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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.  

To learn more about our funds, please click here, or contact me, David Buckland, on 02 8046 5000 or at dbuckland@montinvest.com.

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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.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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5 Comments

  1. David Procter
    :

    Hi
    Thought you might like this
    Iron Law of Bureaucracy

    In any bureaucracy, the people devoted to the benefit of the bureaucracy itself always get in control and those dedicated to the goals the bureaucracy is supposed to accomplish have less and less influence, and sometimes are eliminated entirely.

  2. Raymond Lundie
    :

    If you used Woolworths model buffets office would employ thousands and he would have had to move on after 3 to 4 years.

    Why is it that we either allow or overpay for poor performance?

  3. David, seems I sold my Wollies share just in time. I sold to take part in your Global fund so thank you for temping me! Paul

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