excelled in the sport I loved and personally I didn’t have anything to prove. Having been in the media constantly, also helped me deal with criticism. Both these experiences helped me to act independently and make decisions which I believed to be in the best interests of the organisation – and not necessarily the most popular one. You also learn how fickle decisions can be and how lucky you are in being selected. So don’t throw the towel in if not selected the first time.

You learn never to be derogatory about someone else. Never say something that you wouldn’t be comfortable with the other person hearing first hand. In my experience you will always meet those people again.

CD: As a CEO, how do you effectively manage the board and achieve your own outcomes?

MH: The CEO must have respect for the chair. The chair needs a higher level of capability than the CEO, or to at least be on par. They must have an equal trust in each other. If any of those things are missing, then you are going to destroy value.

I am a great believer that companies have different levels of complexity. For example, a one-product company, in one country or one state, has a pretty simple business model. A multi-product company operating across states has increased complexity. A company that is multi-product, multi-cultural and in multi-countries has a level of complexity that is significantly higher. One of the really interesting challenges in choosing a board for complex organisations is to have directors who know where to focus to become comfortable with the risks. They understand where to burrow in and where not to burrow, to balance the information flow coming up through the company and externally.

Directors of these companies need to look many years ahead. Managing complexity is a big issue, and I don’t think enough is spoken about it. Many companies fail when they increase complexity and move from one country to multi-countries. They don’t have the governance capability to deal with the risk.

At IAG, I had the highest admiration for James Strong [the chairman]. He was one of the great Australians. He only ever took my time when he thought there was a problem or that the board needed more information. He quickly understood what the board may consider as material or a change in their understanding of the strategy. He socialised those issues very early. He would push me to ask: “Are we were doing enough?”; “Do we have the right people?”; “Are our capabilities strong enough?”; “Is our investor mix appropriate?”. He sat above the organisation. He made sure that, as CEO, you looked above the organisation to see the big picture at the same time you were running the day-to-day.

CD: You took time off after leaving IAG and became a non-executive director. How did that come about?

MH: I wanted a year off, I can tell you that. I did nothing for a while, and my wife made the comment that since we had been together I had always spent five months a year overseas. We had been going out since I was playing rugby, and back then I was touring every year. I decided to go to the UK to buy a small financial services business after the GFC, but I was about six months too late. Private equity funds had already picked the bones.

Then, David Clarke [at Macquarie Bank] rang and asked me to become their first overseas-based board director. I had known him for a long time and had dealt with Macquarie. They tried to employ me twice. I had used them as a client, and thought they were a really outstanding organisation. About the same time I had received an email in my spam file from a headhunter asking if I wanted a job. This resulted in a directorship at Aviva, closely followed by the one at Macquarie.

CD: Did you conduct due diligence on those roles?

MH: I knew the companies well. I had done business with Aviva. I bought CGU in Australia and New Zealand Insurance from them, although the people I dealt with were no longer there, when I joined the board. I knew a lot about Aviva and had great respect for it as an organisation. I also knew a lot about Macquarie. Firstly, as a client they had raised capital for us. Secondly, as a competitor in financial markets, and thirdly, I was involved with them on financial markets committees. In both organisations I liked the people and admired their culture.

CD: Is the burden of new regulations a disincentive to being a non-executive director?

MH: Yes. In the UK, recently there was legislation threatened where the main directors of financial services companies would be criminally liable if financial troubles arose – plus a reverse onus of proof – that is, you are guilty until proven innocent. That’s pretty extraordinary. I would have resigned if that had been enacted, not because I would do anything illegal but because you could become an expedient political scapegoat in the event of an outcome that had nothing to do with you. To me, the risk was ridiculous. It stops good people going on the boards of companies.

Regulators in some countries misunderstand the difference between executive management and board governance. In many cases they want boards to manage the business when they are only there for one day a week. They are requiring directors to tick boxes so there is a database to show they have “done due diligence”.

But by focusing on ticking boxes, you may miss the big picture. As chair of a risk committee, to me the point is making sure the company doesn’t take significant risks when the economic cycle changes, or survives an extraordinary event occurring, such as a pandemic, when international trade could be critically curtailed.

CD: What about board diversity?

MH: The most pressing issue with diversity on Australian and UK boards is gender diversity. It is not very hard to find good female directors. However, there is huge demand for them, and not as many wish to join financial services boards. I am pleased to say I have two female directors on the board of the ARU (although one has recently stepped down due to ill health), and we will move to three in the next 18 months.

You need a board which reflects your customer base and how it is changing. In rugby union female board directors are critical. More women are taking up the sport – particularly the Sevens and Viva 7s [non contact] variations and mothers now tend to make the decisions about what sport their children play. When I grew up, if you were a boy, it was the father who made that decision. Half our fans are female. If we don’t understand and have women as part of our infrastructure, the sport won’t survive.

At the world rugby level, the constitution has been altered, now requiring female directors on the executive committee. Women need to be involved in every layer of sport management – on boards and as participants.

Also, at the George Institute for Global Health, which I chair, 50 per cent of the directors are female.

CD: What is your ambition now?

MH: Firstly, to add value and help people to run companies or who are in sport. Secondly, I’m interested in learning constantly. I thrive on new challenges. And thirdly, to spend some more time with my family, particularly as my eldest daughter is getting married next week.