If such a thing as a “contemporary” corporate governance style exists, it arguably received a full and frank airing at the opening session of the AICD's 2021 Australian Governance Summit (AGS) when Woolworths chairman Gordon Cairns hobbled onto the stage, smiling through the pain of a knee injury and proceeded to reel off a list of the company’s past mistakes and mea culpas.
The plain-speaking Scot did not hold back, telling AGS delegates that in 2015, when he took on the job of chair, the supermarket and drinks giant was in decline. The then CEO was just waiting to be replaced, the board was in disarray, the company’s stores in disrepair, suppliers were being neglected and it had been forced to write off its costly foray into the Masters Home Improvement stores.
“Boards define themselves when they face crisis,” said Cairns. “The investment thesis was very clear. About 20 of our [Masters] stores would never make money, so we had to write them off. The rest of them might make money in the next five years — maybe. So we took a decision to bite the bullet and write off the thick end of nearly $2b in shareholder funds.”
In 2015, the company not only needed reinvestment, but something akin to a cultural revolution. Cairns and the board had to appoint a new CEO, who had to secure fresh management to lead the supermarkets, reinvigorate the ailing BIG W stores and cultivate the digital backbone of the business. “We had to revitalise the board because we didn’t have the appropriate skills and diversity there,” said Cairns.
The board appointed former Woolworths liquor boss Brad Banducci as CEO because Cairns believed Banducci had special insights into the retail and online sectors — a retailer “for the 21st century”.
Best & Less CEO Holly Kramer MAICD and former NBN chair Siobhan McKenna were appointed non-executive directors at the same time. Woolworths has since maintained a nine-person board, five of which are women.
It wasn’t just the top echelon that needed a boost. In his travels across the company network, Cairns asked one team member behind a checkout if she was happy. She was not and was having trouble working with her store manager. “Where do you buy your groceries, as a matter of interest?” he asked. “Aldi,” she replied.
“You didn’t need to do a survey of the organisation to figure out what was wrong,” Cairns told the AGS. “In that micro-moment, I understood exactly what the issues were. Shareholders were voting with their feet, the share price was in decline. That’s what we inherited.”
Cairns also mentioned the panic shopping and assaults on staff that marked the beginning of the COVID-19 era. The cost to Woolworths to provide extra security and maintain safe workplaces has been around $680m, equivalent to two per cent of sales. It has also taken on a high number of sacked Qantas workers, whose customer service skills have proven highly beneficial to the company.
Gordon Cairns on shifting culture
“The most important part of strategy is to define your noble purpose. It guides the whole organisation and informs everything we do, which is that we want to work together to create
a better tomorrow.”
“We talk about being obsessive about customers. We reward everyone in the organisation from the CEO down on the voice of the customer. We poll 50,000 supermarket shoppers every month in order to get their feedback — and 30,000 of our online customers — then we score ourselves against their feedback.”
A key step to managing underpayments to staff has been to put it on the board agenda every month, review it and be pragmatic. The CEO offered to forgo his $2.6m bonus and Cairns said he gave up 25 per cent of his remuneration. “We screwed up. There was no excuse. We’re going to do the right thing and do it quickly. We have apologised, held ourselves to account and we’re never going to let it happen again.”
Moving away from “head office”
Woolworths has renamed what was its head office in Sydney’s Bella Vista its “support office” — and Cairns and the CEO have ditched their large offices.
“I have a hot desk now and it works very well. Brad has a very simple desk, as well, and that sent a [message] to the organisation. Because in an organisation, head office is where you send stuff and basically wait for an interminable amount of time until you get a decision. A support office is there to empower the people who are nearest to the customer. Making that happen has been a five-year journey.”
The chair/CEO dynamic
“[Our relationship] has to be one of mutual respect. You have to work on it. Brad said to me, ‘We have never disagreed on strategy, but we sometimes disagreed on how to do it — and those disagreements have been robust’.”
Speaking to Company Director after his address, Cairns says the management team deserved all the credit for their agility, especially during the pandemic. His job and that of the board was simply “to act as cheerleaders”. “I’m not taking credit for the fundamental changes that have occurred at Woolworths. My job is simply commenting on it.”
Yet Cairns also once said that if a company was not performing well “you should look at the head, because a fish stinks at the head”. He takes little personal credit for the reverse — the company’s many upsides since 2015, its transformation in practice, culture and profitability, most significantly during the darkest period of the COVID-19 pandemic.
Cairns was also clear in his AGS speech about the company’s massive underpayment of staff to the tune of $500m, first revealed in October 2019 and considered one of Australia’s biggest “wage theft scandals”. How he dealt with this is typically prescriptive and non-sentimental. “It’s not what happens, it’s what you do about what happens,” he says. “We can spend a lot of time soul-searching or we can just fix it and make sure it never happens again.” The past is a place he’d rather not revisit.
Cairns didn’t mention his personal reinvention in his speech, but it has been well documented. As CEO of Lion Nathan in the late 1990s, he used a management performance tool — a 360-degree assessment. It revealed his colleagues thought his personal behaviour and management style were aggressive, perfectionistic, oppositional and destructive. He admits this scathing assessment came as a shock, but he shared the results with the company’s 7000 staff nonetheless.
It was a seminal moment in his career — the realisation that leaders must be prepared to undergo a profound change in themselves to be effective. To this end, Cairns engaged the late Tony Grant, a University of Sydney professor of psychology, and had weekly coaching for five years. He took up Buddhism, mindfulness and meditation, and helped establish a group called Practical Wisdom, designed to help business leaders improve as human beings.
Regarding the Woolworths challenge, Cairns says, “You only find out how good you are by taking on difficult assignments.”
Are the changes at Woolworths somehow linked to the changes in himself? “If I’m asking the 200,000 people in Woolworths to change, then I need to be prepared to change myself, as well.”
Cairns says quantified and qualitative performance reviews were an important part of performance culture. “Our directors have to work not just on the business, but in the business. Every director reviews the performance of every other director against those 20 [KPIs]. Management who come to the board review the performance on those 20, then I sit down with every director and see how [they’re] doing. Those reviews are development reviews so we can improve the performance of the directors individually — and the board. I publish mine internally and get feedback from one of the lead directors on the board. By the way, those reviews are consequential. If you’re not performing and development does not take place, then we have a different conversation. And that has happened.”
Asked to define contemporary governance for other directors, Cairns says he’s not here to dispense advice, but simply to tell his company’s story. Part of that story, as he told the AGS, was his visit to a store in a disadvantaged area during the worst of the pandemic. The store was suffering from a spate of thefts, but the manager realised mothers were stealing meat and milk to support their families. He felt he couldn’t prosecute the customers, many of whom were his friends.
“I realised this guy was living in the community, and if I put a stop to it, these people would starve,” says Cairns. “I told the manager, ‘You know the people better than I do. Do what you think is best’.”
Cairns may like to give the impression contemporary governance is about dispassionate action without excuses or sentiment, but perhaps it has another, less discernible quality — it has a heart.