Woolworths Limited: Corporate Governance Essay And Public Criticisms.

About Woolworths Limited

Discuss about the Woolworths Limited and Criticisms From Public.

Corporate Governance is a set of rules and regulations basis which a company is directed to perform and is controlled as well. Basically it is concerned with maintenance of a balance of interest between the various stake holders of a company such as the shareholders, creditors, employees, the government regulators as well as the society as a whole. The economic condition in today’s world is such that adherence to these corporate regulatory requirements and governance is of utmost importance. Lack of adequate governance has led to bankruptcies such as that of One Tel, Lehman Brothers and many more. But it is also to be understood that corporate governance policies once formulated needs timely review as well so as to ensure its effectiveness. Increasing globalisation and its importance has posed a challenge for these regulators.

Australian companies are looking ahead to expand globally but at the same time maintaining their Australian identity. Globalisation is good for the economy of Australia but at the same time adequate corporate governance too which are ruled by a range of regulatory authorities such as the Australian Securities Exchange (ASX), the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investment Commission (ASIC). However the same is mixed with the other intended requirements which form the corporate governance in Australia.

The said paper talks about how Woolworths Limited has been performing in the recent past, highlighting upon the governance protocols and practices it has been following. Further the areas where the Company has succeeded and similarly the areas where it has failed in its Corporate Governance practices.

The said company is listed in the ASX and is a leading business entity engaged in the food and beverage industry which also produces liquor. It is into retail business and is ranked as number two after Wesfarmers. It is known under the brand name Woolworths in Australia and Countdown in New Zealand. The company’s current year’s performance was not so promising wherein it reported a loss of $1.235 billion for the financial year 2016. This is the biggest ever loss reported in two decades since the Company became a part of the ASX. The main reason behind the same was that it had to write down more than $2 billion due to a failure in the Masters Business and losses it suffered in the Big W business (Australian Food News, 2015).

Criticisms Faced by Woolworths Limited

Woolworths Limited is a multi-faceted organization and its recent loss is eye catching for everybody, all its investors and the stake holders. So much that hundreds of employees have lost their jobs Although corporate governance has always been the most important stance of the company i.e. to ensure that the shareholder’s wealth is maximised and their funds are not misappropriated. It ensures that its board of directors act in the most ethical manner and perform their duties in the best interest of the company. As per the governance framework of the Company, the entire board is elected by the shareholders but for the CEO and the Managing Director. The board of directors’ main role was to ensure that the performance of the various businesses is done as per the policies and strategies. The decisions of the CEO are approved by the Board. Further it also states that the CEO is responsible the conduct of the daily operations of the company in accordance with ethical standards which involves ensuring a transparent attitude towards the employees.

Current year’s performance of the Company made it face various criticisms. It clearly shows that what it states in the Corporate Governance Statement and what it delivers are contrasting by nature. The failure of Masters was a big hit over the corporate governance which the Company used to follow. The year 2009 was the one when the Board was over-confident and certain egotism had pervaded into the higher echelons of the company, they ended up investing in Masters (Swan, 2016). Since then, the said segment of the Company has never made profits out of the same yet continued with the said business for five long years until the losses soared up to $500 million. This is an example of bad governance by the Board who did not pay heed to the loss that the said venture is incurring on a year on year basis and putting in a pressure on the top line of the Company (McConnell, 2016). Further the Board did not even take initiatives to improvise on the said business so as to turn the said project profitable. It worked in a manner which would never entail benefits to the Company i.e. it tried to copy the market that exists in United States in Australia without understanding the demands of the citizens of Australia.  The Company took too long to understand that the decision taken by the then Chairman was a mistake.

Without paying heed to the value of the shareholders wealth and in order to give a big competition to Bunnings – part of Wesfarmers business, the Company ended up losing a lot of the shareholders wealth. The Board in order to concentrate its efforts towards Masters, ended up ignoring the profitability of the entire group i.e. failed to concentrate upon its core business of food and beverages. This is where the company lacked in performing its duties of corporate governance (legalvision.com, 2016). They failed to perform one of the most important objective i.e. enhancement of the shareholder value along with ensuring that the activities of the Group are managed efficiently.

Although the corporate governance statement pronounced by the Company states the Risk Management Policy and Framework yet the same was not followed in the said case. The risk management team’s main objective was to conduct a timely assessment of the various businesses in which the Company is involved, especially the loss making wings and analyse as to how it was impacting the company’s overall strategies and performance. Its objective also includes safeguarding of Company’s assets as well. However it failed to deliver in case of Masters and did not exemplify the impact it was making on the overall performance of the Company so much that it had to report a loss breaking the record of past twenty years.

The 2009 Board was so stubborn that the Company well knew that there was a high barrier to the entry in this segment due to dominance of Bunnings yet it kept on insisting due to which there costs increased (Pash, 2016). However the previous Board did not deter from its decision and tried to prove to the stakeholders that their decision was right. In order to prove the same they ended up compromising upon the main motto of the Company.

When the new Chairman was ultimately appointed and the composition of the Board was altered, it is then that there was a revolution bought to the strategizing of the business of Woolworths Limited. Unfortunately, even at present the Company has not been able to get away from the directors who were a part such a disastrous decision. One of the main persuader of the said expansion of hardware was the then director of business development – Grant O Brien. He was the one responsible for the roll out of the same who failed to even understand the market demand of Australia (Evans, 2016). However after two years of acquiring Masters, he became the chief executive of the entire Woolworths. His sudden approach of increasing its profitability margins was not taken in the right stride by the customers and they chose to leave Woolworths and shop elsewhere. However he is still the chief executive while a replacement is being searched for.

The most shocking was that the Company ended up experimenting for five long years with the wealth of outsiders who believed in the Company and its performances. Further the corporate governance protocols define the members of the board to act in a trustworthy manner but they ended up breaking the same. Another criticism which the Company faced with regards the said failure was the lack of a good work culture. The competitor had a more open ended structure whereas Woolworths’ Masters structure was close ended wherein the policy had in clear terms stated “all staff were to park tail-in to the kerb” (Stewart, 2016). The Company failed to involve its customers too.

The most obvious reason for such a failure was lack of adequate strategy and thought before implementing any decision. The Board behaved immaturely so much that it ended up buying lands so that the competitor Bunnings would not open up newer stores and frustrate the same. The said approach in itself was very childish not expected to be taken by the Board of a company like Woolworths (Murphy, 2015). Further the kind of stores it opened made people believe that its products would be expensive and hence they stuck to their old stores.

Another highly unexpected step taken by the Company was that in order to uphold the Masters Business, Woolworths ended up compromising on their main business of supermarket chains which protected the margins of the company so as to neutralise the impact of the losses it suffered due to Masters (Bartholomeusz, 2016). This was again a decision extremely criticised by the shareholders and the investors as the same led the Wesfarmers and the Coles to gain momentum in the race.

Another example of bad corporate governance followed by the management of Woolworths Limited was with regards Big W’s turnaround strategy. Employees of a concern are also the responsibility of the management and they have to ensure to maintain a balance of interest with them and the society as a whole (Thumm, 2016). However it failed to do and did not maintain the required level of transparency and ethical behaviour with them. According to the Australian Financial Review, Big W has handled its severances improperly and that its employees were unaware of the swivel strategies of the Company. The Board has been performing in a manner which is highly unacceptable as per the general practices of code of conduct of business. Without giving any prior or satisfactory justifications it has rolled back its purchase contracts thus hauling the long term suppliers with huge stock. Thus this move hampered the reputation as well. Although the Company officials and the management has full rights to take decisions for the well being of the group but the same should be in accordance with certain policies and protocols which it has laid down in its Corporate Governance Statement(O’Neill, 2016). But unfortunately it is being criticised of working out of the policy document thus hurting the sentiments of its various stakeholders such as the investors, employees, suppliers and the community it serves as a whole.

Presently the Company has promised to introduce a new operating model so as to enable the Company come out of the rags by focussing mainly on the core business of super market and liquor retailing. It has also decided to strengthen the corporate governance structure which was the main reason behind the tragic fall and losses it suffered from years. The Ezibuy has been divorced from Big W and all efforts for selling the former is being made. BIG W, ALH and Quantium all are to have separate governance with better transparency so as to achieve the highest values to the investors and the other stakeholders.

Bradford Banducci, the new CEO of the Company has made many promises and all his efforts are steered towards regaining the lost power and reputation of the Company. The confidence that the investors had lost in the Company would be regained once the new board proves itself to be working for the benefit of the Company and not for personal interest. He is the man behind making Dan Murphy the leading liquor store of Australia and is the one of the fewer investments made by the Company which is running into profits (Woolworthsgroup.com, 2016). He is into the continuous task of rebuilding the worth of Woolworths.

Conclusion

On summarising the performance of Woolsworth Limited it is understood why the public has been criticising its business performance off late. The mistake the Company had done in the year 2009 yielded very disheartening results leading to breaking of trust of customers, staff as well as the investors. Ego coupled with over confidence led to the disruption of the outperforming company. In order to hide one’s own faults the then Board ended up sacrificing the leading supermarket retail business chain of Woolworths as well. The Australian government and the regulators should strengthen their policies to such an extent so as to ensure that mandatory checks and regulatory audits are conducted so as to ensure that the decisions of the Boards are also reviewed. Unfortunately the officials had forgotten that even though they are sitting at the helm, yet they are not the owners of the Company and they owe a sense of responsibility towards the stakeholders. The new CEO, although seems to be promising yet the same cannot be construed so early whether he would be able to pull Woolworths out of the drain.

References:

Australian Food News, (2015), Concerns about trends in Woolworths results, Available at https://www.ausfoodnews.com.au/2015/03/02/concerns-about-trends-in-woolworths-results.html (Accessed 26th November 2016)

Bartholomeusz, S., (2016), End of Woolies’ Masters Disaster, The Weekend Australian [Online], Available at https://www.theaustralian.com.au/business/opinion/stephen-bartholomeusz/end-of-woolies-masters-disaster/news-story/0c66eb3b3c504b2efd8e03aa9db5c15d (Accessed 26th November 2016)

Evans, S., (2016), What went wrong at Woolworths ‘ Masters,The Sydney Morning Herald [Online], Available at https://www.smh.com.au/business/retail/what-went-wrong-at-woolworths-masters-20160118-gm8fge.html (Accessed 26th November 2016)

Legalvision.com, (2016), Masters Closure : Why It Failed and What Next, Available at https://legalvision.com.au/masters-closure-why-it-failed-and-what-next/ (Accessed 26^th November 2016)

Murphy,J., (2015), Masters in the screw up that could hammer Woolsworth – and the rest of us, Available at https://www.news.com.au/finance/business/retail/masters-is-the-screw-up-that-could-hammer-woolworths--and-the-rest-of-us/news-story/ed95848f906b7eeb3399f8378784e3eb (Accessed 26th November 2016)

McConnell, P., (2016), Masters- A Failure of Corporate Governance, Available at https://www.smartcompany.com.au/finance/49655-masters-a-failure-of-corporate-governance/ (Accessed 26^th November 2016)

O’Neill, S., (2016), Why the Woolworths Limited share price is going nuts today?, Available at https://www.fool.com.au/2016/07/25/why-the-woolworths-limited-share-price-is-going-nuts-on-better-grocery-performance/ (Accessed 26^th November 2016)

Pash, C., (2016), Why The Masters Hardware Business Failed, Available at https://www.lifehacker.com.au/2016/08/why-the-masters-hardware-business-failed/ (Accessed 26^th November 2016)

Raszkiewicz, O., (2015), 3 key takeaways from Woolsworth Limited’s annual report, Available at https://www.fool.com.au/2015/08/28/3-key-takeaways-from-woolworths-limiteds-annual-report/ (Accessed 26^th November 2016)

Stewart, E., (2016), Masters: Five reasons Woolworths is pulling the plug on struggling hardware chain, Available at https://www.abc.net.au/news/2015-05-06/five-reasons-woolworths-is-being-hammered-on-hardware/6450364 (Accessed 26th November 2016)

Swan, P., (2016), Experienced shareholders better than independent directors for business, Available at https://newsroom.unsw.edu.au/news/business-law/experienced-shareholders-better-independent-directors-business (Accessed 26th November 2016)

Thumm, J., (2016), Big W’s Awkward Turnaround Strategy, Available at https://www.powerretail.com.au/news/big-w-strategy/ (Accessed 26^th November 2016)

Woolworthsgroup.com., (2016), 2016 Annual Report, Available at https://www.woolworthsgroup.com.au/icms_docs/185865_annual-report-2016.pdf, (Accessed 26^th November 2016)