Every chief executive and top manager of an ASX 200 company should think deep and hard about what Myer chief executive Bernie Brookes said to Business Spectator yesterday, because it affects not only the way they run their business, but their remuneration. For the first time Brookes explains what he gave up upon leaving Woolworths and what he gained at Myer. But first Brookes believes that the tight credit and high interest rates being imposed on Myer’s Australian suppliers, plus the tougher trading conditions, means they need help.
And what Brookes is seeing among his suppliers can be multiplied a thousand times around Australia. Consumers with secure jobs are enjoying lower interest rates and are feeling good, but large segments of Australian small and medium sized business are doing it tough. And as Dun & Bradstreet confirms, what we are seeing is too many big companies squeezing the lemon by delaying payments, driving the smaller enterprises close to the wall in a time of tight credit.
If the majority of the ASX 200 keep delaying their payments and the banks remain tight we will get the higher unemployment that Treasury is forecasting and more because the people being squeezed are collectively the employment powerhouse of Australia.
Kevin Rudd can cause money to rain from the sky, but it will have no long-term effect if small and medium sized business is being driven to the wall by the combination of the big companies and the banks.
What Brookes is doing is speeding up payments to his Australian suppliers to help them through, and all ASX 200 companies that have strong balance sheets should follow.
But while he is helping with faster payments, he is also warning that the costs of the goods Myer purchases in China are falling and that the Gillard industrial relations changes for the retail industry are just plain “dumb” and will savage hours worked in the industry and boost unemployment. He is hopeful she will wake up.
Brookes explained that he was one of 10 key retail executives who, three years ago, left their jobs to revolutionise Myer.
Brookes was a top, highly paid executive at Woolworths with options that triggered at less than half the current market price. He left Woolworths and the options, took a pay cut at Myer, and mortgaged his house to take up his equity stake (the 10 people together contributed around $33 million). He also changed cities. Altogether that was a very gutsy move, but it has paid off. The 10 executives have had their $33 million repaid and more in a 125% capital return. Brookes no longer has a mortgage on his house.
In addition, the value of the Myer equity is valued at about four times the original $33 million (around $130 million) and Brookes expects that it will rise in value by another 50% in the next two years.
So it’s been a bonanza for those who embarked on the Myer journey. In addition, along the way a large number of executives have received options which have enabled them to participate in the bonanza, although not to the same extent as the initial 10 backers.
This article first appeared on Business Spectator.