• Date:01 Dec 2007
  • Type:CompanyDirectorMagazine
Roger Corbett chats to Deborah Light about what separates good boards from bad ones.

Good vs Bad in the boardroom

Roger Corbett has come to know the difference between the good boards and the not so good. He’s watched plenty of boards and reported to several. Now he sits on quite a few. Indeed, the former CEO of retail major, Woolworths, seems to have stepped smoothly from ship’s captain onto the steering committees of several enterprises – a transition not every CEO achieves nimbly and sometimes, not even with grace.

Maybe it helps to know your place. “The CEO has direct authority and the power to implement, so a CEO who moves to being a director feels the lack of that ability to be able to implement,” he says. “It becomes an opportunity to advise and comment, but the implementation is a matter for management and is the CEO’s problem. I think you’re a far better director if you’ve been a CEO and a better chairman if you’ve been a CEO. That’s because you know what the chairman’s job is and you know what the CEO’s job is and you know you shouldn’t do it because you didn’t like your chairman doing it to you. It helps a director be more effective.”

Corbett has been on the receiving end of good and not so good board decisions. His appointment to the helm of Woolworths in early 1999 was a salutary experience. The stock was hit hard when Corbett’s ascension to CEO was fumbled badly by the then board, which had first extended the tenure of his popular predecessor, Reg Clairs, then abruptly pulled the rug from under him without explanation. Investors and commentators read it as indecision over leadership and fretted about whether Corbett was up to the job. Corbett was dubbed a pariah in the financial press and shares took a prolonged hammering.

It wasn’t because of Corbett’s credentials. He’d turned the group’s chronic loss-maker Big W into a winner, having done creditable stints at Grace Bros and David Jones. But whatever Corbett felt at the time, he got on with the job. Woolworths’ share price rebounded and kept on going and the group soon raced ahead of rival Coles Myer by almost any measure. As Coles Myer became increasingly dogged by underperformance and controversy, Woolworths’ rise has been thrown into even starker relief.

Seven years on – with an Order of Australia to his name for services to the retail industry – and following a rapturous and grateful farewell from company and colleagues, including a dinner for 700 attended by Prime Minister John Howard – Corbett stepped down late in 2006. Among the many things that gave him satisfaction, he says with a steely smile, was helping to ensure his successor didn’t suffer what he had back in the early days. “What gives me great pleasure is that the guy who succeeded me (Michael Luscombe) has done a wonderful job and in the first year I’ve been out, there have been record results in every sense.”

Corbett is in shirtsleeves still, as he was throughout his CEO days – bustling around stores, checking shelves and chattering at checkouts. He is known to leap onto public address systems with compliments to staff and thanks to startled shoppers for their patronage. At 65, he’s bustling still, and energetic thanks in part to a daily 5am walking regime. He needs to stay fit, perhaps because, as an independent director, Corbett has a fuller dance card than most. And, the suitors keep coming.

“I’m working a bit harder than I would want to,” he says, “But I don’t carry the day-to-day responsibility and I don’t have to worry about yesterday’s sales.” Well, yes and no. As a consultant to Woolworths until 2011, Corbett gets the same daily sales reports he always has. “It’s been in the blood for a long time – 46 years,” he laughs ruefully. “It’s hard to get it out of the blood, not that I want to.”

That aside, he’s been a Reserve Bank director for about three years and is on the board of US based Wal-Mart, the world’s largest retail group. He is a director of Fairfax Media and property and leisure operator ALH Group, plus several smaller companies. He also chairs the Salvation Army, Westmead Children’s Hospital, the Council of Shore School and is on the Government Task Force for Aboriginal Affairs.

Representation on the Wal-Mart board – on which he’s served for a year – makes Corbett one of few Australians represented on boards both here and the US. He revels in it. “I’m the only person who resides outside America on the board, so I felt deeply honoured when they invited me. It gives me great exposure to the American market – in fact, the international market because Wal-Mart is now in so many countries in the world, so that’s satisfying.” From Wal-Mart’s view, he hopes he can bring an informed view because, via his tenure at Woolworths and as a long-term admirer, he’s been involved with the US group for so long. “I hope I bring a degree of objectivity to the board from my location, which is outside America.”

It’s a larger board than he’s used to – 15 directors, compared with nine on the current Woolworths board or Fairfax Media’s board of ten. In addition, Corbett notes that like many American boards, diversity of gender, colour and race is important in its makeup. “I’m not saying it compromises the ability of the people. It’s very diverse. It’s balanced in terms of age and backgrounds and skills. It’s stimulating.”

To Corbett, any notion that Australian boards by contrast are made up of mates recruited at the Old Boys Club is wrong. “The boards I’m on in Australia reflect a much broader view than you might expect, given that the size of the business community is, in world terms, small in Australia. Australian boards are every bit as diverse as US boards and I’ve got to say the value, content and diversity of view and opinion in Australia is outstanding. I think those boards stand strongly by world standards.”

Governance is another matter. Stringent new standards have been made law in the US following the devastating collapses of giants such as Enron, WorldCom and Tyco International – collapses later traced to director negligence, fraud and accounting malpractices. Corbett worries similar standards are heading for the Australian corporate community to the detriment of shareholder confidence and wealth, rather than the reverse.

Speaking of the Sarbanes-Oxley Act introduced in the US in 2002, he explains: “It is a very demanding piece of legislation and governance, and due process and the legal framework that’s developed around it is a serious commitment for Corporate America in terms of compliance and administrative costs. It’s trying to do a good thing, but generally the view in America is that it’s overkill – legislation that was probably rushed through at the time. If people are destined to be bad, they’re going to be bad, whatever the legislation. You need to be sure it doesn’t take away from entrepreneurial endeavour because, germane to entrepreneurial endeavour, there is risk.”

Current Australian standards on governance are comparatively simpler and less administratively burdened, Corbett observes, but he suspects: “We’re heading very quickly down the same path, I’ve got to say, which is to the disadvantage of balanced business.”

The Australian market hasn’t suffered a collapse the size of, say, an Enron, but Corbett is wary because “when you have a failure, it’s hard to distinguish whether it’s happened because of an honest but mistaken judgement or the result of negligence, neglect or dishonesty”. “In order to cover against the latter three, administrators and legislators have nothing else to do but add to the rules. That’s an understandable response, but every time they do that, it adds to the complexity of the administration. I think a time comes to stand back and ask: ‘What have we collectively done here? How valuable is it and are we over-egging the cake?’ Through representative bodies such as AICD and the Business Council of Australia, corporate Australia has been making representation to the Federal Government on where the legislation should be simplified… A vibrant economy needs entrepreneurial decisions,” Corbett argues.

That said, he doesn’t dodge the seriousness of the responsibilities of directors – or of ensuring they abide by them. That’s because there’s another outcome Corbett fears: investor distrust of our institutions. “No one for a moment condones inappropriate activity by directors, particularly in public companies. They clearly have an onerous responsibility, not only for investors – for which they are immediately responsible – but anything that creates doubt in the investing public is bad for the business community and therefore bad for the community at large. We have one of the largest stock markets in the world, supported by the general public, and that’s something we can be proud of because it does build wealth for Australia. The confidence of the Australian public in the fidelity of the administration of our corporations is immensely important. Therefore, legislation is important but so is ensuring it is balanced and doesn’t over-administer or over-legalise the processes and I think we are getting close to that.”

Corbett believes that boards have an important role in promoting confidence too, not only among the investing public, but among the management and staff of the companies they advise and represent. “Bad boards are where the independent interests of directors appear to impinge on board processes, or where the loyalty of the board members to one another appears to be flawed and confidences are broken – for example, when the Telstra board leaks and the Coles Myer board leaks, as has happened. That’s disloyal. When directors talk outside the company, it develops cynicism inside the boardroom but worst of all, if you’ve got tension and cynicism inside the board, it will inevitably multiply several times inside the company.

“Disillusionment among executives about the board – which, with the chairman, is in a leadership position – is a really bad cancer. It affects how employees feel about their jobs and the company. Management deserves to have boards that do their job. There was nothing wrong with most of the people at Coles Myer, for example. They were skilful, loyal, wonderful people. They have been let down, clearly, by their leadership.”

Characteristics of good boards, Corbett believes, include a clearly defined leader in the chairman who takes an appropriate public position. “By that I mean he doesn’t try to be the CEO – that those roles are clearly understood inside and outside the board structure is immensely important. A well-balanced board – mutually supportive, with a balance of skills that can lead to debate and assessment and judgement – is important. Things that are opposite to those are a dysfunctional chairman, a dysfunctional relationship between the CEO and the chairman and a dysfunctional relationship between members of the board… also any sense of disloyalty outside the boardroom. Things of that nature are terribly destructive.”

Good boards are valued by the executives, staff and shareholders they are paid to advise. “Boards should be places where directors interchange in openness, frankness and where items are vigorously debated using experience and the ability to be able to think and rationalise. The application of experience in that process, interchanged in a well structured board, is a very powerful adjunct to business. The board can bring great value to the CEO’s role by being a mentor, supporter and on occasion, critic. Boards are an empowering exercise. If the relationship between CEO and the board is right, most CEOs really look forward to board meetings.”