Events in the National Australia Bank foreign exchange scandal took a dramatic and somewhat unexpected turn last week following the release of the Australian Prudential Regulation Authority’s (APRA) report on the matter. Previously, it was the irregular activities of four rogue traders, leading to the NAB’s loss of $360 million, that had occupied business and corporate finance, both here and overseas. But by the end of the week, matters had become very personal. Talk of risk management and good corporate governance principles gave way to the beginnings of a battle royal pitting NAB board member and former audit committee head Catherine Walter against the rest of the board.

Walter, a former Clayton Utz managing partner and highly experienced corporate lawyer, had repeatedly called into the question the independence of an investigation of the forex scandal by PricewaterhouseCoopers. She also claimed the board is failing to confront the internal problems that allowed the rogue traders to put NAB at considerable risk; rather, it has chosen to focus on her and her position. And even if the board hasn’t, certainly she and her position are now the focus of everyone else.

For his part, chairman Graham Kraehe claims the board took steps to investigate Walter’s concerns, but that her actions, including her reserving the right to communicate information outside the board while chair of the audit committee, had lost her the trust and respect of her fellow executive directors.

On Friday, with the gloves all but off, Kraehe told Walter the other non-executive directors were calling for an extraordinary general meeting to have her sacked. Kraehe asked for her resignation, but Walter declined. Nothing had changed as far as she was concerned.

Then on Sunday, Walter upped the ante by calling for an EGM herself and releasing a resolution of her own. A date for the meeting was being set as Lawyers Weekly went to press. If approved, that resolution would have her removed from the position of director one week after the meeting. Kraehe and the other non-executive directors would serve out their current terms on the board but would not be allowed to offer themselves for re-election and would forfeit all retirement benefits.

The message contained in Walter’s resolution might look like a simple ‘if I go, you go too’. But Walter is also signalling to shareholders that the bank has problems — something they have probably cottoned onto by now — that the incumbent directors are not in a position to fix. Specifically, she calls on the company to censure the board “as a whole for being ultimately responsible to the members for the failings which led to the forex losses”. She also moves the shareholders request the board “to immediately begin the search for a new Board Chairman of international standing able to provide the leadership necessary for renewal and restructure of the Board, the governance and its culture”.

Following its report, APRA advised NAB “it must commence a program” to implement all the “required” actions identified in the report, according to an APRA-approved timetable. Until the regulator is satisfied these actions are complete the bank must: raise its internal target capital adequacy ratio to 10 per cent; cease using its internal model to determine regulatory market risk capital (instead, using the standard regulatory model); and to keep its currency options desk closed to corporate business and proprietary trading.

To date, the bank does not appear to have attached the weight to these requirements that APRA undoubtedly intended. Rather, they have been treated as advice or even suggestions. Shareholder support for Walter, however, is likely to change that attitude and therefore increase the chances of the requisite changes being made to NAB’s processes and systems.

After the dressing down APRA received in the wake of HIH, the regulator was under considerable pressure to exert its authority. NAB was, as one commentator put it, “the first cab off the rank”. Plagues on effective risk management and corporate governance, as well as company cultures that encourage employees to exploit inefficiencies in governance structures, undoubtedly exist in other large organisations. But the fact is NAB took it on the chin before they did, offering these organisations the chance to learn from the bank’s transgressions. The forex scandal has allowed a clearer picture to emerge of what constitutes shortcomings in risk management — as well as how APRA works with large organisations.

The papers may be preparing for Walter v The Board, and certainly it’ll be an interesting scrap in the tradition of Coles and AMP. But as Walter herself has observed, their battle is a distraction from the real issues of accountability that the scandal has raised.