Taking stock: Five enduring lessons for business going into the new year

Sometimes good, and often bad, Australian business is never short of generating its own hard-won lessons. And the past year delivered plenty.

Woolworths took the mantle from Qantas to become the public’s big business bogeyman. Founders such as Richard White and Chris Ellison stole the spotlight, and even Qantas was still trying to fly out from the
shadow of former boss Alan Joyce.

For business, it was a year of contradictions. The sharemarket hit a record high, but business had to navigate the deepest sustained downturn since the Global Financial Crisis.

Inflation and high interest rates took their toll on customers, slowing sales.

It was also a year of transition at the top, with three of four big bank bosses stepping down and new bosses for Bendigo Bank, Myer, Star Entertainment, Magellan, Endeavour, Brickworks – as well as WiseTech and Mineral Resources.

These are five enduring lessons of the past year for business.

Master the message

The fortunes of retailer Woolworths unravelled, and arguably it began with chief executive Brad Banducci trying to do too much at once, including taking his eye off the ball with a string of marginal acquisitions.

But Banducci in his final months at the retailer had several shocking media interviews, and this culminated in his disastrous handling of hostile politicians.

The public persona was an aloof CEO who was out of touch around the pain points of his customers.

However, this was light years away from the real Banducci. In September, the CEO spent his last week on the job working the supermarket floor and a stint on the cash register, but it was all too late.

Banducci had struggled to articulate a consistent and clear message, particularly around being on the side of his customers. This opened him and his supermarket up for further attack. Then it was his successor Amanda Bardwell who was left handling the devastating ACCC allegations and finally an ugly industrial dispute that will cost the supermarket millions of dollars in lost sales.

Woolworths’ woes need to be contrasted with its rival, Coles. It was equally subject to the ACCC’s explosive allegations around false discounts, as well as public claims of price gouging.

Coles CEO Leah Weckert took charge of Coles in mid-2023 with the supermarket grappling with cost blowouts and delays to its big warehouse overhaul. She put new discipline around the project, while balancing the public messaging on the role of supermarkets in the midst of inflation.

Weckert’s performance at a Senate committee looking into supermarket prices was a masterclass in how to defuse a hostile forum without taking a step back.

Where the line of attack was big supermarkets are bad and need to be broken up, Weckert patiently explained the real world implications this would have on prices and jobs – particularly for regional Australia. She
calmly took all the loaded questions and was impeccably briefed for the Senate session.

She walked away with the senators failing to land a single blow, but also left them a little wiser about the pressures her business was
facing.

Coles shares are up 17 per cent this year. Woolies shares are down by the same amount.

Follow the founder

Founder-led companies are a good thing, and thankfully Australia has its fair share delivering energy and will to grow. Names such as ARB, Goodman Group, ProMedicus and Xero have boomed. The trick for investors and also the board is to watch the founder closely and act as counter to some of their off-strategy instincts.

This is the case for Fortescue, where Andrew Forrest’s hydrogen play has cost billions of dollars, but is yet to show a clear path for returns.

Two other founder names – Richard White at WiseTech and Chris Ellison at Mineral Resources – came unstuck around the same time. In White’s case, it was around outside relationships emerging over a legal feud. In MinRes’s case, Ellison’s historical tax plays put the focus on a myriad of conflicts inside the miner.

WiseTech’s board arguably navigated White’s unfolding personal crisis better. It ever so slowly opened the door for the billionaire to step down immediately given the distraction he was becoming.

It put in place an interim succession plan, while a CEO search is under way that allowed the tech player to continue. Investors wanted White to remain involved in some capacity, and through this a non-executive, non-operational consulting role around R&D that reports through to the board was created.

However, it wasn’t all smooth sailing. White’s new title that includes the words “founding CEO” remains messy, although it is understood this was a preference of the billionaire, who is the biggest shareholder.

MinRes’s board, meanwhile, gave the outward appearance of dragging its feet and being forced to move on Ellison before it was too late. Even then, not much has changed. Ellison remains CEO for up to 16 months while an executive search is under way, but still has plenty of governance distractions. Shareholders recently gave the MinRes board a 75 per cent “strike” vote at its AGM. In contrast, WiseTech’s protest vote was less
than 2 per cent.

Aviation dilemma

Two airlines went bust in a market that ranks as one of the busiest in the world. Both were small players, but Rex had the potential to cause the most harm to its bigger rivals Qantas and Virgin, yet was still a long way
from that point.

Bonza, which grounded itself in April, was a marginal proposition. Its private equity backers lacked experience and were noncommittal about aviation or even Australia. The airline made mistake after mistake – including ignoring the Melbourne-Sydney-Brisbane “triangle” to go for resort and leisure routes. Then it had the wrong aircraft: Boeing 737 Max 8s were too big to fly on the regional routes.

Regional airline Rex made a stab at the big intercity routes, but its balance sheet was simply too small to handle the expansion. The capital city business was draining the limited resources of Rex’s core regional
operations. At the same time, its board and management had fallen out with each other and were pulling in different directions, further undermining the business.

Rex collapsed in July with debts of about $500m. The federal government has since stepped in to support its regional business, although it is uncertain if there’s a buyer for it.

Meanwhile, ASIC has launched legal action against four former directors amid claims of deceptive and misleading conduct.

The collapses meant the long-run average of Australia having 2½ domestic airlines still stands. Qantas only stands to gain out of all this mess.

Sweat the small stuff

For all business, everything is going well until it’s not. Issues left unchecked in sleepy corners or through middle management can cause all kinds of problems down the track.

Much of the issues of the financial services royal commission were a result of decisions made well below the radar of top management.

Former National Australia Bank Ross McEwan would talk about keeping it simple – a powerful management tool in removing the blurred lines around decision-making.

For ANZ, it was the actions of several members of a government bond trading team that has turned what should have been a strong finish to the year into a series of cascading shocks.

The case, where several traders have been sacked for behavioural issues, has led to an investigation by the corporate regulator amid allegations of market manipulation.

ANZ was far too slow to recognise and act on the cultural problems that had set in at the bond team, which physically sit out of sight and on the edges of the dealing room floor of ANZ’s Sydney offices.

The bank this
week received a shareholder strike, and outgoing CEO Shayne Elliott has lost millions in bonuses, while the lender has been put on a tighter leash by regulators.

The scandal arguably changed the course of the bank, with the board opting for an outsider – former HSBC executive Nuno Matos – to take over from Elliott next year. Until the bond problems rose to the surface, institutional boss Mark Whelan was regarded as CEO frontrunner.

ASIC will finalise its investigation in coming months.

Rival Commonwealth Bank also had a rare misstep under long-serving chief executive Matt Comyn.

It sparked a wildfire when earlier this month it told some customers on legacy products they were going to be slapped with a monthly $3 account-keeping fee for a service they had been getting for free.

The revenue upside for the bank was minimal compared to the reputational hit and suspicions of bank greed.

The lesson? The fees were complicated and unnecessary. CBA realised it made the wrong call and within days scrapped the planned fee. Comyn later admitted he didn’t know about the fee decision, but still took responsibility.

Playing it long

After years of stalking and agitation, retail billionaire Solomon Lew finally got his prize through a cornerstone personal stake in Myer and a boardroom seat he had been coveting. Myer’s Olivia Worth also made a bid for Lew’s Apparel Brands business that includes retail names such as Just Jeans and Portmans. Myer’s shares have soared on the possible deal and independent expert Kroll declared the transaction, valued at more than $900m, “fair and reasonable” for Myer shareholders.

Meanwhile, Ryan Stokes has been playing it long in the multi-year chase for building materials play Boral. His Seven Group had been sitting at 71 per cent since his initial takeover in 2021. But he finally took full control of Boral this year by mopping up the minorities with a carrot and stick play.

This followed initial resistance to the $1.9bn offer by Boral’s independent committee, but two separate bumps by hitting certain acceptance hurdles helped raise the pressure. Ironically, it was Stokes’s hand-picked CEO, Vik Bansal, who had already made substantial improvements to Boral’s operating performance under a turnaround plan.

Stokes needed to move with the full buyout before the building materials play became too expensive. The bid has helped Seven’s shares add almost 30 per cent this year.

Even BHP’s $74bn takeover attempt of diversified copper miner Anglo American was shaping up to be one of the biggest acquisitions in the world this year. After several informal sweeteners were rejected, BHP boss Mike Henry opted to walk away after failing to get any engagement from the Anglo board.

Outwardly, BHP says it has moved on with better options elsewhere. Internally, it’s a different story, with Anglo’s own break-up plan being watched. BHP is prepared to wait this one out.

This article first appeared in The Australian.