7-Eleven crisis proves there is big money in bad governance

Leaked documents suggest the 7-Eleven wage abuse was known by some at head office. The company either deliberately covered up the underpayment of wages occurring inside its franchises or ignored the findings of its own staff.

Australian Financial Review
September 11, 2015

7-Eleven crisis proves there is big money in bad governance
Tony Boyd


Former ACCC chair Allan Fels has been called in to sort the mess at 7-Eleven. Illustration: David Rowe

As ethical failures pile up inside public, private and government-owned enterprises, the business of reviewing bad business is becoming big business.

Tens of millions of dollars are being spent employing a growing number of prominent Australians, accounting firms, lawyers and specialist consultants to review the past practices of companies which have experienced corporate governance failures.

Boards of directors, who are wrongly viewed as being responsible for the day-to-day actions of management, are calling in independent troubleshooters. One consequence of this trend is that accountability for poor behaviour is conveniently slipping between the cracks.

This trend raises some pertinent questions: why are highly paid managers not being called upon to clean up their own mess? Do the troubleshooters really have the appropriate skills? Are independent reviews leading to changes in entrenched practices which encouraged bad behaviour?

Simon Longstaff, executive director of The Ethics Centre, says sometimes the independent experts called in to review problems are there for "optics associated with that". "When there is an ethical failure, more often than not they will call in a retired judge," he says. "But judges don't have much experience looking at ethical questions."

He says he would have a problem with an accounting firm being brought in to to look at ethical failures when their expertise is in auditing.

Fels' role endorsed
Longstaff gave his endorsement to the latest prominent Australian called on to clean up a mess exposed by outstanding investigative journalism. Allan Fels, the fiercely independent former chairman of the competition regulator, has been called in by corner food store chain 7-Eleven, which was ripping off its staff.

Four Corners and Fairfax Media revealed last month that 7-Eleven franchisees were involved in widespread exploitation of mostly student workers who were either underpaid or overworked or both.

Leaked documents suggest the 7-Eleven wage abuse was known by some at head office. The company either deliberately covered up the underpayment of wages occurring inside its franchises or ignored the findings of its own staff.

Russ Withers, the joint owner of the 7-Eleven franchise in Australia, has followed in the footsteps of other organisations faced with ethical failures by calling in independent troubleshooters.

Withers admitted in an interview that the buck stopped with him. He resigned from the board of the Australian Olympic Committee, and 7-Eleven deputy chairman Michael Smith stood aside from the chairmanship of the country's corporate governance peak body, the Australian Institute of Company Directors.

Smith was slow to stand aside from the AICD given that the Fair Work Ombudsman commenced a formal inquiry last year into allegations of systemic underpayment of wages and entitlements and false record-keeping practices at 7-Eleven stores. The ombudsman, Natalie James, will not deliver her findings until early 2016.

AICD chief executive John Brogden refused to comment on what happened at 7-Eleven but rejected the suggestion that privately owned companies have lower corporate governance standards than those practised by ASX-listed companies. Most of the work for independent troubleshooters comes from the financial services industry. Commonwealth Bank of Australia, ANZ Banking Group and IOOF have all sought help from independent outsiders to ensure public confidence in its efforts to fix financial planning failures.

Visa complication
Others to have called in independent experts include the Wesfarmers-owned supermarket Coles and Australia Post.

The list of prominent Australians who have been called in as troubleshooters includes retired judges Ian Callinan, Geoffrey Davies and Julie Dodds-Streeton at CBA; former Victorian premier Jeff Kennett at Coles; former chief commissioner of Victoria Police Ken Lay at Australia Post; and former prudential regulator Jeff Carmichael at CBA.

The failures in governance are generating plenty of business for consultants, accounting firms and lawyers, including PwC at ANZ and IOOF; Deloitte at 7-Eleven; and McGrathNicol, KordaMentha, Slater & Gordon, Maurice Blackburn and Shine Lawyers at CBA and Clayton Utz at ANZ.

The issues at Australia Post are probably the most serious to have hit any organisation in many years because of the possibility a delivery contractor was running a criminal organisation.

Lay is due to report to Australia Post chief executive Ahmed Fahour by the end of this month. There are similarities with 7-Eleven because people driving on behalf of third-party contractors were allegedly paid below award rates.

The common difficulty that Lay and Fels will have is that they are dealing with complaints from people who may not have had legal working visas.

Fels has ensured he can deal with that issue by setting some specific boundaries around the disclosure of information. Fels said information regarding a person's visa status and history will not be sought, the identity of those receiving repayment will not be made public, 7-Eleven has stated it will pay all claims validated by his panel, the panel will seek supporting information from claimants, and the level of information requested will be reasonable in light of the circumstances.

CBA is one of the few organisations to reveal the heavy cost of ensuring there is a fully independent review of past practices. The cost of the bank's Open Advice Review is included in the $347 million spent in the year to June on compliance programs and regulation.

Longstaff says all the independent reviews being conducted in Australia will have little value if the boards of the organisations do not address the question of cultural change. The recent governance failures have exposed a serious disconnection between boards and actual workplace practices. That is not going to be fixed by someone outside of the organisation.


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