Case study, "Disclosing improvements in human capital"

Adapted from John C Dumay and Jiayang Lu, "Disclosing improvements in human capital: comparing results to the rhetoric", Journal of Human Resource Costing & Accounting, Vol.14, No.1, 2010, pp.70-97.

Westpac Bank (Australia) was founded in 1817 as the Bank of New South Wales, the company and first bank established in Australia. It changed its name to Westpac when it merged with the Commercial Bank of Australia in 1982. Westpac is one of Australia's largest financial services organisations by market capitalisation, providing a broad range of banking and financial services. Westpac is regarded as a global leader in CSR practices and reporting.

A decade ago, things were different. Westpac was disliked by customers and communities alike - even its staff despised the board and management. The media identified issues behind this dislike such as the cost of banking, negative impacts on employees, and lack of executive salary transparency. The Financial Sector Union criticised Westpac for sacking more staff than any other bank while making record profits. Ongoing dissatisfaction among its internal and external stakeholders culminated in the employees going on strike in 2001. The CEO said that "employees were deeply uncommitted, customer satisfaction was awful and the community hated us".

Rather than being defensive about the strike, Westpac management recognised the error of their ways and decided to take action to correct the imbalance by putting people before profits.  Westpac's inaugural Social Impact Report was published in 2002 and has continued to report on its human capital. Employees are now seen as the "lifeblood and spirit of the company", vital for facilitating the customer focus of Westpac.

New management practices were developed. In doing so, the bank realised that there were four further challenges that needed to be addressed: a shrinking workforce; an aging workforce; fewer younger workers; and people were living longer. These challenges were likely to result in pressure to compete for and to retain good employees. A tight labour market means that reducing the number of workers is not an easy way to cut expenses and increase profits.

Continual monitoring by the Financial Sector Union of Westpac's human management practices shows that Westpac's employees have the ability to influence corporate strategy whereby Westpac is unlikely to go down the path of job reductions for the purpose of profit maximisation. Management practices aim at managing job security, employee commitment, legitimacy, and turnover rates. Job security and employee commitment have been achieved while work-life balance and satisfaction with remuneration and benefits and employee turnover rates are yet to be achieved.

A study of Westpac's disclosures in relation to its human management found that Westpac openly disclosed and emphasised the "good" results of its practices while downplaying or underemphasising the "bad" results.

In June 2011, the Financial Sector Union criticised Westpac for considering sending more than 1000 jobs overseas. The Union spokesman said Westpac had an obligation, given the amount of their profit from the community, to grow Australian jobs. They should not be causing great concern to their workers about whether they are going to keep their jobs. A survey by the Union of bank employees found that 95% believe that businesses making profits in Australia should reinvest in skills development and jobs here. Most believed that sending jobs and functions offshore did not improve customer service.

Questions:

1. Why were Westpac employees uncommitted?

2. What was Westpac's reaction to the uncommitted state of their employees?

3. In what ways did this reaction differ from what you would expect of other large corporations?

4. Why are job reductions bad for business?

5. How did Westpac's human capital strategy change in 2011?

6. Evaluate Westpac's human capital strategies prior to 2001, 2001 to 2011, and after 2011.

7. Visit Westpac's 2012 Annual Review and Sustainability Report using the following link, and comment on the attitude to its human capital within that report.