Westpac chief admits banks failed in the bush

The rush by banks to shut branches in rural areas over the past decade was a ‘mistake' and broke the ‘social contract' with the community, a Westpac executive Michael Hawker said yesterday.

Mr Hawker, group executive for Business and Consumer Banking, said that in the face of intense competition following deregulation, banks had lost sight of the needs and fears of a number of their customers.

He told a National Farmers Federation conference in Longreach that many of the rural closures should have been handled more sensitively. ‘I think what we are saying is what we did was probably not the most appropriate thing to do', he said.

‘I think everyone in the community would say there's been a lot of dramatic change and I think we have made a number of mistakes. There is no doubt about that'.

Between 1990 and 1998, 1,306 banks shut their doors across Australia - 406 of them in country areas - while 1,345 agencies also shut, 1,071 outside major cities.

Mr Hawker said advances in technology meant ‘in-store' banking - which provides basic teller transactions and a phone service at a sponsoring business - could spare rural communities from loss of services. Westpac initiated a $300 million review and refurbishment program last November for its 969 branches, which will see an estimated 150 convert to in-store operations.

Requirements:

(a) Explain briefly the notion of a social contract and name the relevant parties and their relationship in the above article.

(b) What relevance does the social contract have with respect to the legitimacy of an organisation? What is meant by organisational legitimacy?

(c) How would corporate management of Westpac determine the terms of the social contract? What would be the implications for a firm if it breached the terms of the contract? What were the mistakes referred to by Mr Hawker?

(d) If Westpac broke the terms of the social contract, what actions would you expect management to undertake in the subsequent periods and why?