By Sue Mitchell
Myer’s decision to appoint Olivia Wirth as executive chair and CEO has stunned corporate governance experts but has the full support of Solomon Lew.
What does Olivia Wirth have in common with Andrew Forrest, Gerry Harvey, Lim Kim Hai and Rhett Simonds?
Very little, apart from the fact she’s joined them in an elite club: the ASX’s executive chairman’s club after she was appointed executive chairwoman and chief executive of Myer.
There are currently about a dozen members of this club and most of the executive chairmen are founders – including Gerry Harvey at Harvey Norman, Andrew Forrest at Fortescue, and Lim Kim Hai at Rex – or the offspring of founders, such as Rhett Simonds at Simonds Group.
Some executive chairmen took the reins during a financial or management crisis – Retail Food Group’s Peter George, for example – and never gave up their executive roles.
Wirth, the former CEO of Qantas Loyalty, is not a founder, she’s not a descendant of the founding Myer family and she was not appointed executive chairwoman of Myer to fix a crisis.
The crisis was fixed by Wirth’s predecessor, outgoing CEO John King, who retires next week after restoring the 124-year-old retailer to good health – slashing costs; shrinking floor space; growing the e-commerce business and customer loyalty program; restoring profits and dividends; and doubling Myer’s market valuation over six years.
If Wirth had been a retail guru, like Solomon Lew or Mark McInnes, combining the role of CEO and chairwoman amid increasingly challenging retail conditions might have been understandable, albeit undesirable from a corporate governance point of view.
Against the grain
Under ASX and Australian Shareholders Association principles, the chairwoman should be an independent director and the roles of chairwoman and chief executive should not be exercised by the same person.
Wirth is an extremely well-regarded and capable executive and has been lauded for growing Qantas Loyalty’s revenues and earnings, partly by expanding its digital reach across financial services, health and travel insurance and e-commerce.
Apart from a few years as a weekend retail casual during high school and university, Wirth’s background has been in corporate affairs, government relations and marketing in the tourism and aviation sectors.
Customer loyalty expertise is increasingly in demand in modern retailing, but Wirth’s lack of traditional retail experience makes her appointment as executive chairwoman at one of Australia’s largest retailers unusual.
“Best practice guidelines or principles and recommendations of governance usually suggest that the CEO and the chair should be separate,” says Dr Pamela Hanrahan, emeritus professor at UNSW and a corporate governance consultant at Johnson Winter Slattery.
“It’s not because the role of the chair is to mark the CEO’s homework or be sceptical or second guess,” Hanrahan says. “It just recognises that the CEO and the board as a whole, led by the chair as boss of the board, have different functions, and combining those two things can collapse those distinct functions.”
Having a separate CEO and chairwoman also creates dynamic tension between the two roles and enables the chairwoman to bring in external perspectives to complement the CEO’s internal perspectives.
“When you put the two roles together … you run the risk that it becomes very inward-looking,” Hanrahan says.
Wirth was initially appointed to the Myer board as a non-executive director in October and resigned from Qantas two weeks later, apparently after missing out on the CEO job to Vanessa Hudson.
Myer stunned investors in March, announcing that Wirth would not only succeed John King as CEO on June 4 but would take the reins from chairman Ari Mervis on March 14, despite the fact she’s never been CEO or chairwoman of a public company.
Myer shares initially rose 7.5 per cent to 86 cents on the news, but have since fallen 22 per cent to 67 cents.
“From our perspective, it’s very, very unusual, it’s not leading practice,” says Rachel Waterhouse, chief executive of the Australian Shareholders Association.
“Not only does [Wirth] have the executive chair role and the CEO role, she’s also ([a member of] the nomination committee,” Waterhouse said.
“It means there’s no oversight. You can’t manage yourself effectively, which is the issue here,” she said. “It’s just not appropriate to have all three roles.”
Myer shares would arguably have fallen more if not for support from Myer’s largest shareholder, Premier Investments’ (non-executive) chairman Solomon Lew, who bought 24.5 million shares in April at 75 cents each, lifting Premier’s stake to 31.4 per cent.
Wirth’s appointment as executive chairwoman would never have happened without the approval of Lew, who has effective control of Myer after creeping up the register for several years.
“Premier Investments supported Olivia’s appointment to the board late last year,” Lew tells Window Shopping.
“Subsequent to Myer’s announcement of her upcoming appointment as executive chair, Premier increased its stake in Myer, signalling our confidence in her future leadership.”
Lew had his heart set on Myer hiring former Premier Retail CEO Mark McInnes when his gardening leave finished in January and was disappointed when Ari Mervis was outbid by Brett Blundy.
Given that Wirth was not Lew’s first pick, and given Myer had a very capable chairman in Mervis, who left in March, her appointment as executive chairwoman is even more surprising.
Loyalty expert
After bagging Myer for the past six years, Lew now says the retailer has excellent potential – “it’s a $3.5 billion sales organisation and it has a very good loyalty program.”
“Obviously the problem with Myer is that it doesn’t make enough money,” Lew says. “If you look at Premier and how much money they make on less than 50 per cent of the revenue, you realise the potential [Wirth] could bring to the company. She knows a little bit about loyalty.”
Wilson Asset Management also supports the appointment, despite the corporate governance fail, and says the share price fall reflects the worsening retail environment rather than unease over Wirth’s appointment.
“Myer did an extensive search for a CEO and in the end, Olivia was the right person for the job,” says WAM ’s lead portfolio manager, Oscar Oberg.
“Olivia was the head of one of the highest growth areas at Qantas in their Frequent Flyer program, and we think this experience can rapidly expand Myer’s loyalty program … which can boost Myer’s sales.”
Myer One has 4.3 million members, who account for about 76 per cent of sales, up from 67.5 per cent in 2018, while e-commerce accounts for 21 per cent of sales, almost triple online sales in 2018.
However, almost 80 per cent of Myer’s sales are generated from its network of 56 department stores and Myer needs both store sales and online sales to fire to achieve long-term growth for shareholders.
Myer has promoted long-serving stores general manager Tony Sutton to chief operating officer, freeing up Wirth to focus on loyalty, digital and data and her responsibilities as chairwoman.
Gary Weiss, a long-time associate of Lew, has been appointed deputy chairman and lead independent director, a new role created to overcome some of the governance shortcomings, and chairs the nomination committee.
But what happens if Myer senior executives find Wirth’s strategy or execution lacking? How can they freely voice their concerns to the board if Wirth is CEO and executive chairwoman?
“A good board chair will open up the conversation about strategy when you have the senior leadership team in the boardroom with you – that’s how you draw out conversations with the rest of the team about what the risks in the strategy are,” Hanrahan says.
“Not having an independent chair cuts off that kind of discussion.”
Explanation due
Towards the end of the year, before the annual meeting, Myer will have to justify in its annual corporate governance statement why it has departed from ASX guidelines. Myer, King and Wirth all declined to comment this week.
Investors will be looking for more than King’s rather unsatisfactory explanation in March, that the board felt combining the CEO and chairwoman roles was the “most appropriate structure for the business at this time.”
“Shareholders will query this choice because there are a whole lot of good reasons why you’d usually want to separate the chair and CEO roles,” says Hanrahan.
“Retail shareholders want to know why this decision has been made, and it might give them an opportunity going forward to reconsider their structure,” says Waterhouse. “Giving one person all those roles is a little ridiculous.”
Oberg says Myer explaining more about the process of selecting Wirth as executive chairwoman and CEO may help some shareholders come to terms with the decision.
“But we are comfortable with the board’s decision,” he says. “We think Olivia’s decision has little to do with the pressure on the share price.”
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