Woolworths' Internal Rules: Analysis of Corporate Governance Structure

This case study provides a critical review of Woolworths' internal rules, examining their corporate governance framework, financial reporting, and risk management strategies. It explores the structure of the company, from its early beginnings to its eventual bankruptcy, highlighting the strengths and weaknesses of its internal regulations. The analysis delves into the roles of various committees, such as the nomination committee, risk management committee, and sustainability committee, in ensuring optimal performance and ethical conduct. Furthermore, the case study investigates how internal rule shortcomings, increased competition, and economic factors contributed to Woolworths' financial difficulties and ultimate failure, while also considering the perspectives of insolvency administrators and stakeholders in the aftermath of the company's collapse. Desklib offers a platform for students to access similar case studies and solved assignments for academic assistance.

Running Head: WOOLWORTHS CRITICAL REVIEW 1
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Table of Contents
1.0 Internal Rules of Woolworths.................................................................................................................3
2.0 Background: Structure of the Company..................................................................................................4
Woolworths: Bankruptcy......................................................................................................................5
3.0 Critical Review of Internal Rules..............................................................................................................5
4.0 Strengths and weaknesses of the internal rules......................................................................................6
5.0 Conclusion...............................................................................................................................................8

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1.0 Internal Rules of Woolworths
Internal rules of a corporation can be defined as the regulations that a company relies on for each
sector. From marketing, production finance to communication. The rules can also be defined as
crucial information rendered to employees of an organization to ensure strict adherence to laws or
a description of the required code of conduct both within the work environment and with
outsiders.
The core rules of Woolworth are tenure, experience, diversity and skills. The internal rules are
divided into three main categories, financial reporting, corporate governance and remuneration
reporting. The importance of having set rules on the above-mentioned areas is to ensure that funds
for shareholders are protected. To ensure that this is achieved the persons holding positions of
power need to be of high ethical standing and responsible.
The governance framework of Woolworths comprises of a board of directors; all members of the
board are elected by the shareholders apart from the CEO and the managing director. The board
for effectiveness in running its services and fulfilling its objectives has formed the following
committees, nomination committee, risk management and compliance committee, a people policy
committee and a committee that is dedicated to sustainability. The main objective of the board
members is to serve the shareholders in ensuring optimal performance of the company. The CEO
reports to the Board and sets the parameters in which the CEO can operate in the Board is in
charge of approving the activated that the CEO carries out such as approving corporate objectives
and strategies that have been developed. The Nomination committee is tasked with coming up
with members who will form part of the board; their decisions are based on the following factors;
skills, diversity, availability, the possibility of a conflict of interest among other factors.
Directors whose tenures have expired may request the shareholders for re-election. Directors
should be independent of businesses or dealings that would interfere with their roles in the
company; all conflicts of interest need to be avoided. The directors are not exempt from
evaluation; the chairperson is the one mandated to carry out routine evaluations. The audit risk
management committee’s main o0bjective is to give the board advice that deals with governance,
risk systems and matters touching on accounting. The risk management committee comprises of a
minimum of three directors. However they need to be non-executive directors.

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The people policy committee deals with people, in particular giving advice on how clients are
treated ensuring that the workers of Woolworths have all been vetted and that the employees are
motivated. The committee is there to ensure that the company’s retention rate is high and that
there is proper motivation and a succession plan is put in place. The last committee is the
sustainability committee whose main objective is to monitor the decisions taken by the
management and report to the board; it deals with how business is conducted by the company.
The group ensures that regulation is complied with and promotes the confidence of investors. It
also ensures that the workers of Woolworths are diverse.
2.0 Background: Structure of the Company
The first British shop was opened in 1909 in Liverpool. The first Australian store in 1923 at
Sydney. At the beginning of the First World War, there were 40 branches in the UK and Ireland,
in most major cities. The number of employees - including managers - was 57. After the war,
most executives did not return. The American parent company offered to help, but the British
company wanted to prove its efficiency, and so a number of women were promoted to
management positions, if only for a limited period of time. In 1923, there were already 130
shops. Many of the shops had distinctive Art Deco façades made of tiles. On July 12, 1930,
opened the 400th Branch and the initial public offering in 1931, there were 444 (Hargrove, 2002).
The highest number of stores was reached in the 1960s with 1141. Even
then, hypermarkets were opened under the name Woolco. Most of these stores were later sold,
such as the Dee Corporation, and are still operated today, for example
by Asda, Carrefour, and Tesco. By the time the British company separated from the
American FW Woolworth Company in 1982, the number of branches had dropped to around
1,000 (Woolworths Holdings, 2012). The British company temporarily stopped following the
general trend of opening outskirts but remained in the centres. At the beginning of the 21st
century, Woolworths was exposed to ever-increasing competition. The record business (records,
cassette tapes and CDs), one of the main sources of revenue, collapsed, especially after the demise
of “Our Price”.

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Woolworths: Bankruptcy
Shortly before the company's 100th anniversary,. On November 26, 2008, British media reported
that it had filed for bankruptcy on the company's bankruptcy case after a recent rescue attempt
had failed. For the first half of fiscal 2008/2009, which runs until the end of August, Woolworths
Group PLC announced a loss of £ 99.7m (pre-tax). The debt amounted to 385 million pounds
(about 410 million Euros, the exchange rate in December 2008). After the search for an investor
failed, on December 10, 2008, the closure of the department store chain with over 800 branches
was announced and the clearance sale initiated. This process was completed in early January 2009
with the dismissal of the last employees.
The former branch manager of a Woolworths branch in Dorchester, Claire Robertson, led her
shop with the new name Wellworth after some conversions on own initiative. The reopening took
place on March 11, 2009. This was followed with a broad media interest in the UK.
The German Woolworth GmbH & Co. KG is independent of the British Woolworths group and
was therefore not affected by their bankruptcy. The still existing Australian Woolworths
Group has no historical connection with the British or American companies of this name.
3.0 Critical Review of Internal Rules
At the end of April 2010, the insolvency administrator entered into provisional contracts
through review of their internal rules with the remaining three interested parties and
submitted the bids to Woolworth's main landlord, the private equity fund Cerberus (Hall,
2000). However, surprisingly, the Cerberus people refused to give their consent because they
did not have trust in the company. By the insolvency administrator, Heinig had agreed with
Cerberus. The company presented Hermann with the choice to conclude with Heinig - or
settle Woolworth. Although this was not the finest way, it was most efficient from Heinig's
point of view. The empty-ended applicants had little more to do than express their
displeasure. They had already invested a lot of work and money in their concepts.
Woolworth managing director Heinz had been engaged after the insolvency of Hermann and
the company for a year as part of internal rules that had pre-cleaned, left the house. Now
Heinigs Spezi Schindel is to develop the chain store - on up to 1000 shops (Woolworths
Holdings, 2011b). However, the traditional brand Woolworth is something different from Kik

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or Tedi. Therefore, Heinig marvelled at the high turnover when he visited the Woolworth
branch in Frankfurt-Sachsenhausen. The revenue per square meter is far higher than at Kik,
where the branch turnover in the crisis year 2009 also shrank. On the other hand, gross profit
at Woolworth is dramatically lower than Kik's 60 per cent.
Heinig suspects what Woolworth has perished. He found there a package of the chocolate
brand Toffifee, which was sold for one euro (including VAT) but had already cost 91 cents
net in purchasing. Gross profit: two cents, contribution margin: clearly negative. He keeps
this example in mind for all buyers.
It is risky when Schindel, as is generally expected, further restricts the range, which has
already been reduced from 175,000 to now less than 30,000 items as part of internal rules
(Van den Bergh, Truffer, & Kallis, 2011). Regular customers who like to find their usual
consumables could be bounced. The clearing is already going on. The newly launched by
Thunemann sports range "Jump and Run" should disappear again. In the long run, Heinig
will only tolerate brands that can still be found at Woolworth if they yield as high a yield as
their Kik assortment - that is, as low-priced item goods.
4.0 Strengths and weaknesses of the internal rules
Woolworth due to their some of the internal rules have led to a full innovative company with the
capacity to locate investment and business opportunities, based on its technological capabilities
and with an acceptable degree of appropriability of benefits. This has led to periodic launching of
new products, innovations, and creating larger markets for their products. More so, it has led to
the penetration of established markets with significant improvements, incremental innovations, in
the products.
One of the weaknesses of internal rules introduced by Woolworth is that it led to being aligned in
court. The nearly 100-year-old consumer retail chain, which employs 30,000 people, was put into
court on Wednesday, November 26 2010 (Woolworths Holdings, 2007). It was a kind of
homecoming, the revenge of the delightfully picturesque Old England on the new, sophisticated,
and cosmopolitan. All this was routed with the administration on Wednesday, November 26, the
chain of department stores Woolworths, and an almost hundred year’s old institution, which

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illustrates the failure of the key sector of distribution hit hard by the economic rout due to their
internal rules.
Another weakness is that although Woolworths has 30,000 jobs, 800 stores, a general-purpose,
low-priced general-purpose banner, and a wide range of non-food items. "Children and the party":
this is the last slogan of this establishment offering toys, clothes, kitchen utensils, CDs, books or
candies in bulk. Present mainly in working class neighborhoods, Woolworths was swept away by
a cascade of bad circumstances: increased competition from supermarkets and Internet sales, a
decline in consumption, a credit crisis.
Debt to the tune of 385 million pounds (458.3 million euros), the company hoped until the last
moment to be able to save itself by selling its network of stores to the American group Hilco,
specialized in the recovery of "lame ducks". At the same time, negotiations had been opened with
Worldwide, the commercial arm of the BBC, to sell the 40% stake in their joint venture 2
Entertain. The creditors of "Woolies", two subsidiaries of the Bank of Ireland, have stalled these
advanced talks. Arguing public bailout of the banks, the unions asked the government to help
Woolworths. The government refused, citing it as a failing development model.
Founded in 1878 in the United States by Franklin Winfield Woolworth, the sign landed in the
United Kingdom in 1909 in Liverpool. As well as Marks & Spencer, but more low-end, the store
has revolutionized the British supermarket: self-service, low counters, friendly staff, warm
atmosphere, good value for money (Woolworths Holdings, 2008). In 1982, the British branch
split before being bought seven years later by the conglomerate Kingfisher. In 2001, the company
went public, while its former American parent company was renamed Foot Locker, specializing
in sports goods.
This crisis is only the culmination of particularly catastrophic autumn for Albion's
stores. According to the British Retail Consortium, the employers' organization of distribution,
sales of its members fell by 4% in October and a contraction that alarmed the Bank of
England. John Lewis, the industry barometer, announced a 14% drop in revenue in the week
ending November 15 (Borzel & Risse, 2010).

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There was not a day without newspapers and television squeezing their litany of bad news. At the
same time as Woolworths, the MFI furniture store chain also went into court administration,
threatening a thousand jobs. To counter the panic that gripped the British consumer Marks &
Spencer reduced prices by 20% for one day and Debenham by 25% for three days in a row (Levy
& Weitz, 2004). The ready-to-wear Arcadia Company (Dorothy Perkins, Burtons, etc.) put
forward its winter sales, which were to start after the holidays.
Prior to 1997’s internal rules, due to their original chain, the company reduced to 400 stores, and
other divisions of the company began to be more profitable than the original chain. The original
chain went out of business on July 17, 1997, as the firm began its transition in Foot Locker, Inc.
In the UK the operation continues (albeit under separate ownership since 1982) after the US
operation ceased under the name of Woolworth and now continues as Woolworths. At the end of
2008, Woolworth United Kingdom closed its stores definitively, the result of the world crisis of
2008 (Woolworths Holdings, 2011a). In Australia, the brand is still in force, under the control of
Woolworths Limited, which has supermarkets and discount stores.
5.0 Conclusion
In conclusion from the discussions above it is eminent that the success of Woolworths can be
attributed to the strength of its internal rules. The elaborate structure and synchronization with
which each department operates make decision making and accountability easy. From the
historical perspective, one can conclude that the lack of a proper internal structure led to failure.
This paper shows the effectiveness of internal rules in an organization and its benefits.

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