WHAT’S THE IMPACT?
An evolving model
Today, the role of governance professionals goes beyond a focus on organisational structure and profit. The governance model is evolving in complexity to include greater considerations, from integrity and authentic purpose, to operating with social conscience.
Without good governance
The following case studies illustrate that good governance is no longer a nice to have – it’s a must have for any contemporary organisation that wishes to succeed in a competitive business environment.
Entrepreneurship:
Bunnings growth story
The story of Bunnings’ growth is largely one of successful entrepreneurship. However, it wasn’t all smooth sailing for the company.
Select each heading to review the Bunnings case study.
Introduction
Australian retail icon Bunnings’ century in business is an impressive story of growth, but its success wasn’t always simple.
Each step in Bunnings’ evolution involved risk and growth decisions. Directors and executives knew their company intimately, asked critical questions about the future direction and what they were prepared to put on the line to achieve it.
Here are some critical events in Bunnings story of growth:
- 1952: Expansion in its home market of Western Australia.
- 1993: Expansion into Victoria and South Australia after purchasing McEwans Limited.
- 1994: Expansion into Melbourne.
- 2001: Successful entry into New Zealand.
The Impact
Strong strategic growth enabled Bunnings to continue its expansion into the United Kingdom in 2017. However, a reversal of fortune led to Bunnings facing substantial losses, forcing the company to pull out of UK operations in June 2018. So, how did it go so wrong?
Here are some insights:
- Bunnings acquired Homebase, a chain that had responded to declining sales by filling stores with homewares brands producing an odd offer of home improvement and homewares.
- Bunnings didn’t stick to its pilot plan of testing the market first and rolling out the format slowly, they jumped in to fix the underperforming business, alienating Homebase customers in the process.
- Changeable weather, Brexit and the UK’s deteriorating retail environment sealed Bunning’s fate.
The expansion into the United Kingdom failed to the tune of $1.7 billion of shareholder value, and getting out of the business ultimately proved to the best option for shareholders The business was sold for one pound!
Takeaway Lessons
Expansion into the UK was not entirely a lost venture for Bunnings – key learning included:
- Even the best strategy can have set backs and challenges.
- The risk of saving an investment does not always match the potential rewards.
- The Bunnings board was in a position to ‘fight another day’ so long as the expansion did not put the core financial position or the company at risk.
- A consistent and powerful focus on strategy drives growth and innovation while building resilience.
- Adapting to change is crucial – Bunnings looked to future technology as another innovation.
Technological expansion can be more viable than physical expansion – in 2018, Bunnings grew its ecommerce presence in Australia.
Purpose and culture:
The collapse of Enron
Once named “America’s Most Innovative Company” for six consecutive years by Fortune Magazine, Enron boasted an authentic purpose and thriving corporate culture. From the outside it looked like the dream company; however, the reality was a far cry from the facade it presented.
Select each heading to review the Enron case study.
Introduction
Enron, a United States energy and commodities company with almost 20,000 staff, was recognised as a behemoth within its industry.
A modern energy company based on the power and value of information, Enron was ‘infotech’ before it hit the mainstream vernacular.
Enron boasted these core values to shareholders:
- Communication
- Respect
- Integrity
Surely a company with these values would have real purpose and a positive corporate culture?
The Impact
Enron absolutely did have a buoyant corporate culture. But, it was all a mirage – Enron had a secret…
The company’s appearance of success was a highly skilled accounting fraud which included ‘deceptive and bewildering’ fraud tactics. It extended to insider trading and aspirations for wide scale direct interference in other energy markets.
Employees bought into the hype, enjoying extravagant benefits from a live elephant appearing at a division meeting to $100 bills handed out after a share surge.
When the truth emerged, Enron filed for bankruptcy in 2001.
Takeaway Lessons
We can take these lessons away from Enron’s demise:
- Things are not always as they seem – a thriving corporate culture isn’t always an indicator of true corporate success.
- Lack of risk controls, an extravagant culture and complicit executives was Enron’s recipe for disaster.
- Corporate conscience should be fostered in an organisation – where were the whistle blowers at Enron?
Maintaining an inquiring mind is vital – not one of 20,000 employees noticed this enormous scale fraud.
Society:
Adani’s fall from grace
Just because you can, does it mean you should?
Adani carries on legal mining operations in Queensland designed to create profit and return value for its owners. However, when taking on a new venture Adani experienced considerable backlash and activism from environmentally conscious stakeholders who were concerned the mining operations would negatively impact Australia’s Great Barrier Reef. The matter received national coverage. Stories like these pose a question: Should an organisation have a conscience?
Select each heading to review the Adani case study.
Introduction
Introduction
Adani Australia is a global leader in resources, logistics, infrastructure and energy. It has invested more than $US40 billion in infrastructure initiatives in the past decade, including the world’s largest single-site solar generation plant in Tamil Nadu.
Significant projects in Australia include the Abbot Point and Carmichael mines.
More recently, Adani hit headlines after the Queensland government approved its bid to open the $21.7bn Carmichael mine near Rockhampton. Media reported that it would make Carmichael one of the biggest coal extraction projects on the planet.
The Impact
The Impact
Central to Adani’s situation is ‘achieving balance’, and this is at the core of operating with social license. Adani has the right to mine and followed the law, yet social resistance was encountered.
The response to the proposed developments at Carmichael were swift and strong, producing these impacts:
- Stakeholders expressing concerns about the potential damage of mining on the Great Barrier Reef.
- Environmentalists and everyday Australians weighing in, making it a ‘hot button’ social issue.
- Adani being thrust into the climate change debate, putting the company squarely in the headlights of social, political and environmental issues.
- An indigenous group reportedly hiding more than $2m in payments from Adani. Note there is no suggestion Adani was aware of any improper activity by this group at any time.
Takeaway Lessons
Takeaway lessons
Adani acted legally and with the accepted commercial motives of a mining company. But there is sometimes a conflict between your legal rights and some of society’s view of them.
Although they were within their rights, a significant project they had embarked on drew criticism from a highly publicised negative campaign directed at them. The commercial motives of the company became subject to widespread social scrutiny and Adani had to respond to concerns raised well beyond the confines of the shareholder base.
For any company facing public scrutiny there are general governance lessons to learn:
- Time invested in the community can create goodwill and acceptance of a company’s legitimacy and activities.
- Wider groups of stakeholders now appear to play an influential role in corporate strategy and government decision making.
- Just because Adani’s proposal was approved by the government, did it make it right? The answer to that varies. It depends on the views of society and wider stakeholders.
- Compromising ‘social license’ may cause more damage than what can be gained.
- Balance between a director’s legal responsibilities and social responsibilities is an important and modern consideration.
- Good management of your operating environment can be a significant factor in your success.
Prosperity:
Campaign Monitor’s ‘corporate growing pains’
Was it a case of too much too soon for Campaign Monitor? Or a lack of strategy?
Campaign Monitor quickly went from a garage operation in Sydney to a corporate powerhouse with international reach. Were the challenges the company faced just the classic ‘problems that come with success’?
Select each heading to review the Campaign Monitor case study.
Introduction
Campaign Monitor founders and friends Dave Greiner and Ben Richardson were unconventional. They didn’t see media as relevant to their personal aims and had no strategy to build company profile from a personal perspective.
In 2004, the duo had become frustrated with existing systems for running email campaigns. They spotted an opportunity in the market to communicate with subscribers in a new and connected way. They created a contemporary email marketing tool to help businesses engage their subscribers, readers and stakeholders.
Their talent was reflected with early amazing web design contracts including Telstra and Foxtel.
The Impact
Campaign Monitor tripled in size in a year. Shortly after, it commanded a presence with big marketing agencies in the US and Europe.
The turning point was its 2014 sale to a US venture capital firms for $US 250m – remaining one of the single largest investments into an Australian tech start-up.
But not all was well. Despite $US 67.5 million in revenue the company was still experiencing a net loss. Prosperity brought its own sudden and dramatic challenges. After less than three years, the designated CEO quit and the founders stepped away from day-to-day management. Other senior executives left the company.
The firm’s credit rating was downgraded to B minus, putting Campaign Monitor’s debt below the level generally considered a safe investment.
Takeaway Lessons
The rapid expansion of Campaign Monitor highlights these lessons:
- Corporate governance was lacking – a formal board may not have been required early on but decision making structures were essential.
- As a company grows it needs stronger supporting structures than just the founders.
- Prosperity brings challenges. Decisions must be made about how much and how rapidly a company should expand and the required infrastructure.
A plan is vital to success. The financial fundamentals of the company will help decide the steps that can be taken.
Integrity:
United Airlines public relations blunder
In 2017, Dr David Dao – a passenger on a United Airlines flight – refused to give up his seat for a crew member and was dragged off the flight by several security staff in a highly charged and emotional encounter.
The damage continued as United Airlines experienced an ongoing public relations fiasco fuelled by its compromise of integrity.
Select each heading to review the United Airlines case study.
Introduction
Thanks to social media, Dr Dao’s incident was seen by millions and played repeatedly on major news networks, shining the spotlight on the integrity of United Airlines.
The company then made several public relations mis-steps, including the CEO initially blaming Dr Dao but later apologising and compensating him.
Things snowballed a year later when a French bulldog died after a flight attendant insisted on storing the dog bag in an overhead locker. Another customer reported her German shepherd was flown to Japan instead of Missouri.
The Impact
The Impact
Financially, the incident only caused a short term dip in the company’s share prices with no long-term impact on bookings – in fact, the situation came at a time of high commercial success and ‘aggressive commercial expansion’. The real damage occurred in the perception of United Airline’s customer service and reputation.
The lapse in integrity led to these questions:
- What should a board do when a chief executive mishandles a highly public incident, yet is achieving financial objectives?
- What should a director do when a company they govern is delivering on financial promises but hurting customers in the process?
Takeaway Lessons
We can take these lessons away from United Airlines’ blunders:
- Public relations can cause damage to a company, even in lucrative times.
- Governance is not always about straight forward decisions – some choices are symbolic or recognise that the values of the company matter and this should be visible to the public.
- Damage can be experienced on a deeper level than financial success.