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Ethics and Governance in Woolworths Limited Group

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Added on  2023/06/10

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This report analyzes the likely ethical and governance outlook of Woolworths Limited Group based on their reports, portfolio, communications, and corporate governance theory. It describes the company in detail and applies agency theory and legitimacy theory in understanding the company better. The report also looks into the board orientation to the shareholders and other stakeholders. The report concludes that agency theory is applicable in explaining the relationship between the shareholders and the board.

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Running head: ETHICS AND GOVERNANCE 1
Ethics and Governance
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ETHICS AND GOVERNANCE 2
Executive Summary
This report is on Woolworths Limited Group likely ethical and governance outlook based
on an analysis of their reports, portfolio, communications and other corporate governance theory.
It describes the company in details after which it looks into the corporate governance of the
company.
Research indicated that the company applies agency theory which is an inclination to the
shareholders’ interests by the board members. It also points out to means used by the company to
prove its legitimacy to the society based on legitimacy theory. These results are important
because they are an indication of the company’s corporate governance and ethical outlook.
Introduction
Corporate governance is an important role by board members which determines the
direction and overall outlook of a company (Keith, 2012). Woolworths a company with its
headquarters in New South Wales offers a variety of retail operation across and outside
Australia. This paper is aimed at determining the likely ethical and governance outlook.
In attaining this it looks into the company’s reports which are majorly the latest annual
report of 2018, sustainability report, corporate responsibility report and other important reports.
It then applies agency theory and legitimacy theory in understanding the company better.
Outcome of this research process indicate the board orientation to the shareholders which is used
in determining it likely ethical and governance outlook. Several peer reviewed articles and
journals are also used in the research process in order to make sense of the facts and observations
form the reports.
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ETHICS AND GOVERNANCE 3
Understanding the company
Woolworth Group Limited formerly referred to as Woolworth Limited is an Australian
based company which deals or engages in retail operations throughout Australia and New
Zealand. It was founded in 1924 by George Creed, Percy Chrismas, Stanley Charton, Cecil Scott
and Eerest Williams. In terms of revenue it is the second largest in Australia proceeded by Perth
Conglomerate West farmers (Tricker & Tricker, 2015).
Its retail operations include supermarkets, petrol, liquor, hotels and gambling centers,
general merchandise, home improvements, finance and Woolworths online. It is the largest
liquor retailer in Australia, the second largest company in New Zealand, the largest hotel in
Australia and it has the largest gaming poker machine in Australia. These company that was
ranked 19th largest retailer in the world by 2008 has a revenue of A$ 56726 billion and it has
employed a total of 201,522 members with 54% female employee and 46% male employees. Out
of these 54% female, 32% are in senior management position.
The supermarkets are known by brand names Woolworth and Safeway in Australia while
in New Zealand they are known by brand name Countdown, these supermarkets carry out
procurement of food and liquor in their areas of operation. The company has got 323 venues with
over 537 retail locations which offer hospitality experiences such as restaurants, gaming lounge,
cafes, bistros and nightclubs. The Liquor and Petrol retails carry out procurement and resale of
these products in Australia. General merchandise retails carry out retailing of general
merchandise to customers who are mostly located in Australia.
Woolworths Group Limited mission is to provide its best in terms of value, quality and
convenience to their customers who are approximately 29 million weekly over their 3000 stores.
Their strategy is centered in four areas which are, talent nurturing, optimizing value, supporting
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ETHICS AND GOVERNANCE 4
and growing new business and lastly extending their leadership. Some of their principles include
honesty, transparency and fairness according to their annual report (Claessens & Yurtoglu,
2013).
The company has its headquarter in Bella Vista in Australia, with approximately 445 000
shareholder’s majority being Australian citizens. However, several Australians are also
shareholders due to superannuation funds. The company reported one of the hugest losses in
their history in 2012, this was the first of its kind in more than 20 years where it lost $1.235
billion. However, in 2018 its net profit increased by more than 12% which was $1.27 billion due
to rise in income in the food division and petroleum division. It has been experiencing a rise in
net profit this year due to the favorable weather condition (Parker, Carey & Scrinis, 2018).
In the company’s portfolio, it mentions three major core business which are Australian
Food consisting Woolworth supermarket, Financial services and insurance and Woolworth
Rewards. New Zealand Food which consists of Countdown and Endeavor drink which consists
of brands such as Langton’s, Cellarmasters, BWS and Dan Murphy’s (Bailey, Price, Pyman &
Parker, 2015).
It is important to note that the Woolworth Group Limited in question which has its
headquarters in Australia has no connection with other brands called Woolworth in countries
such as United States and United Kingdom, they were all named after the same person Frank
Winfield Woolworth.
Corporate Governance
Woolworth Group Limited is composed of 9 board of directors consisting of 5 females
and 4 males. Members of the board of directors led by Gordon Cairns as the chairman include

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ETHICS AND GOVERNANCE 5
Brad Banducci, Jilian Broadbent, Jenifer Car Smith, Holly Kramer, Sioban McKenna, Scott
Perkins, Kathee Tesija and Michael Ullmer.
Gordon Cairns the chairman of these team was appointed in 1st of September 2015 prior
to which he had not worked in Woolworth before. The independent member is part of the other
eight out of the nine board of directors with only Brad Banucci as non-independent member.
One key member in the governance of these institution is Brad Banucci the Chief
Executive Officer and member of the Board of Directors, he was appointed the chief executive
officer on 26th February prior to which he worked at Woolworth as the director in charge of the
liquor business between 2012 and 2015.
The leadership of Woolworths Group Limited is also composed of group executive
committee responsible for managing daily operations of the company and management
decisions, they report to the board of directors. They are composed of 13 personnel with 5 female
and 8 male members of group executive committee.
The board of director’s role is to ensure that the shareholders’ value is increased while
the activities in the company are managed properly. In order to achieve this, they have
established board committee that assist the board in achieving its primary goal stated above. This
committee include audit, risk management and compliance committee, people performance
committee, sustainability committee and nomination committee, which each of the members
chairing a specific committee. Furthermore, they hope to meet their objective through
observation of the board charter which indicates their powers and responsibilities.
Board Orientation
In ethics of stakeholder’s engagement, the board is responsible for management of
corporation (Khan, Muttakin & Siddiqui, 2013). In this regard, these board members are to
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ETHICS AND GOVERNANCE 6
ensure that they effectively govern and control the organization removing any unethical behavior
allowing room for accountability checks. In its leadership the board may decide to focus more on
the shareholder or other stakeholder’s interests, this paper will look into the bard orientation
based on, board focus, key communication, board composition and criteria provided by Ferrell,
Fraedrich and Ferrell (2015) on how a board implements a stakeholder’s perspective.
In Woolworth’s report it is indicated that they their main goal is to put the customer first.
They hope to achieve this through six procedures which are, encouraging innovations in the
drinking business, prompting the team of employees to have customers’ interests at heart,
differentiation of food customer, increasing customer experience while shopping, enhancing e2e
processes and effective use of its portfolio (Jo & Harjoto, 2012). While all this signs are an
indication of stakeholder orientation, in the introduction of the board there is a statement that
indicates that the boards role is to maintain and increase shareholders value.
In looking at the composition of the board of directors, they are nine in number out of
which eight are independent and only the current chief executive officer is non-independent. This
board goes ahead to state “the board role is to satisfy the interest of the shareholder through
administration and evaluation of the organizations policies, plan and performance”. This is an
indication of alienation on the side of the shareholders rather than the stakeholders. Furthermore,
in accordance with the primary goal of Woolworth it should be protecting the interest of the
customer yet it wanted to close down some useful stores.
The board of directors together with other employees in the company are guided by
several policies and documents that should guide their behavior, these document includes
corporate government statement, constitution, board charter, code of conduct, continuous
disclosure policy, safety and health policy and security trading policy.
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ETHICS AND GOVERNANCE 7
One key document in determining the board orientation is boards charter, board charter is
a document that defines the roles and responsibilities of the board of directors in relation to
managing the company and dealing with the shareholders. While going through the board of
directors charter the first statement defines the role of the board which is representing and
serving the interest of the shareholders. Furthermore, the board of directors is appointed by
shareholders.
Shareholders being the people who determine members of board of directors may lead to
the suspect ion that there could be a mutual agreement between the board of director and the
shareholders prior to election for the purposes of self-benefits hence board orientation to the
shareholders rather than the stakeholders (Trevino & Nelson, 2016).
The composition of the board is also important in looking at board orientation (Helfaya &
Moussa, 2017). The board is composed of independent experts form different fields applicable in
Woolworth industry. These could be a good sign and an indication that the board is aimed at
ensuring maximum resource utilization for both the stakeholders and the shareholders. However,
in the board charter on explanation of board composition and size, this composition perhaps
could still be a means of maximizing profit by the shareholders (Shaw, 2016).
Some of the reports that this company produces include annual reports which contain
remuneration and report from the Chief Executive Officer, sustainability report on carrying out
activities the correct way in order to have a positive impact on the society, tax transparency
report on payment of tax, corporate responsibility strategy 2020, 2018 GRI index and Green
bonds.
In accessing the commitment of Woolworths to corporate social responsibility, it has a
report called corporate responsibility strategy 2020. The report is about the Woolworths

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ETHICS AND GOVERNANCE 8
commitment its corporate environment. It identifies 20 corporate goals that the company would
want to achieve by 2020. These goals cover various groups of stakeholders including customers,
suppliers and the community at large (Ferrell & Fraedrich, 2015).
This strategy is divided into three which is, people, planet and prosperity. In people
section the company makes the following commitments: Striving to attain gender equality by
ensuring that at least 40 per cent of the executive and managers are women, ensuring that there is
no salary or wage gaps when it comes to male or female employees who have the same position
at all levels of the company. Lastly under people Woolworths commit to increase the number of
indigenous team as a way of embracing diversity and fulfilling its commitment to Federal
Employment Parity Initiative (Armstrong et al., 2015).
Under planet, Woolworths is committed to undertake the following, ensuring that no food
waste is released to become landfill and reducing the carbon emission into the atmosphere by
10% lower than the 2015 levels. The last set of commitment under corporate responsibility
strategy 2020 is labelled prosperity, this set is Woolworths commitment in terms of the business
relationship to its suppliers and other partners, some of this commitments are, attaining a top
quartile ranking due to the manner it carries out business engagements with its suppliers in
reports by supplier surveys, being able to convince the customers to consume all the products
provided by Woolworths in a healthy manner and lastly investing 1% of its three years rolling
average in community engagements and programs (Bottenberg, Tuschke & Flickinger, 2017).
Other means that the company commits to social responsibility is through green bonds.
Green bonds are money provided by the company to finance projects, assets an expenditure
which is to have a positive outcome to the society. This is in line with green book framework
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ETHICS AND GOVERNANCE 9
dictated by Green Book Principles 2018 which was developed by International Capital Market
(Galbreath, 2017).
From the above explanations and observations, it is clear that agency theory is applicable
in explaining the relationship between the shareholders who are the owners and the board who
are their agent. As established above this is because, the board composition is majorly
independent where 8 out 9 board members are independent with one non independent board
member. The board’s primary focus is on meeting shareholders interest which is growth in profit
and dividends and some of the reports generated include annual report, income reports and
remuneration reports within the annual report amongst other reports.
Even though the company also shows signs of resource orientation through acts such as
the mixing of skills from various successful personnel to ensure that the company has a
continuous supply of resource into the company and production of reports in line with this
agenda, this orientation does not stand mainly due to board focus. If the focus of the board was
primarily control of resource, management of resource flows and provision of resources then this
orientation could be the case but in this case the primary focus of the board is satisfying and
fulfilling the needs of the shareholder which means even the diversity of skills in the board is a
choice by the shareholders to ensure their benefits (Eberhardt-Toth, 2017).
Interpretation of the company’s communication using legitimacy theory
Legitimacy theory entails the company operating within the bound and norms of the
society in order for the society to perceive it as legitimate (Deephouse, Bundy, Tost, & Suchman,
2017). Alongside social contract the company must prove or show the society that it is working
for their interests through its action and communication.
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ETHICS AND GOVERNANCE 10
Woolworths have several initiatives that indicate to the society that they have their
interests at heart. In the first place, the establishment of corporate responsibility strategy 2020
which outlines goals of improving the company’s relationships to its stakeholders and society is
meant to indicate the fact that the company has the society members in its future plans therefore
the society feels considered and recognized (Nurhayati et al., 2016).
The company also carries out annual general meeting, in this annual general meetings
their employees together with their customers and stakeholders are given a chance to express
their concerns. This is documented and accessed through the company’s portfolio. By doing this
they are aimed at showing to the community how much they value their input hence the
community deems them legitimate.
Moreover, the company has got a section on the portfolio where a customer or
stakeholders can ask questions and they receive answers from Woolworths employee or other
customers. This is clearly a move by the management and the board to indicate to the customers
and the stakeholders how much they are important and valued to the extent personnel are always
available to answer them (Richards et al., 2013).
The allocation of green bonds is also a means of the company proving its legitimacy,
green bonds are bonds set aside by the company to finance assets, projects and expenditure that
is of positive impact to the society. This are indications on how the company has the interests of
the community in order to fund its projects.
In addition, the company also has included a module in its portfolio which offers
employment opportunities in their retail operations. They also indicate the qualities they need
and how to apply amongst other information. In addition, it indicates training and scholarships
that it offers. This can also be seen as a move to indicate its legitimacy.

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ETHICS AND GOVERNANCE 11
The company also communicates legitimacy to the public through disclosure (Hummel &
Schlick, 2016). These disclosures have included annual report, financial reports and
sustainability reports. At its best it has gone ahead to engage in voluntary disclosure in order to
please it customers amongst other stakeholders, these voluntary disclosures include, Woolworths
notes, Annual General Meeting records and report and Woolworths Employee shareholders’
benefits and information plan.
Conclusion
In conclusion, based on the company’s board orientation which is determined by agency
theory, the corporate governance of Woolworths is focused on growing and executing the needs
of shareholders as its primary focus. After the interests of the shareholders are taken care of then
it turns to the interest of the other stakeholders as indicated in its communication and
commitment to corporate social responsibility. The corporate board sees its role and relationship
with the shareholders important as compared to the other needs (De George, 2011).
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ETHICS AND GOVERNANCE 12
Reference
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ETHICS AND GOVERNANCE 14
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