David Jacobson's External Insights

AWB: corporate culture and governance issues

In reviewing the Cole Inquiry it is curious that the public response has been muted: there has been no public outrage and the Government appears to be comfortable about its role despite persistent Opposition criticism.

The bottom line is that AWB made a commercial decision to pay money to maintain its sales to Iraq even though the payments were in breach of UN sanctions. There does not seem to be any recognition by AWB that the original decision and AWB's subsequent conduct was wrong or that AWB has changed in any way.

AWB is waiting to find out whether its wheat export business will survive and is talking about a restructure. Wheat growers are understandably anxious about their future.

The Australian Shareholders Association said that the board needed to act in the best interests of AWB, the company rather than maximising the return to growers.

Commissioner Cole recommended that criminal charges be investigated against only one AWB director: the former Chairman, Trevor Flugge.

The Board is otherwise largely unscathed and is keeping a low profile.

Cole strongly criticised AWB's "closed culture of superiority and impregnability, of dominance and self-importance." He observed that "Legislation cannot destroy such a culture or create a satisfactory one. That is the task of boards and the management of companies. The starting point is an ethical base. At AWB the Board and management failed to create, instil or maintain a culture of ethical dealing." (Volume 1 Prologue, page xii).

The response of the AWB Board can be contrasted with the NAB Board after its implosion in 2004 following the discovery of foreign exchange losses. Whilst NAB has been open, AWB remains defensive. There is still a "lack of openness and frankness".

AWB Index

Designing an effective non-competition clause: when is a wrap a sandwich?

I once acted for a fruit and vegetable shop owner who agreed to take a lease at a shopping centre on the basis that the landlord would not lease premises  to another fruit and vegetable vendor. All was well until the supermarket decided to expand into fruit and vegetables. The dispute between the shopkeeper and his landlord was ultimately resolved but the argument over whether a supermarket is the same as a fruit and vegetable shop was a reminder to me of the importance of saying precisely what you mean.

I recalled this experience when I read a recent article on a dispute over whether a burrito is a sandwich. A bakery cafe alleged that its landlord breached its agreement not to lease to another sandwich shop. The other shop sold burritos. Was a burrito a sandwich? After some analysis, no. via Weinberger. (see also Wikipedia's definition).

If a sandwich requires at least 2 pieces of leavened bread with a filling then what is Domino's Pizza's new pizza with a 3 layered base (its "Triple Ripple")?

And while we're talking about suing landlords, Westfield has been sued because it allowed squirrels in its Chicago shopping centre. A woman was attacked by a squirrel as she walked out of a jewellery store and is holding Westfield responsible.

AWB update 27 December 2006

• Australian Minister for Agriculture, Fisheries and Forestry, the Hon Peter McGauran MP, has announced that he has granted 2 bulk wheat export permits, to companies not associated with AWB.
• ABC News has reported that US lawyers had "filed a civil lawsuit seeking class-action status on behalf of citizens of the three northern governates of Iraq who were entitled to receive benefits under the UN oil-for-food program." The case was filed on Friday in US federal court, in Manhattan, Southern District of New York, against BNP Paribas and AWB Ltd, formerly known as the Australian Wheat Board.

Why is private equity behind recent company takeovers?

The increasing size and number of private equity deals as 2006 closed has focussed attention on whether private equity investors can achieve better results in companies than existing boards and management can for their shareholders using traditional bank financing and conservative debt levels.

In this HWB podcast Professor Josh Lerner discusses historical trends and current deals to put it all in perspective.

He argues that:

• An influx of money on the equity side from pension funds and overseas investors is helping create an explosion of leveraged buy-outs.
• Hedge funds have joined banks as major providers of debt, creating a market with more favorable terms for investors.
• Although there have been deals that have gone sour, the private equity boom can be seen as mostly beneficial for both investors and the companies involved.

Alan Kohler argues that the private equity boom is actually being fuelled by investment bankers becoming more aggressive in their search for transaction fees and management fees and that the current round of activity will end badly.

According to the Sydney Morning Herald,  in Australia, private equity deals on the table tally at least $22 billion - close to $40 billion if the rejected offer for Coles is included. They are a combination of leveraged buy-outs and restructuring deals. And there is nothing apparent to slow them down.

Are You the Person of the Year? And how does that affect your business?

TIME  has named "YOU" as the Person of the Year for 2006, provided YOU are a participant in the internet or create content for it: through blogs, wikis, podcasts, videos or any other form by which you share information and knowledge with others.

But, you say, I run a business, what's that got to do with me?

What TIME has recognised is that web users (including your customers, employees and competitors) have evolved from being an audience to being participants.

And that change is affecting a range of industries, not just media.

Web users tell stories to each other. They make recommendations about products and companies. They share productivity information and "life hacks".

They share videos, photos, music, anything that can be digitised. And then they modify it and share that. And news about all of this is sent automatically by RSS feeds.

Businesses use web applications to automate processes and get customer and employee feedback and share knowledge.

Some businesses are afraid of this new era of interactivity. Others will take advantage of it.

If you are interested but don't know where to start or how it will help you , give me a call and I'll discuss it with you for no charge. I'll even arrange a RSS feed reader with a set of blog feeds to start you off.

Or you can browse through the following links.

LINKS

• Top web apps in Australia
• Tom Peters' short video Brawl With No Rules (top of right hand column of linked page)
• Ross Dawson's video presentation on Web 2.0
• The Corporate Blogging Book
• Deploying a corporate wiki
• Why and how does explicit knowledge sharing make a difference?

Want to know more ? The Australian Blogging Conference will be held in March 2007.

AWB: payments to Iraq not bribes for tax purposes

According to AWB, the ATO accepts that payments made by AWB under the United Nations Oil-for-Food programme do not constitute bribes to foreign public officials for the purposes of the Income Tax Assessment Act 1997 and were therefore deductible.

See ATO guidelines on bribes.

Board succession planning: Westpac

I recently discussed CEO succession planning in the context of ANZ Bank's Chairman's decision to stay in the position (after having already served 15 years as a director, 11 as Chairman) and conduct the search for a new CEO.

Westpac's Chair Leon Davis has announced a different approach to his own position in light of Westpac's search for a new CEO to replace the incumbent who retires in December 2007.

Mr Davis (who joined the Westpac Board in 1999 and has been its Chairman since December 2000) said:

“The timing of my retirement has been influenced by the completion of David Morgan’s current contract on 31st December next year. David has advised the Board that he will not be seeking a new contract.
“The Board began the CEO succession process some time ago, which includes a search both inside and outside the company.
“It is important that the Chairman responsible for the final selection of the new CEO is able to commit for a number of years to work with the board and the person who succeeds David. Consequently, the good governance choice for me was to retire in the near future or to commit to remain Chairman for several more years."

Acting in the best interests of your shareholders: Coles and Qantas

It is often easy to forget the many facets of a director's duty to act in the best interests of all of the company's shareholders. The complexity becomes apparent when a takeover offer is made. At that time do the directors reject the offer (on the basis that the company will do better under current management), try and negotiate a better offer ( to reduce the prospect of claims they sold too cheaply) or accept the offer (for fear that shareholders will sue if the share price drops below the offer price)?

I've previously referred to ASIC v Vines (in relation to the rejected AMP takeover of GIO) and recent court decisions on shareholder rights (here and here).

In recent days, we have seen the directors of Qantas act transparently about their intention to  get the best price possible for their shareholders in response to a share offer.

Coles directors, on the other hand, took a more defensive approach by rejecting an offer outright.

Of course, both boards met their obligations by keeping the market fully informed.

The Coles board has now received news from a large shareholder that it has commenced proceedings in the Supreme Court of Victoria under section 247A of the Corporations Act for access to board documents relating to its decision.

Coles has responded by saying that it will contend that there is no foundation for the proceedings and access to documents is not being sought for a proper purpose as required by the Corporations Act 2001.

There is no prescribed approach for boards to take as long as they act in the interests of shareholders.

CEO succession planning

The interest shown in ANZ Bank's announcement that it has extended its CEO's contract by 3 months highlights the importance of succession planning especially for listed public companies.

In ANZ's case, the discussion centres on when should a successful CEO retire, should the successor be external or internal and whether the Chairman (who has been a director for 15 years, 11 as Chairman) should also be replaced.

In governance terms, the issues are how do you achieve  renewal and "refreshing" of a successful and experienced Board  and how do you ensure you attract and retain senior managers who could succeed to the CEO position.

ANZ's current CEO was appointed in 1997. One of the Board's most important roles is succession planning and ensuring that transitions are smooth. Fixed term employment contracts tend to fix attention on particular dates rather than the changeover itself.

Meaningful employee presents

I was in the Queensland Cancer Fund's  Sun Smart Shop recently when a group of people arrived holding vouchers. It appeared they worked together. They proceeded to buy hats, sunglasses and a range of other products, all on their employer's account.

What a great employee gift idea! And it might even qualify as a health and safety project!