by Madonna King
Joe supported a republic strongly but was only ever a sideline player despite finding himself next to the Queen on the night in November 1999 when Australia voted against the referendum. He was at the Rugby World Cup final in Cardiff, representing the prime minister, who was unable to attend. Howard had stipulated that Joe was not allowed to speak to the Queen about the outcome. That night, Joe was seated in the royal box, next to Prince Philip. The Queen, French president Jacques Chirac and UK prime minister Tony Blair were also there. ‘I’m like Forrest Gump, sitting there,’ Joe says now.
At half-time, the Queen left the seated area allowing Chirac and Blair to conduct a brutal debate in both English and French. The French had banned meat imports because of mad cow disease and Blair was lobbying Chirac to change the policy. The argument grew increasingly tense and Joe was enjoying eavesdropping until the Queen’s return distracted him. ‘Minister, how’s your day?’ she enquired politely. Joe remembered Howard’s stern warning not to talk about the referendum. He struggled not to smirk.
‘I said, well, your Majesty, it’s got its ups and its downs. She looked at me and said, “You’re obviously having an up with the result here at the moment.” And I said, yes, your Majesty. And she said, “I understand.” I said, thank you, your Majesty – you’re still my Queen. And she said, “Yes I am still your Queen – for the moment.” And that was it.’
Joe heard later that the Queen had wanted to put a statement out saying that Australia was on course to become a republic down the track and that she accepted that the mood of the Australian people was for change, but it was stopped.
Joe’s portrayal in the media had always been largely positive – it had proved a strong ally during his time as SRC president and as NSW Young Liberal president. He knew how to use it to work in his favour, but it was during his first term as minister that he realised the treatment being meted out to him could turn at a moment’s notice. That’s what he believed happened to him when he made the slip-up on the GST, and it was early in 2001 that he would again face the full force of the public scrutiny over an issue he couldn’t see coming.
Joe was rushing through a mall in Lane Cove, late for a local Liberal Party branch meeting in March 2001, when his phone rang. ‘I remember this vividly,’ he says. ‘Graeme Thompson said, “Minister, HIH has been put into provisional liquidation.” ’ Joe focused on each of the words being uttered by the head of the Australian Prudential Regulation Authority (APRA), the regulator of banks, insurance companies and super funds.
‘What do you mean?’ Joe pressed.
‘We don’t really know,’ Thompson replied.
‘What do you mean you don’t know? You better find out,’ Joe spat back.
The next day, Joe’s office asked APRA for a written brief. No sense of urgency enveloped its response, reflecting the fact that a few days would pass before the implications of Australia’s second biggest insurance company toppling over would become obvious. But, in a nutshell, it meant every policy insurer HIH had around the world was null and void. The consequences of that are hard to fathom, even with the benefit of hindsight, but motorists were heading to work in cars that were no longer insured. Holiday-makers were sleeping around the world, waking up in different time zones to find out they no longer had insurance. Homes were insured one minute, and not the next. Paraplegics, who were on annuities, had their monies stopped and more than 1000 employees at HIH no longer had jobs. Those were the ripples reverberating through the community as a consequence of Australia’s biggest ever corporate collapse.
It wasn’t just big news in business. The heartache had names, too, making the story the immediate darling of the media – from the financial press to women’s magazines. The 50-year-old school principal with a brain tumour had his monthly cheque, delivered through his protection insurance policy, dishonoured on presentation. Retirees who had invested their future in HIH shares so they could finance their own retirements were left with nothing. Another family was forced to live in the burnt pod of their home after HIH couldn’t meet the caravan rental payments. The news hit the young, as much as the old, small businesses as well as individuals, those working and those on holidays, commuters and those at home. The building industry downed tools.
Everyone looked for a target to blame, and Joe’s face filled television screens in lounge rooms across the nation. He was the minister responsible for APRA, which was charged with overseeing HIH. He was the young minister who had courted the media in a bid to be noticed, to stand out in an ambitious parliamentary cohort all wanting a bigger and better job, and now he had nowhere to hide.
In fairness, Joe (and his staff) had asked APRA on several occasions over the previous months about the performance of HIH and each time he was given an assurance things would be okay. The first time was the previous year after he visited Lloyds of London, where a young Australian worker had tapped him on the shoulder and offered an insight into what was happening in the insurance market. ‘There’s one mob that’s writing the crap on the floor,’ he told the minister, ‘and that’s HIH.’
Joe expressed surprise and made a note to meet up with Graeme Thompson on his return. At that meeting, he was assured that, although HIH was going through tough times, it would not falter. The same response was delivered at a second meeting.
Not long after, Joe ran into Laurie Cox, who had been executive chairman at Potter Warburg Group. He’d got to know Cox during the sale of GIO in NSW and considered him a doyen of business; he respected him. ‘Joe we’ve done some due diligence on HIH and I’m telling you it’s going to explode in your face,’ Cox remembers telling Joe.
‘I came back and thank God I asked for a written brief from APRA,’ Joe says. He received that advice in early November, in which he was told HIH was facing financial hassles but that on its June accounts, was quite stable.
Despite the rumblings that continued to bubble away in the industry, and the concerns held both inside Treasury and in Joe’s office, APRA continued to allay the concerns of all who asked – and Joe accepted that advice. That assurance was delivered in an environment where the importance of general insurance to the economy and to the market had really slipped under the radar; superannuation was considered the big issue.
Joe had learnt from his senior minister Peter Costello about how much a minister could meddle in various areas. Joe’s portfolio encompassed a spectrum that ran from the ACCC at one end to the Reserve Bank and the Australian Bureau of Statistics at the other. Ministerial intervention was regular at the ACCC end but not at the other. APRA sat towards the Reserve Bank in the ministerial influence spectrum. Until that night in March 2001, months after these initial conversations, even Joe, as minister responsible, could not have seen how the HIH story would unfold.
But it unravelled quickly. Tony McGrath, the provisional liquidator from KPMG, met with Joe in his electoral office in North Sydney. It was lunchtime and at short notice. ‘Tell me, Tony, how big a problem have we got here?’ Joe asked.
McGrath didn’t mince words, signalling it could end up as the nation’s biggest ever corporate collapse. ‘Are you sure?’ Joe asked.
‘Very early on,’ McGrath says, ‘we knew that it was going to be sizeable deficiency but unlike a bank – the bank goes broke you know what your loss is straightaway – with an insurance company where they take money in advance to guard against the future, you’re forced to estimate what could happen in the future to work out your financial position. It was a little bit of a slow-motion train wreck.’
McGrath wanted to use adjectives, not numbers, because that was more accurate at this stage. ‘Joe wanted to pin me down to numbers and we had a bit of an arm wrestle around that and ultimately, because he’s charismatic, I gave in.’ McGrath signalled the loss could be anywhere between $4 billion and $8 billion. Joe thanked him and said he needed to seek the advice of the prime minister. He knew this information had to be delivered up the chain and Howard was on his way to a Cabinet meeting in Sydney. Howard asked
Joe to meet him there.
Joe told Cabinet of his meeting with McGrath, including the figures. ‘There was silence. Everyone was gobsmacked,’ Joe says. Howard spoke first, asking Joe how he saw the government’s response. Joe only had one view, partly informed by his political antennae, but it ran contrary to the beliefs of most of those sitting around the table. ‘We should step in,’ he said. Howard and Costello led the chorus of negative responses. It was not the government’s job to bail out a troubled corporation, they argued, and it could set a dangerous precedent.
‘I said, these are our people,’ Joe says. ‘We can’t leave these people without anything.’ Joe was right on that score. Many of those now facing ruin were Liberal Party stalwarts who were practising self-sufficiency, and funding their own lives. To do otherwise, would have been to sell a chunk of the Party’s constituency down the river. The debate continued around the concept of ‘moral hazard’, an economic concept that basically says that if you keep protecting everybody they will continue to take risks. Those opposed to government intervention reminded colleagues of the Wallis report into the nation’s financial system, which had warned against such interference. Others – including Joe, Tony Abbott and Amanda Vanstone – talked about exceptional circumstances (like those revisited during the later global financial crisis) and urged the prime minister to act.
But it was politics – and the enormous media coverage of the catastrophic consequences of the collapse – that would end up driving the government’s final response. As the argument raged around the government’s top table, Howard also sought counsel from other senior business figures to ensure he understood every step. With a direction from Costello to have APRA sort out the mess, Joe and Andrew Lumsden headed over to the APRA offices, where a board meeting was in full flight. Joe sat there, getting angry, as the APRA Board talked about lessons from the fall. He couldn’t comprehend how they weren’t picking up on how calamitous the collapse was to the wider community.
‘I lost my patience,’ Joe says. ‘Listen, you guys were meant to supervise this company,’ he told them. ‘You’ve got to fix it.’
Reserve Bank governor Ian Macfarlane, who was on the Board, spoke up first and Joe left relieved that at least one person understood the dire outlook.
Joe didn’t have a clue who HIH CEO Ray Williams was. Nor did most of the media. But the public’s anger continued to rise, with Joe in the spotlight. A media pack followed him everywhere. One word would turn into a headline. Each time he spoke to the media, he would begin to sweat. That made him look as though he wasn’t in control, and worried his advisors, until his press secretary, Matthew Abbott, discovered the wonders of theatrical make-up. ‘I remember saying to one of the make-up ladies, what do you use? And they said you need to get this sort of make-up, so I went and got some,’ Abbott says.
Joe, for the first time since he was elected, really felt lonely. The young minister who wanted to stand out with his own gig now had it, and it wasn’t all it was cracked up to be, with both Howard and Costello allowing him to take the public lead, at least on HIH. The media bushfire continued to rage, encircling Joe. ‘I didn’t know who the hell Ray Williams was, and I was just bleeding,’ he says. ‘It was lonely, a blowtorch to the belly.’ ‘Sloppy Joe’, while a term coined years earlier at university to describe Joe’s hapless dress sense, was reintroduced to the public.
Joe was stuck, and didn’t know which way to turn. With advice from his associates he approached Gabrielle Trainor, a local woman in his electorate, whose specialty was corporate issues management. ‘He was in enormous trouble; there’s no doubt about that,’ she says. ‘It was the single biggest issue running for the government at the time and it went on and on and on. It’s hard to imagine many bigger issues in terms of their footprint.’
Gabrielle worked with Joe; they both knew an issue like this could drown a new minister. She was impressed with his smarts. ‘It was a very early way for Joe to understand the pressures of being a minister but also the full dimension of issues as they can be unleashed,’ she says. ‘I think it was actually a terrific experience for him to undergo at that time of his career.’ Gabrielle ensured Joe understood all the stakeholders, and mapped out a strategy. It was flawless. Working behind the scenes, she directed a hungry media towards Ray Williams. Who was he? What was his role? Wasn’t he to blame? The media turned away from Joe and towards Ray Williams. Joe, who had not yet got Cabinet support for a package of measures to counter the collapse, only agreed to be photographed or filmed with charts. He said nothing. It worked a treat.
As each day passed, another chapter would play out in the collapse, providing valuable lessons that Joe would use as he climbed the political ladder. One of those came after McGrath advised that they had to get the business running again, or all staff would have to be sacked. Joe’s first call was to Frank O’Halloran, who ran QBE Insurance. ‘He said Minister, we’ve already had a board meeting. We know it’s going to cost us, but we’re prepared to step in and take over this class of insurance.’ Joe thanked him, before putting in a call to Terry Towell, who ran Allianz. Terry heard Joe out, but said he needed to check with headquarters in Munich. He didn’t call back, and Joe was later told that Munich’s advice was direct: Allianz was not set up to help the government.
Joe was incensed. ‘In my mind, I stored this idea of selling everything [Australian businesses] off to the world. There’s the lesson. That’s lesson number two.’ The first lesson in foreign ownership had come earlier, when Australia’s gold industry was being sold off. Joe’s wife, Melissa, had been poached from Bankers Trust to Deutsche Bank to run its gold business. Every big gold mine in Australia was being sold overseas, taking with it big chunks of trading. Joe saw how it worked and he didn’t like it. He never forgot it, believing one day he would influence which Australian companies and resources were sold off overseas, and which would be kept in domestic hands, but probably not conceiving, at least then, that his first big decision as treasurer would be to decide on a takeover bid for GrainCorp by US food processing giant Archer Daniels Midland.
But it wasn’t only Allianz where Joe couldn’t get players onside. Infighting had broken out inside NRMA Insurance, and Rowan Ross had been appointed interim chair after Nick Whitlam left the organisation. The chief executive, Eric Dodd, who was also an ally of Joe’s, left soon after. Supporters of Ross claim Joe was interfering in a way a minister should not, that he had called to ask whether any management changes were planned prior to Dodd leaving, and again after he left to deliver a tirade of abuse. This story has Joe calling more to support a mate, than to lasso help in dealing with HIH.
Joe insists this was not the case. He says HIH had taught him to ask questions early and that the internal machinations at NRMA Insurance were a serious matter given the insurance industry was reeling in the wake of the HIH collapse. He says Dodd had also been helping the government in its bail- out package.
While the stories behind Joe’s motivation for making the call to Rowan Ross differ, broad agreement exists on what Joe said. ‘I rang him [Ross] and said, what the hell is going on,’ Joe recalls. ‘I said Rowan, I am sending everyone down to NRMA tomorrow and they’re going to give you an enema like you’ve never had. And I rang ASIC and APRA and the ACCC – all the regulators – and said I want you to raid NRMA publicly and I want it to have the enema it’s never had. I rang the Tax Office, too, and said you go through the joint.’ The pair have not spoken since.
The story is illustrative for a couple of reasons: firstly, throughout Joe’s career there is evidence that he is not always the buddy-politician that he comes across as. It was Rowan Ross in this instance, but others like Family First Senator Steve Fielding would cop the same treatment down the track. His staff, too, could feel the full force of his fury when his fuse was lit. The other characteristic is his willingness to step over the line of what a minister should and shouldn’t do, and it is that idiosyncrasy that became a hallmark of his time as tourism minister. For a
retail politician like Joe – and the punters who back him – that’s irrelevant. If he’s the minister, he’ll rule on those decisions where he has responsibility as he sees fit. But outbursts and fallings-out were the exception rather than the rule and Joe’s strength continues to be his ability to get people onside.
The political fallout prompted by the collapse of HIH continued to brew through the weeks that followed. Joe addressed another Cabinet meeting, held in Sydney. Howard agreed that something had to be done, and the only legitimate response was to provide relief to those who were hurting. An election was looming large. Howard and Joe sat on a phone in Sydney, talking to Costello who was in Canberra putting the finishing touches on the 2001 Budget. Howard told Costello they had no choice but to fund a rescue package. Costello asked for a dollar figure.
‘I said how much have you got?’ Joe says. ‘And he said, “No I’m not doing that. I’ll give you $300 million.” I said that’s a waste of time. It won’t even touch the sides.’
Eventually, more than double that was put aside, but with one stipulation. Costello wanted it spent by the end of the financial year; it had to be off the Commonwealth’s accounts in two months’ time. Joe called prominent businessman Dick Warburton. He needed a board to begin delivering HIH claims.
One of the criticisms of Joe during this period was that he was slow to act – both with APRA and in responding to the crisis. But Tony McGrath, the provisional liquidator, dismisses that opprobrium. ‘I’ve never seen in all my time of the work I’ve done such a quick response to what was such a large problem,’ he says. McGrath was at the centre of the crisis, and continues to hold Joe in high regard because of how he handled it. ‘He was over the detail. He understood the problem and he recognised the government had a role to play and he was the figurehead who brought all that to bear. I would imagine that that would not have been simple.’