Why Wesfarmers boss Rob Scott took the nuclear option on WA’s hard border
Rob Scott, the boss of Bunnings and Kmart, has clearly lost patience with Western Australia premier Mark McGowan.
Business
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Wesfarmers boss Rob Scott has recently fended off Woolworths’ Brad Banducci in a $763m battle for pharmacy chain Priceline.
He has steered his Bunnings and Kmart retailing empire through the worst of the east coast Omicron wave and navigated shortages and a labour crunch which has undercut others.
He has done all this from behind Western Australia’s iron curtain.
But Scott has clearly lost patience with West Australian premier Mark McGowan who this month issued a backflip to revert to an indefinite hard border as Covid spread across the rest of the nation.
Scott, whose company ranks as the nation’s biggest employer, this weekend declared it was “virtually impossible” to run a national business from Perth. He and a handful of top executives including chief financial officer Anthony Gianotti are this week preparing to relocate to the east coast for an extended period – the first time in Wesfarmers’ 108-year history this has happened.
The threat is more than a practical move; it’s a calculated gesture by the company many West Australians regard as corporate royalty. It’s a nuclear option expected to put McGowan under intense pressure from Perth’s tight business community to quickly commit to a border reopening framework.
Scott has strong support in the form of Perth-based Qantas and Woodside chairman Richard Goyder, who shares his frustrations.
“The problem with the (WA) border change is everyone feels that they’ve kept their side of the bargain, including business that has set itself up to get going again,” says Goyder, who was CEO of Wesfarmers until 2017. “It’s very hard to run a national company if you can’t travel.” Goyder is urging a “sensible way forward” on the border – opening in line with national cabinet recommendations – while introducing mechanisms and testing to help reduce the scale of any Covid spread in WA.
Goyder, who has chaired Qantas from Perth for the past two years, during the most fraught period in the airline’s history, says CEOs and chairs need to be “in the room” to run the business over an extended period of time. It can’t just happen all over Zoom.
“It’s difficult to have one-on-one conversations you want to have as a chair with even a CEO,” Goyder says, adding you “need to walk the corridors” and really get a feel for how the business is running, as well as sit down and talk to staff and management.
For his part Scott says business has been working with the WA government for much of the past two years. He says short term border restrictions are “understandable” and Wesfarmers has managed the challenges associated with running a national business remotely. But the inability to travel for critical business and lack of clarity around the borders was now having a serious impact on Wesfarmers’ ability to plan for growth.
While Wesfarmers has supported “a cautious and risk-based approach” to managing Covid, McGowan’s decision “is out of step with the rest of the country, and most of the world,” Scott says.
“We really look forward to the WA government announcing a plan which addresses these issues in the coming weeks. The lack of consideration for national businesses and extended delays is also damaging WA’s reputation with talent. We’ve benefited in the past from attracting some great talent to WA, with families relocating to create a life here. This is becoming increasingly difficult and is currently almost impossible, and I am concerned that this sentiment will linger,” Scott added.
Scott is arguably the most national-focused of the west coast CEOs. More than 80 per cent of his company’s earnings are generated from the east coast. He sits on the Business Council of Australia board with east coast bosses including Qantas chief Alan Joyce, national KPMG chairman Alison Kitchen and BHP’s Mike Henry.
In normal times Wesfarmers’ federated structure allows it to operate effectively from Perth. The conglomerate gives extraordinary power to its respective business units – Bunnings, Kmart, Officeworks, industrial and chemicals. Each of these divisions operate as a standalone business with its own managing director and chief financial officer.
The corporate head office Scott oversees acts like a banking, finance and governance centre while making sure the strategy and culture across the entire conglomerate are on the right track. Perth also sets expectations for minimum return on capital from the businesses, with targets reviewed annually.
But as CEO Scott still needs to spend time with his top Melbourne-based managers, including Mike Schneider of Bunnings, Ian Bailey of Kmart and Sarah Hunter of Officeworks. His chemicals boss Ian Hansen and industrial and safety chief Tim Bult are both based in Perth. Both Hansen and Bult also have sizeable east coast operations and customer bases.
Scott had been preparing to head east on the day the border was initially scheduled to open on February 5.
He is yet to meet the management team of Priceline-owner API with the friendly $76m acquisition of the Melbourne-based business expected to be completed by the end of March – pending on a decision by competition regulator ACCC.
Meanwhile, Wesfarmers is recruiting for its soon-to-be-unveiled healthcare business which it plans to build around the API business. The Australian’s DataRoom column last week flagged health insurance is expected to be a key part.
Also on the agenda is a meeting with his new Sydney-based executive Nicole Sheffield, most recently from Australia Post, who will integrate Wesfarmers’ data and digital businesses.
Wesfarmers’ first-half results are scheduled for February 17 and immediately after that is an intensive round of investor briefings, with the bulk of the company’s top shareholders and debt investors based on the east coast. Meanwhile, Scott also needs to lay the political groundwork ahead of a federal election to be held by May.
A dual Olympic oarsman and silver medal winner in Atlanta, Scott is quietly spoken but forceful in his thinking. He was among the few CEOs who directly pushed back against Victoria’s Andrews Government in late 2020, citing the lack of consultation around the state’s extended lockdowns.
With more than 30,000 employees in Victoria, Scott was also among the first to identify the mental hardship and economic toll through the forced closure of non-essential retail.
Scott’s position has put him further along the path from mining giants Rio Tinto and BHP, which quietly supported the cautious approach to border reopenings for their WA iron ore businesses after seeing how surging Covid cases and isolation rules have decimated workforces on the east coast.
Perth-based Fortescue chief Elizabeth Gaines has been in the Scott camp, saying Fortescue is disappointed by the ongoing border closure. “We had team members who have been away from their families for very long periods of time. Everyone has done the right thing – followed the mandate and with the high rate of vaccinations this gave us confidence in the robust Covid management plans,” she says.
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