Abu Dhabi School of Management Organization Change Case Study

CASE STUDY 3
National Australia Bank: Cultural change
program
Jessica Stein and Vanessa Grzinic
National Australia Bank Limited (NAB) was first established as a public limited
company in 1858.1 Today, NAB is the major Australian franchise of the NAB
Group of financial services which has businesses in the United Kingdom, New
Zealand, the United States and Asia.2 The NAB Group has almost 40 000
employees and more than 450 000 shareholders3 and has recently been listed
‘within the top thirty most profitable banks in the world’.4
In 2004, NAB was at the centre of a major scandal after four traders took part
in fictitious trades that enabled their department to report an ‘AUD 37 million
profit, when its real position was an AUD 5 million loss’.5 Then, ‘in an effort to
recoup the losses, and contrary to the Bank’s policy’, the traders gambled heavily
on unhedged positions, anticipating an increasing US dollar that never
materialised.6 When the scandal was eventually uncovered by junior employees,
the traders had recorded losses of $360 million.7
NAB suffered greatly in the aftermath of the scandal.8 Aside from financial
losses, arguably the greatest impact was the prescribed and voluntary
organisational change experienced over the following six years, specifically in
relation to NAB’s organisational culture. Immediately following the scandal, the
bank lost the majority of its key personnel, including its chairman, CEO, chief
financial officer, head of corporate and institutional banking, head of markets and
head of risk management.9 Newly appointed executives immediately called NAB’s
organisational culture into question, describing it as too ‘profit driven’,10 ‘too big,
too old, too male, too full of ex-CEOs and too many insiders’.11
Culture in the context of change
Organisational culture is loosely defined as ‘a set of norms and values that are
widely shared and strongly held throughout the organisation’.12 It influences the
way employees relate to each other, customers, shareholders and business
partners.13
In the context of organisational change, corporate culture is often utilised by
scholars and change management experts as a significant precursor, enabler or
influencer.14 As noted by Levin and Gottlieb, ‘most organisation change efforts
require some degree of cultural shift’.
480 Integrative case studies
In analysing the changes to NAB’s culture implemented following the scandal, it
is important to understand the various perspectives of culture conveyed in theory.
Many perspectives exist in academic literature;15 however Keleman and
Papasolomou identify three main perspectives: integration, differentiation and
ambiguity.16
Integration perspective: The most widely used perspective of organisational
culture is the integration perspective.17 According to the integration
perspective, ‘culture is clear, measurable and pervasive and (represents)
a consensus within the entire organisation’.18 From the integrative view,
culture manifests itself across the organisation in quite tangible and visible
ways.19 Culture can be reflected in a variety of mediums such as ‘business
strategies, performance targets and metrics, management practices, formal
and informal rules that govern behaviour, traditions, stories and
manifestations’.20
Differentiation perspective: The differentiation perspective considers culture to
be an amalgamation of a collection or combination of cultures ‘that meet
within an organisation’s boundary’.21 In essence, the differentiation
perspective focuses on inconsistencies as the nucleus of culture; culture
is viewed as a collection of manifestations, some of which may be
contradictory. In recognising these inconsistencies, the various initiators
of culture can be identified, both internal and external.22
Ambiguity perspective: The ambiguity perspective follows neither the integrative
or differentiate views, instead suggesting that ‘relationships among culture
manifestations are characterised by a lack of clarity as well as paradox and
ambiguity’.23 Individuals may share certain views or values, yet may differ
on others. Likewise, from the ambiguity perspective, employees may agree
with certain management of some issues, yet ‘at other times they may be
indifferent, ignorant or in total opposition to the dominant managerial
line’.24 Many academics view this as a more realistic perspective of culture.
Cultural problems at NAB
Much of the blame for NAB’s 2004 crisis was immediately attributed to a lack of
accountability on behalf of its senior management and board.25 Maiden (2004)
traces these issues back to a culture fomented over the years by disconnected board
members who lacked ‘an understanding of the principles and the laws of corporate
governance and accountability’.26 In the wake of the 2004 controversy, Jain and
Thomson observed that a ‘lack of team spirit, distrust and inability to accept
alternative points of view’ had created factions within the Board,27 and that these
factions led to ineffective communication, resulting in the creation of a lax and
unquestioning culture. These unfavourable cultural traits were transferred down
through the entire organisation as leaders at all levels reinforced these behavioural
and cultural norms.28
Case Study National Australia Bank: Cultural change program 481
Poor governance practices were attributed to a ‘lack of transparency in
operations’.29 In an early speech by incoming CEO John Stewart, he described NAB
as an organisation without ‘clear accountabilities and responsibilities’ where a good
news culture predicated the ability for bad news to be recognised and properly
addressed.30
NAB’s culture was also described by many critics as profit focused, once again
stemming from the attitude of Board members and senior management.31 It was
this culture that encouraged increased risk taking in the trading activities in 2004.
Dellaportas et al. go so far as to suggest that ‘sacrifices in ethical behaviour were
acceptable in the name of profits’.32 ‘Profit is king’ was said to be an expression
commonly relayed by NAB staff members in interviews investigating the 2004
crisis.33
In his speech, John Stewart highlighted the importance of addressing this
culture in implementing change following the scandal: ‘You can see how by
improving the culture of the organisation we can make quite a difference’.34
Ironically, the very shortfalls in NAB’s culture that incoming CEO, John Stewart,
intended to correct were also NAB’s biggest obstacles in implementing a successful
change program, not least of which was a top-down culture that was breeding
mistrust, lack of ownership and lax employees.35
In implementing effective cultural change, the organisation needed to identify
its core cultural levers in order to both overcome its key cultural constraints to
change within NAB, as well as reverse the culture that that ‘enabled the deception
to arise and continue for a substantial period’.36
Cultural change at NAB
In recognising the ability of leaders to influence change, NAB first readjusted its
key priorities to reflect a client-focused organisation as opposed to a profit-driven
one.37 NAB’s new key priorities were stated as ‘investment in our people, culture
and reputation’38 and its complementing strategic priority ‘Differentiating through
culture and reputation for the benefit of our people, customers and
communities’.39
NAB’s priorities were then reflected in various mission statements, visions and
strategic objectives in order to create visible manifestations of its desired culture.
These tangible demonstrations of culture were not just applied to NAB but to
its entire portfolio of financial institutions within the NAB Group. The new
overarching belief for NAB was now that the way in which results were achieved
was just as important as the results themselves.40
One of the most tangible change initiatives implemented by management post
the 2004 scandal was the 2006 relaunch of the NAB brand with a new logo. The
new branding of NAB was aimed at reconnecting the organisation with a public
who had lost faith in it in the wake of the trading crisis.41 The new brand was
carefully launched by NAB senior executives to coincide with the Melbourne 2006

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