As he moves into the role of professional director, outgoing Wesfarmers boss Michael Chaney enthralled an audience of 750 people this week on everything from IR to shareholder returns. He was interviewed on stage by Mark Pownall.
From any other businessman, a comment about industrial relations reform while his company was in the midst of a battle with unions would appear like point scoring.
But Wesfarmers chief Michael Chaney, with a history of corporate responsibility, sticking to fundamentals and being a long-term provider of good news to shareholders, has the credibility to discuss IR when his Collie coal operations are mired in industrial unrest and get away with it.
Few would argue that Mr Chaney’s position – declaring that Australia needs a uniform set of regulations, and that individual contracts are a bonus for employees as well as employers – was simply one that suited the moment.
Far from it.
His whole business history is one considered step after the other. He admits that, at times, his approach may have been too cautious, particularly in the field of investment, but Western Australia’s most successful businessman is not known for grandiose statements or opportunistic comments for political mileage.
Mr Chaney, who comes from a family politically linked to the Liberal Party, could easily have given the Collie unionists a spray – and it would have been warmly received by the 750-strong WA Business News Success & Leadership Breakfast audience.
But he refrained, preferring to state his philosophical position.
“We have come a long way in 10 years with the deregulation of IR; we have a much healthier situation and much better attitude in the workplace,” Mr Chaney said.
But he believes reform needs to go further.
“In summary, if you look at our corporate office, we have a bunch of salaried staff, about 100 people, who are all treated the same. We have performance reviews and salary reviews and so on and that is how I’d like the whole workforce to be,” he said.
“I think this them-versus-us, which used to prevail, this blue collar versus white collar, was very counter-productive. We have found that as you freed people from the institutional shackles that used to prevail, for example put them on individual contracts, innovation just blossomed as people found new ways and better ways to do things and that led to even better ways, and so on.
“Australia’s productivity growth over the last 10 years has been fantastic because of that factor. Real wages have risen as well over that time. I think if we moved firstly to a national system of IR so we don’t have six different regimes and sets of rules we have to observe and we made it easier to enter agreements than it is today – two things we’d have a big improvement.
“The Federal Government is certainly talking about some of those things. There seems to be some will to do some of that and we are waiting to hear what Federal Cabinet will do.”
The Wesfarmers boss expects there will be a backlash but he compares it to the protest against uniform corporations’ laws, which used to be state-based.
“By 1991, the states had all come to their senses and said ‘this is a far better way to go’ and we look back now and think it’s hard to believe we had six different company laws and the system we have now works extremely well,” Mr Chaney said.
“The same goes for IR law; it is just crazy.
“It is not more logical to have what we’ve got today than it would be to have separate IR law south of the river and north of the river. Why draw the line at the states, why not have it in every local government area.
“We need a single national system for what is a pretty small economy.”
One can be reasonably certain Mr Chaney’s successor at Wesfarmers, Richard Goyder, appreciates his boss’s restraint in avoiding comments that might inflame passions in Collie.
Much the same level of diplomatic care could be associated with his comments on assuming the chairmanship of National Australia Bank.
There has been much discussion in the business community about the decision, especially after Mr Chaney’s long run of success at Wesfarmers, now credited as one of Australia’s most successful companies.
Why risk that reputation for success by taking on the role at NAB?
“I don’t really feel that [risk] much at all. I guess if things got really tough I might look back and say ‘gee I did feel it’, but as far as I am concerned I don’t feel I have to prove anything to myself.
“The world is a pretty complicated place and things can happen to all organisations and if you are involved in them it can make life more difficult.”
“My mother used to say to me, ‘Mike we don’t care how well you do so long as you try your hardest’. I think she said it because I was part of a big family and I think as an effort to avoid comparing one with the another it was good philosophy.
“That is my view at the National; there is a terrific opportunity to get in, do your best and see if you can contribute something, and hopefully it will work out well.
“It’s a great organisation, obviously it’s got some issues. It appeals to me to be part of the team … that does something about it [the issues].”
While it is early days, and he has yet to technically leave Wesfarmers or join NAB, Mr Chaney is prepared to be quietly controversial about his concerns regarding the increasing prescriptive approach by activists, investors and regulators when it comes to corporate governance.
He does not think there should be any restriction on the number of boards he or anyone else can join, and he singled out the Australian Shareholders Association for its pedantic approach to the issue.
Mr Chaney pointed to John Ralph as one of the most effective directors he had ever worked with because he was well read and well prepared, even though he was on more boards than others who were clearly not up to the job.
“I don’t think there is a number and I really do have a problem with the box ticking mentality,” he said.
“As an example, Don Argus came up for re-election of the BHP Billiton annual meeting last year. The ASA fellow stood up and he recommended people vote against this resolution because Don has two chairmanships, which gives him two times three points which equals six points, and you are only allowed to have five.”
They were not questioning his competence, Mr Chaney said, or his application. But he breaks the rule.
“It is just completely dopey,” he said.
“I think you have to have some faith in boards to have a proper board appraisal process and make sure people are contributing and aren’t overcommitted.”
Mr Chaney’s criticism of other investors, such as the fund management sector, easily the largest shareholders he has to deal with, was notably cautious – though did mention they can be “irrational” at times.
In some respects, Mr Chaney expressed sympathy with the “short-termism” of fund managers, which was a result of an obvious set of circumstances – mainly focused on the needs of smaller investors.
“The reason we have so much short-termism is all of us are probably members of pension funds and we are interested in how well the fund does in the next month and the next three months.
“At the end of every month they [fund managers] mark to market all their investments – if your share price goes from $20 to $30 in one year it is then marked to $30. All they care about is the future because they have to perform for the next three months.
“If it goes flat for a year they deem you to be a bit of a failure.”
Mr Chaney believes fund managers would almost prefer companies to perform steadily than give a strong performance in a short period.
“Unfortunately life is lumpier than that.”
But he was not wholly reserved about their role. For instance, he pointed out that fund managers generally don’t vote and in the past five years he had not seen a fund managers’ representative ask a question at any annual meeting he has attended.
“They are just not there.”
However, of much greater concern to Mr Chaney was the growing impact of hedge funds.
“Because of their ability to short-sell they really increase volatility in share prices and put pressure on companies. That is not good for normal shareholders,” he told the breakfast audience.
“It also makes takeovers more difficult. It just complicates the whole process of actually effecting a takeover.”
Even the media was let off lightly. Mr Chaney said he regretted not buying into WA Newspapers Holdings when a stake in the float was offered by then stockbroker John Poynton
“I wished we owned The West Australian, I really do.”
Generally he said he appreciated the role of the media and is amazed by the number of newspapers in Australia.
“We are blessed with having that sort of service,” he said.
“The standard of journalism in some newspapers lacks a bit, there is too much sensationalism etc, etc, but they’re in business as well and they have to sell papers.”
The decision regarding WA Newspapers Holdings is not the only time that Wesfarmers’ famous rigid maintenance of hurdle rates and focus on shareholder return has let what appeared to be an opportunity pass by.
Orica was a good example.
“We used to be heroes for not buying it. The shares kept falling, and we kept evaluating it but decided this was not for us. When you look now at the share price around $20 or $21, I can’t help feeling it might have been a good idea anyway,” Mr Chaney lamented.
“There have been a few other things and it is very easy to be wise in hindsight.
“BHP Steel, for example, would have been a terrific company to buy soon after it was floated off but no-one had foresight about.
“Certainly we didn’t, about the way steel prices would double around the world.”
MICHAEL CHANEY
- Fundamentals: stick to a focus on reasonable shareholder returns, a simple theme unchanged for 20 years.
- Culture: even employees accept that return on capital is the key.
- Shareholder focus: avoid empire building
- Boards: business experience is more important than specific industry experience.
- Regulation: we are over-regulated as a nation. Old rules are never removed, while the cost of new rules is not considered.
- Landmark: he didn’t receive a telephone call or letter protesting about the sale of the business. "I think people understood that we had a focus on shareholders".
