Pursuit of purpose key to Wesfarmers rise

The 1980s were indisputably among the most turbulent chapters in Western Australian business history.

WA’s biggest political scandal – the infamous WA Inc saga – tarnished the reputation of the state and perpetuated a perception of corporate cowboys, swindlers and a culture of greed.

For those who didn’t live through it, WA Inc refers to a shadowy series of questionable deals by the state government of the time that cost taxpayers hundreds of millions of dollars, the repercussions of which are still being dealt with today.

But the 1980s also marked the start of the rise to prominence of what is now WA’s biggest and most ethically run company.

In 1984, Wesfarmers – at the time one of the state’s oldest companies, having been established as a former cooperative 70 years prior – was preparing to list on the Australian Stock
Exchange.

Chairman Michael Chaney told Business News Wesfarmers’ listing in 1984 prompted its board of directors and senior management to determine exactly what the purpose of the company was.

“We quickly came to the view that the main purpose was to provide a satisfactory return for shareholders,” Mr Chaney said.

However, providing a return was not the only consideration of the Wesfarmers board.

Mr Chaney said the collective group was also mindful of the need to install a clear set of values and purpose, to ensure that Wesfarmers could achieve its stated objective.

Those values are now known as the ‘Wesfarmers Way’, and include commitments to look after employees by providing a safe working environment, taking care of its customers and their needs, treating suppliers well, and acting responsibly with regards to the environment.

Mr Chaney said Wesfarmers also resolved to provide support to the communities in which the company was operating, and to act ethically and honestly in all facets of its business.

“You have got to have a financial objective, but it is no good pretending that you can achieve it unless you can do all of these other good things over the long term,”he said.

“You won’t succeed, customers will walk away from you, people won’t want to get into business with you and so on, unless you’re acting ethically. 

“So, they have always been part of our make-up and our DNA since we went public back in 1984.”

Mr Chaney recalled the principled approach to business was met with derision at the time by the maverick entrepreneurs involved in WA Inc, which included Alan Bond, Laurie Connell, Dallas Dempster, Robert Holmes  à Court and Warren Anderson.

“During 1985 and 1986, people like those WA Inc business people would say: ‘Wesfarmers is just a staid old company, they’re not entrepreneurial like us and we are the new order of things in business’,” Mr Chaney said.

“Of course, it all came crashing down for them later in that decade.”

While Wesfarmers’ introduction of values and purpose was a rarity in WA business at the time, Mr Chaney said the commitment gained recognition outside of
the state.

“I remember one of the big stockbrokers from London writing a report in the late 1980s on Wesfarmers, and he started it off by saying ‘I have incredible news! There is a reputable Western Australian company!’,” he said.

“It was gratifying that it turned out having those sorts of values was important, and proved successful.”

In 2019, those values have endured, with Wesfarmers evolving to become not only the most philanthropic company in WA, but also in Australia.

Wesfarmers made $148 million in community contributions in 2018, according to its shareholder review report, while Strive Philanthropy’s Giving Large report showed the company donated a larger proportion of its pre-tax profit (2.5 per cent) than any other ASX-listed entity last year.

The company’s charitable contributions range from supporting arts and culture in WA to donations to medical research and wellbeing and educational institutions.

Mr Chaney said Wesfarmers had carefully curated the list of causes it supported, conscious of the challenge of determining the best possible use of its philanthropic capabilities.

“If you think about corporate philanthropy or community investment, the big challenge is that there are endless causes you can support,” Mr Chaney told Business News.

“So we said we should have some sort of logic to it.

“One of the aims, of course, is to build the company’s reputation, and we then said ‘the arts is one area in Western Australia that really needs support’, so we formed a part of the business called Wesfarmers Arts.”

Wesfarmers Arts is now a major supporter of the state’s top cultural institutions, with West Australian Ballet, West Australian Opera, Black Swan State Theatre Company and the Art Gallery of WA among a long list of beneficiaries.

Mr Chaney said other community initiatives supported by Wesfarmers included Surf Lifesaving WA, the Royal Flying Doctor Service, Telethon Kids Institute, and Clontarf Foundation.

“Importantly, one of the differences between Wesfarmers and other companies is that while we have been keen to ensure that the money we provided was used appropriately, we haven’t burdened the recipients with huge administrative tasks in reporting back,” he said.

“We’ve given money where we’ve trusted the people and we’ve said ‘we trust you to use it’ because one of the problems often with corporations is we say ‘we better be responsible and make sure people are accounting properly for the money we give them’, and they put so many administrative burdens on them that they spend half the money reporting
back. 

“We’ve taken the approach that we can trust these people to do the right thing and with minimal reporting, make sure they are out there using the money for the cause that they are intended.”

And while Wesfarmers’ impact is wide-reaching, Mr Chaney said its commitment to sticking to its values had not been without its challenges.

“I heard a director say once that we had no right to give away a shareholder’s money to a charity,” Mr Chaney said.

“It was a complete misconception about the role and duties of directors, and the misconception is that directors have a duty to shareholders. 

“That’s actually not the law at all; the law says directors have a duty to the company, and if the directors believe that by providing the community with support that it will enhance the value of the company, they have every right to do it. 

“It’s a very important distinction that again is misunderstood.”

Mr Chaney’s thoughts on directors’ duties are borne out in Wesfarmers’ financial returns, with the company outperforming the wider ASX indices by a large margin.

“Here  is an interesting statistic,” Mr Chaney said. “If you put $1,000 into the ASX 50 in 1984 and reinvested the dividends, it would now be worth $35,000. 

“If you put $1,000 into Wesfarmers shares in 1984 and reinvested the dividends it would now be worth $384,000. 

“It’s a big difference; our view is that it’s not a coincidence that we’ve been a huge supporter of the community and that we’ve had those values and that we’ve achieved those returns.”