Baby-faced Hodge lands killer blow against IOOF chief's ducking and weaving

Michael (Baby faced) Hodge versus Chris (Killer) Kelaher was the royal commission’s top billing bout on Friday. It was bloody - and one well worth the price of the admission. It followed the morning’s supporting act in which counsel assisting Hodge made mincemeat of IOOF’s distribution manager Mark Oliver.

Chris Kelaher did his best to avoid the punches.
Photo: supplied

The point of the exercise was to get to the bottom of how IOOF had compensated members for a distribution error - what triggered the compensation and whether the members ultimately paid for it themselves.

And there was plenty of allegations of conflicts of interest, tensions with the financial regulator and the transparency issues that dog so many in the superannuation industry dotted throughout Friday’s fight.

What should have been a straightforward inquiry became a ducking and weaving exercise by IOOF’s chief executive Kelaher and a frustrating and heavy workout for Hodge.

Lots of sighing and negative body language left the crowd with the impression that Kelaher didn’t want to be there.

He needed a rebuke from Commissioner Kenneth Hayne and a request from him to "be good enough to listen to the question asked".

Ultimately Hodge landed some really big punches before the lunch intermission gave the combatants an opportunity to catch their breath.

Kelaher lost the later rounds but really covered himself in very little glory from the moment he got on the stand.

He was either ill-prepared for questions or unqualified to answer them. On several occasions he said he could not remember events that had taken place several years ago while at other times his expertise didn’t extend far enough.

What appeared to be Kelaher’s disdain for the proceedings showed in a confident near cocky attitude when he began his evidence.

He disagreed with many of the contentions made by Hodge and conceded little in his early evidence.

Earlier, we learnt that IOOF had been tardy with supplying the commission with documents and had argued unsuccessfully that a number remain confidential.

As is now the well established pattern of counsel assisting and corporate witnesses, the groundwork is done in the early stages, the scenes are painted and the traps set.

But Kelaher seemed blind to the possibility that notes, documents, board papers, letters etc with his metaphorical fingerprints would be his undoing.

When pushed up against the wall by the weight of documentary evidence, he was still loath to make many concessions - suggesting that counsel assisting’s constructions didn’t accord with his own.

Kelaher mantra was that IOOF was hell bent on remediating those members who had been short-changed. But Hodge suggests that Questor (the trustee) is causing the members to compensate themselves.

Kelaher conceded that at no point was it contemplated that IOOF be the source of compensation funding.

"I guess the company could pay, yes," Kelaher says.

Why was that not considered?

Senior Counsel Assisting Michael Hodge QC at the Banking Royal Commission.
Photo: Archives

"There was a reserve there that covered events such as these so it was considered appropriate to use the general reserve."

Commissioner Hayne asks whether the company was the "first and obvious" source of compensation?

"Yes, that's an available view," Kelaher says by this stage wobbling from the volley of blows.

(APRA later found that IOOF's remediation was not in the best interests of super fund members.

The regulator demanded that the super fund general reserve needed to be immediately replenished by Questor.)

It was on the subject of misleading statements to IOOF’s own investors that Hodge landed a clean resounding blow.

IOOF told them it had made an historical distribution error which was identified in a periodic review that resulted in income being credited at a lower rate.

Hodge asked Kelaher: "Is it also an ambition to be truthful with members?"

Kelaher said yes and Hodge immediately hit back with "It wasn't an error, it was a deliberate distribution".

Kelaher agreed and conceded it was not precise.

Hodge: By not precise, do you mean misleading?

"Yes, it's capable of being misleading," Kelahe ultimately had to admit.

Exactly how Kelaher and IOOF will recover from Friday’s events is difficult to fathom.

The company' behaviour, its attitude and its lack of contrition needs to be visited by the board and dealt with.

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