The soft stuff is the hard stuff

The soft stuff is the hard stuff

The former great supermarket, petrol, liquor and hardware group Woolworths Limited (ASX: WOW) is paying McKinsey $45 million for management advice. After reading an interview in the Weekend Australian with Paul Simons, who ran Woolies for an extraordinarily successful two decades until 1994, I think Ralph Waters and the Woolies Board will soon come to the realisation “the soft stuff is the hard stuff”.  

A summary of the points that resonated with me follow.

1.   Them and Us

When Simons drove to the Woolworths Head Office at Bella Vista, 33 kilometres north west of Sydney in late 2014, he commented on the sprawling complex “I was astonished; it was like a Hyatt Hotel”.

“What we paid was relatively low, because I put a cap on executive salaries, which was 30 times the lowest paid, full-time adult male”. (By my calculation that figure, excluding options and special superannuation arrangements has jumped to well over 130 times).

Share options, (and defined benefit superannuation schemes) were introduced after Simons’ retirement and that further “enriched the people at the top of the company”.

2.   Bureaucracy

“Woolworths has become a bureaucratic company, and I think the head office is a lot to blame.  I used to spend three days a week visiting the stores and competitor outlets, and I insisted that our people get out of the head office to do something similar, but they seem to stay at Bella Vista and have endless meetings.”  

3.  The Right Leadership Team

When Grant O’Brien pipped supermarkets boss Greg Foran, who is now President and CEO of Wal-Mart, for the top job in April 2011, he had no experience running any of Woolies major divisions.  Simons commented “I don’t think Grant O’Brien was trained up to do the job he was given, but the problems at Woolworths started long before he arrived on the scene”.  

As for the Board of Directors, Simons believes it is flawed with insufficient retail experience to hold management to account. Surely independent directors should be selected for more than corporate governance purposes?

The soft stuff is the hard stuff.  

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Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

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