The economics of restoring a school’s public standing

RBA board member Ian Harper. Illustration: Sturt Krygsman

When Ian Harper finally accepted the role of Melbourne Business School dean in 2018 it was arguably third time lucky for the economist, who spent 20 years in the school.

Harper, together with his internal dean or quasi chief operating officer Caron Beaton Wells, have successfully achieved two key things in re-establishing the school’s relationships with business and the university. That includes revamping its course offering and delivery, and in the process rekindling its storeyed reputation.

Both have now departed, replaced by another former academic in one-time acting dean and business leader Dr Jenny George – and BHP’s Ken MacKenzie will be the school’s new chair, replacing Ross Barker.

MacKenzie ensures the strengthening ties with business in part through the successful new CEO program he launched two years ago. That underlines for many that getting the top job means you may just be at the start of your learning curve.

The latest rankings place the business school just behind the AGSM at the University of NSW with the two well ahead of the rest, but for the MBS it has been a sometimes traumatic ride.

George, who holds a PhD in information technology from Stanford University, is also a returning staffer, having been acting dean between 2009 and 2011 between Paul Rizzo and Zeger Degraeve.

Unlike the University of Sydney’s graduate school of management, the AGSM was originally a partnership between Sydney and NSW universities before becoming the sole responsibility of UNSW. Melbourne is 55 per cent owned by business and 45 per cent by the university.

Its original funding came from NAB and Sidney Myer.

Relations between stakeholders broke down in 2008 when then vice chancellor Glyn Davis attempted to bring the school entirely under the control of the University through the school of business and economics.

The governing board agreed but then chair and former BHP executive Ron McNeilly didn’t win support from the business representatives, and a group led by John Dahlsen blocked the merger.

In 2013 a peace settlement was drawn up between investment banker Tony Burgess representing the faculty and former Orica boss Graeme Liebelt representing the business school.

Five years later when Glyn Davis approached Harper, relations were still not great, with then chair Degraeve having little time for stakeholder management.

An unheralded part of Harper’s success was the combination with Beaton Wells who joined the school from the law faculty where she specialised in competition law.

The school was regarded as too traditional and too inflexible, presenting classes only every Tuesday and Thursday between 6pm and 9pm.

Now it runs nine online short courses, including cyber security, fintech and data analytics with new centres covering sustainability and business, and business analytics.

Wells took the school into the real world while Harper managed relations with external stakeholders and, most importantly, with the university where he served as co-dean with Paul Kofman.

Dr George also assumed both roles.

She served as chief executive of Converge International, one of Australia’s largest providers of mental health services to work places, with customers such as Qantas, AGL and Boral.

Harper still has a couple of years to run as an RBA board member, having served since 2016.

In his early days as an RBA staff member one of his first hires in 1985 was the current governor, Michele Bullock.

Chemist tie-up to be waved through

The ACCC will take a close look at the Sigma-Chemist Warehouse (CWG) deal but there is no meaningful reason to block the deal and it will be cleared.

The regulator will take a long look at the transaction in part because retail and pharmacies are politically sensitive sectors. But on what is known to date – apart from some local area store sales – the deal can’t credibly be claimed as anti-competitive.

Certainly barriers to entry are raised but competitors Wesfarmers and EBOS are not minnows, and bringing CWG into the public sphere will shine more light on their own houses while significantly increasing the transparency on CWG.

At the outset the related party pages in the Sigma annual report will run forever which may raise question marks for the principals about what in other respects is a rational hedging strategy as they near retirement.

The market will be able to benchmark all three on a range of metrics and already Sigma/CWG, with double the profit margins at EBOS, is trading at a 70 per cent premium on an enterprise value to EBITDA metric.

Just this week the ACCC waved through the Woolworths-Petstock transaction even though the latter offended the regulator by not notifying its acquisition splurge.

ACCC chief Gina Cass-Gottlieb attacked the vendor’s acquisitive past, which ignored the regulator, but her strong words are no substitute for action

It was decided Woolworths should not be penalised for the indiscretions of the 45 per cent owner Petspiration, which is an effective green light for private equity firms around town to fast forward roll-up strategies.

One of the ironies is CWG is the Pharmacy Guild’s arch enemy yet the guild gave CWG an armchair ride by successfully keeping the supermarkets out of the pharmacy game.

The Guild-led chemist restrictions are the target of every national productivity study as a major impediment and CWG has almost done the politicians’ work for them.

As things stand, circa 70 per cent of CWG sales are front of house with sun cream, shampoo, and vitamins et al which compete with the supermarkets and the 30 per cent comes from drugs which are heavily regulated.

CWG is the wholesaler to its franchisees on the front of house goods while Sigma supplies the rest and Metcash has shown the franchisee model has its flaws and inefficiencies.

Wesfarmers owns API and Priceline and EBOS owns the old Symbion group and the biggest chemist banner group, Terry White.

The biggest challenge might be running the company as a public entity given that for 51 years it has traded privately with no apparent thought for ESG principles or technology benchmarks.

Tricks of the trade – such as using East Yarra Friendly Society to buy chemists because historically there were no limits on friendly society mergers – will now be in public gaze, including franchise arrangements which have raised eyebrows in the likes of Harvey Norman and others.

Supply agreements and IT spending, which have bedevilled the listed supermarkets, will now be under scrutiny.

Coles, Woolworths and IGA all trade at discounts to their peers at times when sales lag and having grown behind closed doors, and there will be new pressure on Wesfarmers and EBOS and most certainly in CWG.

The same goes for its offshore expansion in China, Ireland and New Zealand.

Bunnings, the listed retail superstar which failed in its UK expansion, and the CWG moves offshore may be a path for others.

The Pharmacy Guild has used the community pharmacy model as an excuse for the competitive constraints it advocates, and publicly listed CWG will help put that to bed.

The real competition concern comes next as Bunnings, Woolworths and Coles are seen to control every supply chain from dairy to pet care. Then, why not pharmacies?