National Australia Bank Research Articles

Including a Technical Factor with Physical and In-Game Movement Factors Improves Model Sensitivity When Evaluating Draft Outcome in Elite-Junior Australian Rules Football

Determining characteristics that define talent is critical for recruitment and player development. When developing predictive models, sensitivity is important, as it describes the ability of models to identify players with draft potential (true positives). In the current literature, modelling is limited to a small number of selected variables, and model sensitivity is often poor or unreported. The aim of this study was to determine how a technical factor combined with physical and in-game movement factors affects position-specific model sensitivity when evaluating draft outcome in an elite-junior National Australia Bank (NAB) League population. Physical, in-game movement, and technical involvement data were collated from draft-eligible (18th year) participants in the under 18 boys NAB League competition (n = 465). Factors identified through parallel analysis were used in binomial regression analyses. Models using factor combinations were developed to predict draft success for all-position, nomadic, fixed-position, and fixed&ruck players. Models that best characterised draft success were all-position (physical and technical: specificity = 97.2%, sensitivity = 36.6%, and accuracy = 86.3%), nomadic (physical and technical: specificity = 95.5%, sensitivity = 40.7%, and accuracy = 85.5%), fixed (physical: specificity = 96.4%, sensitivity = 41.7%, and accuracy = 86.6%), and fixed&ruck (physical and in-game movement: specificity = 96.3%, sensitivity = 41.2%, and accuracy = 86.7%). Including a technical factor improved sensitivity in the all-position and nomadic models. Physical factors and physical and in-game movement yielded the best models for fixed-position and fixed&ruck players, respectively. Models with improved sensitivity should be sought to assist practitioners to more confidently identify the players with draft potential.

The Intersection of the Rule in Yerkey v Jones and Contemporary Anti-Discrimination Law in Australia – Can the ‘Special Wives’ Equity Survive?

The High Court in Yerkey v Jones considered the enforceability of a guarantee provided by a married woman to secure her husband’s debts. Dixon J said that although the relationship of husband and wife did not give rise to a presumption of undue influence, the law had never been divested completely of ‘the equitable presumption of an invalidating tendency’. Dixon J’s formulation was essentially adopted by the majority justices in Garcia v National Australia Bank and their judgment thus represents the definitive endorsement of Dixon J’s view. Kirby J on the other hand rejected ‘the stereotype underlying Yerkey’, which he described as evidence of an ‘unprincipled discriminatory category’. This article advances the argument that the majority’s view of wives was stereotypical and accordingly would be inconsistent with the principles of contemporary sex discrimination laws which prohibit discrimination based on the assumption of stereotypical views. This inconsistency will be explored by first discussing the propositions that underpinned the Yerkey and Garcia, and by comparing them with the treatment of those propositions in contemporary discrimination law.

Executive Compensation and Financial Performance Measures: Evidence from Significant Financial Institutions

AbstractWe survey the use of financial performance measures in determining executive pay among significant Australian financial institutions. We document evidence of the pervasiveness with which externally disclosed non‐GAAP (non‐Generally Accepted Accounting Principles) financial measures are also used internally to determine variable remuneration, with the apparent popularity of cash profit after tax in short‐term incentives plans. Our evidence also highlights the increasing use of peer group‐adjusted measures (e.g., relative cash earnings per share and return on equity ranking against a peer group) in determining longer‐run incentives, despite the fact that members of the peer group do not measure financial performance in a directly comparable manner. Detailed analysis of the four major trading banks (Australia and New Zealand Banking Group, Commonwealth Bank, National Australia Bank and Westpac) reveals differences in the way non‐GAAP earnings measures are calculated across the major banks, as well as some variation over time in the way individual banks measure performance. We also document evidence of non‐GAAP earnings restatements, with around 25% of non‐GAAP results subsequently being restated. These restatements are more likely to result in a downward revision of the initially reported non‐GAAP result than an upward revision. We therefore conclude that existing measures of financial performance used to determine senior executive compensation are not as ‘objective’, as might be assumed.

Australia burning

Australia burning

The EU’S Struggles with Collective Action for Securities Fraud

Notwithstanding the apparent exit of the United Kingdom, the European Union (“EU”) has grown in membership and power since its modest beginnings after World War II, now rivaling the U.S. in economic strength. With the goal of promoting the security and prosperity of all the citizens of the countries that belong to it, the EU is pressing ahead to adopt laws that will promote their political and financial integration. Along those lines, it has also recently acknowledged a deficiency in the legal systems of its member states when it comes to allowing collective actions for victims of various types of economic harm. To address that, the EU is now developing guidelines for such procedures that can redress those injuries. In the area of securities fraud, establishing such measures has taken on more importance after both a spate of financial frauds by European companies and a significant decision from the United States Supreme Court, Morrison v. National Australia Bank. That ruling cut back on the jurisdiction of American courts to adjudicate these claims against foreign defendants—even when a significant amount of the wrongdoing has occurred in the U.S. This EU initiative to develop a collective jurisprudence to redress securities fraud also supports another goal that would foster European economic well-being. It would promote a shift in the financing of businesses there from debt to equity. That would particularly help small- and medium-size firms by giving confidence to investors in those enterprises that if they were cheated they would have an effective means to remedy that wrong. As it is now, such stock frauds can typically involve a large number of investors, many of whom have relatively small holdings. Individual actions in those situations are not only too expensive to maintain but are often inadequate to compensate all their victims and deter future misconduct. The availability of effective collective remedies would help Europeans overcome their reluctance to make equity investments and therefore provide more flexible capital structures to businesses. The European Commission10 (“Commission”) is therefore trying to fashion legal tools to address that problem. This involves enhancement of the EU’s mechanisms for stockholder litigation—what one commentator defines as “an umbrella term for various forms of suit and a range of claims brought by shareholders against the company in which they hold shares or against its directors and officers.” The EU’s proposals in that regard seek to encourage what it calls “collective actions,”—its analog to U.S. class actions—where many stockholders with small claims can join together and adjudicate them in one suit. Without such a corrective mechanism, the costs of litigation would be too great for those individuals, and they would not be able to counter the substantial resources that the defendants typically have. The EU’s proposals, however, lack features that have made American class actions so effective. The Commission is reluctant to embrace that model because of what it calls our “abusive practices.” Chief among them are contingent fees that compensate lawyers who represent shareholders harmed by these frauds. In addition, the Europeans appear determined to hold on to several rules that discourage lawyers from taking these cases. One is “loser pay,” which makes those who are unsuccessful in litigation liable for the legal fees of their counterparties who prevail. The potential of that heavy extra charge is a disincentive for lawyers who would take these cases. Another is that only plaintiffs who directly consent to be parties can be part of these actions (opt-in), as opposed to the more generous opt-out practice which includes all victims of the common fraud as plaintiffs unless they specifically choose not to participate. This Article will therefore offer comment on those deficiencies in the developing European model and encourage our friends across the Atlantic to take a more realistic approach to their reforms. The American experience with securities class actions certainly has its detractors and may have had some failings which have now been corrected. All and all, however, the U.S. approach has served our economy well by protecting investors, checking corporate wrongdoing, and affording compensation to defrauded investors. First, this Article will give a brief overview of the historic problems that European companies have had with an over-reliance on debt financing. It will then discuss how reforms like better redress for fraud can change that by giving equity investors a stronger belief that they will get a fair shake. The EU’s proposals are a step in the right direction to address that concern, and the Article will go on to describe the current state of their development. After that, it will use an American perspective to point out their shortcomings with the goal of highlighting the benefits of the U.S. model to European policymakers.

Analysis of Anti-Retaliation Provisions of the Dodd-Frank Act in Relation to Foreign Whistleblowers

Given the increasing globalization of corporations and the interest of Congress in increasing the incentives for whistleblowing as shown in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (hereinafter Dodd-Frank Act or Act), the absence of significant anti-retaliation protection for foreign whistleblowers is of concern. The Supreme Court has ruled that it will not extend United States security laws to extraterritorial jurisdictions in Morrison v. National Australia Bank thereby limiting the ability of foreign whistleblowers to participate in the anti-retaliation provisions of the Dodd-Frank Act. The paper will first review the whistleblowing and anti-retaliation provisions of the Act before addressing whether the lack of these protections for foreign whistleblowers could undermine the effectiveness of the Act in relation to possible infractions by foreign corporation registrants with the Securities and Exchange Commission (SEC). The paper cites data regarding the number of foreign whistleblower reports, foreign corporation SEC registrants, and enforcement proceedings of the Public Company Accounting Oversight Board (PCAOB) to provide a basis for the conclusions reached.

Global Settlements: Promise and Peril

In 2010, Morrison v. National Australia Bank Ltd. destabilized the world of securities litigation by denying those who purchased their securities outside the U.S. the ability to sue in the U.S. (as they had previously often done). Nature, however abhors a vacuum, and practitioners and other jurisdictions began to seek ways to regain access to U.S. courts. Several techniques have emerged: (1) expanding settlement classes so that they are broader than litigation classes and treating the location of the transaction as strictly a merits issue that defendants could waive; (2) adopting U.S. law as applicable to securities issued abroad by crosslisted companies (as Israel has done); (3) use of the Netherland’s WCAM statute to effect a global resolution of a settlement class; and (4) coordination between the courts in both jurisdictions in the case of a cross-listed stock. On the horizon is still a more ambitious technique: use of supplemental jurisdiction to permit a class of foreign claimants to be combined with a class of U.S. claimants. Early decisions have divided on this technique. This article suggests guidelines for courts to follow in whether to allow foreign claimants in securities actions to re-enter the U.S.

Whale Watching on the Trading Floor: Organizational Misbehaviour, Collusive Rogue Trading, and Corporate Culture Deficits in the Investment Banking Industry

Recent history reveals a series of rogue traders, jeopardizing their employer’s assets and reputation. There have been instances of unauthorized acting in concert between traders, their supervisors, and/or firm’s decision makers and executives, resulting in collusive rogue trading. We explore organizational misbehaviour theory and explain three major collusive rogue trading events at National Australia Bank, JPMorgan with its London Whale, and the interest reference rate manipulation/LIBOR scandal through a descriptive model of organizational/structural, individual, and group forces. Our model draws conclusions on how banks can set up behavioural risk management and internal control frame-works to mitigate potential collusive rogue trading.

The Myth of Morrison: Securities Fraud Litigation Against Foreign Issuers

Using a sample of 388 securities fraud lawsuits filed between 2002 and 2017 against foreign issuers, we examine the effect of the Supreme Court's decision in Morrison v. National Australia Bank Ltd. We find that the description of Morrison as a steamroller, substantially ending litigation against foreign issuers, is a myth. Instead, we find that Morrison did not significantly change the type of litigation brought against foreign issuers, which, both before and after this case, focused on foreign issuers with a U.S. listing and substantial U.S. trading volume. Although dismissal rates rose post-Morrison, we find no evidence that this was related to the decision. Settlement amounts and attorneys' fees remained unchanged post-Morrison. We use these findings to theorize that Morrison was primarily a preemptive decision about standing that firmly delineated the exposure of foreign issuers to U.S. liability in response to the Vivendi case, which sought to expand the scope of liability for foreign issuers whose shares traded primarily in non-U.S. venues. When Morrison is placed in its true context, it is justified as a decision in line with administrative and court actions that have historically aligned firms' U.S. liability to be proportional to their U.S. presence. Although Morrison had this defining effect, it did not change the litigation environment for foreign issuers, which was the oft-cited import of the decision. More generally, our analysis of Morrison underscores how the decision has been mistakenly characterized as a case primarily about extraterritoriality rather than standing.

Transnational Dealings - Morrison Continues to Make Waves

Morrison v. National Australia Bank Ltd. drastically altered the landscape for transnational securities litigation and the way that courts determine proper application of a statute concerning a transnational claim. The Supreme Court’s characterization of extraterritoriality under the Securities Exchange Act as a merits-based inquiry has led to a reexamination of limitations under other federal statutes that were previously thought to be jurisdictional issues. Significantly, Morrison created a road map for courts to follow when the extraterritoriality of a statute is brought into question. The key to proper application of a statute is to decipher the minimum U.S. contacts required to state a transnational claim. The tests developed addressing this inquiry are critical in discerning the boundaries of U.S. law at a time when transnational dealings are prevalent.

Private Litigation Costs and Voluntary Disclosure: Evidence from theMorrisonRuling

ABSTRACTWe examine the causal effect of expected private litigation costs on voluntary disclosure using a natural experiment, the Supreme Court ruling in Morrison v. National Australia Bank. Even though this ruling had no effect on what constituted fraudulent conduct for the purpose of securities litigation, it significantly reduced the expected private litigation costs for foreign cross-listed firms by reducing the pool of potential claimants. It did so by eliminating the right of shareholders who purchased shares on non-U.S. exchanges from seeking compensation in U.S. courts. In the post-Morrison period, we find consistent evidence showing a decrease in voluntary disclosure using analyses that exploit the varying impact of the ruling based on both firm- and country-level attributes. Unlike a number of prior studies, we find that the positive relation between litigation and disclosure does not depend on the direction of the news.JEL Classifications: G15; G18; M41.Data Availability: Data are available from the public sources cited in the text.

What makes the bonding stick? A natural experiment testing the legal bonding hypothesis

We use a US Supreme Court case, Morrison v. National Australia Bank (2010), as a natural experiment to test the legal bonding hypothesis. By decreasing the potential liability of US-listed foreign firms, particularly due to class action lawsuits, Morrison arguably eroded their legal bonding to compliance with disclosure duties. Nevertheless, we find evidence of an increase or insignificant change in share values. Tests of longer-run effects of the legal event indicate that foreign firms’ disclosure quality and likelihood of facing enforcement actions remained stable, as did investors’ revealed preferences for trading on US markets. These results go against the legal bonding hypothesis but are consistent with reputational bonding and with market-based accounts of US cross-listing. Our results may contribute to ongoing debate about civil enforcement of securities laws through class actions.

The Supreme Court, the SEC, and International Issuers: Public Enforcement after Morrison v. National Australia Bank

This Article examines SEC enforcement policies and seeks to find the optimum approach to enforcement against foreign private issuers. My previous empirical study of securities class actions against foreign firms identified a number of crucial developments that mainly occurred after Morrison v. National Australia Bank. In Morrison, the Supreme Court sought to limit the extraterritorial reach of the anti-fraud provisions of the U.S. securities law. The Court has scaled down the exposure of foreign issuers to securities liability risk, particularly in class-action litigation. If the Supreme Court in Morrison has created a risky enforcement lacuna on the side of private class actions against foreign corporations, how should the SEC adjust its enforcement strategy? To answer this question, this Article presents an empirical survey of SEC enforcement actions against foreign issuers between 2005 and 2016. The results suggest that the SEC consistently pursues a lenient enforcement approach in this area. This low-key policy is the Commission’s dominant strategy. The Article also discusses post-Morrison doctrinal developments, market trends, and red flags potentially indicative of an increased risk of fraud. Although the traditional low-key enforcement policy may attract some foreign “lemons” in the post-Morrison environment, the SEC should not depart from its dominant strategy and engage in more enforcement actions. Instead, the warning signs identified in this paper call for better preventive monitoring. The Article suggests a number of low-cost fraud prevention policies, including promoting cooperation with foreign firms, using new data analysis programs, and galvanizing market “gatekeepers.” Through implementing the mechanisms suggested in this Article, the SEC may reach a more efficient level of deterrence without ramping up enforcement and increasing the costs of foreign firms seeking to access American capital markets.

Extraterritoriality of Securities Law Redux: Litigation Five Years after Morrison v. National Australia Bank

In the famous Morrison v. National Australia Bank case, Justice Scalia mounted an attack on plaintiffs with tenuous connection to U.S. capital markets and attempted to rein in class actions against international corporations. Despite Morrison’s broad implications, there is no consensus on its ultimate impact. This Article contributes to this discussion by examining the risk of litigation faced by foreign firms before and after Morrison. The research reviews securities class actions between 2005 and 2015. The timeframe of the reported filings is from January 2005 through December 2015, i.e., about five years before and five years after Morrison. We report data obtained from the filings and related court decisions, updated as of November 30, 2016. The Article concludes that, first, the actual risk of litigation has become more ascertainable and slightly lower than before Morrison. Second, Morrison affected the composition of the plaintiffs’ class membership. Based on mean and median settlement values, it may be associated with lower litigation costs and resultant losses to securities litigation defendants. Third, the results suggest that when firms select a cross-listing mode (i.e., an exchange listing or OTC trading), they effectively choose their level of commitment to U.S. markets through not only the ex-ante known reporting costs, but also projected litigation costs. Fourth, the research reviews the timing of settlements and dismissals vis-a-vis the types of cross-listing programs. Although more research is needed in this area, Morrison may have enabled foreign firms to rule out inflated assessments of the risk of litigation and to more precisely determine the expected value of their cross-listing programs net of litigation.

Extraterritoriality of Securities Law Redux: Litigation Five Years After Morrison v. National Australia Bank

In the famous Morrison v. National Australia Bank case, Justice Scalia mounted an attack on plaintiffs with tenuous connection to U.S. capital markets and attempted to rein in class actions against international corporations. Despite Morrison’s broad implications, there is no consensus on its ultimate impact. This Article contributes to this discussion by examining the risk of litigation faced by foreign firms before and after Morrison. The research reviews securities class actions between 2005 and 2015. The timeframe of the reported filings is from January 2005 through December 2015, i.e., about five years before and five years after Morrison. The Article reports data obtained from the filings and related court decisions, updated as of November 30, Extraterritoriality of Securities Law Redux: Litigation Five Years After Morrison v. National Australia Bank 2016. The Article concludes that, first, the actual risk of litigation has become more ascertainable and slightly lower than before Morrison. Second, Morrison affected the composition of the plaintiffs’ class. Based on mean and median settlement values, Morrison may be associated with lower litigation costs. Third, the results suggest that when firms select a cross-listing mode (i.e., an exchange listing or OTC trading), they effectively choose their level of commitment to U.S. markets through not only the ex-ante known reporting costs, but also projected litigation costs. Fourth, the research reviews the timing of settlements and dismissals vis-a-vis the types of cross-listing programs. Although more research is needed in this area, Morrison may have enabled foreign firms to rule out inflated assessments of the risk of litigation and to more precisely determine the expected value of their cross-listing programs net of litigation.

A Broken Record: Amending and Removing Registrations on the PPSA

This article examines a recent decision of the Federal Court in National Australia Bank Ltd v Garrett [2016] FCA 714, which considered the provisions applying to the removal of a registration under Pt 5.6 of the Personal Property Securities Act 2009 (Cth). This article will outline the relevant facts and the conclusion of Beach J in approving the application for amendment of the relevant registration, before turning to examine the wider issues raised by the decision. This article discusses whether the present civil penalty and enforcement provisions under the PPSA are being appropriately utilized, and whether the Registrar has the capacity to exercise its powers effectively considering the large volume of demand applications made annually. In addition, this article addresses the current onus of proof under these provisions, and whether it is appropriate to place the evidentiary burden upon an applicant who applies for the Register to be amended rather than the party who has registered the disputed interest. Finally, this article considers whether the process for amending the Register under the PPSA should instead be aligned with that presently applied to the lodgment and removal of caveats under the Torrens title system. This article posits the view that the fundamental inquiries of each statutory test justify such a shift, and would remove considerable strain from parties presently affected by unmeritorious registrations.

Exploring the implications of integrated reporting for social investment (disclosures)

The purpose of this study is to examine the evolution of corporate reporting on social investment activities in the context of a global move toward integrated reporting approaches. The paper adopts both a conceptual and content analysis approach to examining the reports of four multi-national corporations – Heineken, Unilever, Glaxo Smith Kline (GSK), and the National Australia Bank (NAB). We find that the purpose and outcomes of social investments became more clearly articulated and associated with longer term notions of progress, risk and strategy over the period of our study (2009–2013). This applied to all four companies, although only two (NAB and Unilever) had formally committed to the International Integrated Reporting Council’s (IIRC) Pilot Programme. Further, reporting in GSK, Heineken and NAB transformed to telling more human-centred value creation stories. We argue that stewardship theory, isopraxism and isomorphism offer explanatory power for the identified changes in reporting with isomorphism and isopraxism together being useful in explaining differences and similarities in integrated approaches to corporate reporting. ClassificationConceptual + Case Study.

Containing the Uncontainable: Drawing RICO's Border with the Presumption Against Extraterritoriality

In Morrison v. National Australia Bank Ltd. the Supreme Court disseminated a two-step test to determine the extraterritorial reach of all federal statutes, radically shifting the application of U.S. laws. Nowhere has this decision caused more upheaval than in the context of analyzing claims under the Racketeering Influenced and Corrupt Organizations Act (RICO): while courts have reached broad agreement that RICO does not apply extraterritorially, courts disagree over the proper standard to determine when a RICO case is domestic or foreign. This Note explores RICO’s origins, the statute’s legislative history, and the evolution of RICO’s extraterritorial application in Morrison’s shadow. This Note then sifts through the conflicting approaches employed by courts faced with RICO cases involving foreign elements before ultimately advocating an alternative approach that accurately applies the Supreme Court’s Morrison decision and faithfully embodies RICO’s legislative history and intent.

The Presumption Against Extraterritoriality in Two Steps

For the past twenty-five years, the presumption against extraterritoriality has been the Supreme Court’s principal tool for determining the geographic scope of federal statutes. In 2010, Morrison v. National Australia Bank used the presumption to decide the scope of Section 10(b) of the Securities Exchange Act, which prohibits securities fraud. Morrison approached the question in two steps. First, it looked for a “clear indication of extraterritoriality” to rebut the presumption and found none. Second, it looked to see if application of the statute would be domestic or extraterritorial by examining the “focus” of the provision. Plaintiffs argued that applying Section 10(b) would be domestic because the alleged fraud occurred in the United States, although they had bought their shares in Australia. The Court disagreed, holding that application of Section 10(b) would be extraterritorial because “the focus of the Exchange Act is not upon the place where the deception originated, but upon purchases and sales of securities in the United States,” and in this case the transaction occurred abroad.

The Scope and Limitations of the Presumption against Extraterritoriality

In RJR Nabisco v. European Community, the Supreme Court addressed the extraterritorial application of U.S. law for the third time in six years—in this case examining the geographic scope of the Racketeer Influenced and Corrupt Organizations Act (RICO). The decision consolidates and in certain respects expands upon the test for analyzing extraterritoriality issues that the Court had introduced in Morrison v. National Australia Bank and refined in Kiobel v. Royal Dutch Petroleum. It also provides further evidence of the Court’s continuing quest to identify categorical, territory-based rules governing the application of U.S. statutes in cases involving significant foreign elements. As I will argue, however, like other recent decisions, RJR raises doubt as to the sufficiency of such rules to address the messy and often unpredictable patterns of transnational economic activity.