Tumultuous times call for agile boards who can keep things moving — just like on the sporting field, argues former All Blacks skipper David Kirk MBE MAICD, chair of outdoor clothing company KMD Brands.
Directors can learn a lot from elite sports, says David Kirk MBE MAICD, chair of outdoor clothing company KMD Brands and managing partner of scale-up investor Bailador. As a 26-year-old halfback, Kirk captained New Zealand to victory in the first Rugby World Cup in 1987, cementing his place in the history of the sport. “As a captain of a team like the All Blacks, which has set such high standards over such a long period of time, it’s about no excuses. It’s about high performance,” he reflects.
Kirk retired after the World Cup final, and despite having a medical degree, moved into a varied career — as a rugby coach and political adviser before joining Fletcher Challenge, then New Zealand’s largest company, and one of its successors, Fletcher Energy. From 2005–08, he was CEO of Sydney Morning Herald and Melbourne Age publisher Fairfax Media.
Along with chairing listed growth investor Bailador Technology Investments and KMD Brands, Kirk is chair of Sydney Festival, the New Zealand Rugby Players Association and two food rescue and national food collection delivery businesses — KiwiHarvest and the New Zealand Food Network. ASX-listed KMD Brands owns outdoor clothing manufacturer Kathmandu, surf wear company Rip Curl and outdoor footwear company Oboz, Kirk brings much of the ethos with which he captained the All Blacks to the boardroom. “I take some of that thinking to KMD Brands, for instance, in which the business has to execute really well on what it’s doing today, but has to be gaining new customers, opening new markets, becoming a more global company,” he says. “There’s no rest.”
A big part of this is a focus on developing a high-performance culture, which requires directness and candour. “You don’t get to the top unless you’re brutally honest with yourself and you’re candid with other people,” says Kirk. For a chair, that can mean telling a CEO their time is up.
In rugby, there’s always a plan, a way of playing the game that changes for different oppositions, but at its core is about being the best. In business, the basics are selling to customers, managing costs, inventory, designing product and building brands.
“We do all the things that are fundamental to success in our business the best we can possibly do them,” says Kirk. “We’ll make no excuses and we’ll just keep doing them as well as we can.”
The company sells via its own shops at Kathmandu, and wholesale and online at Rip Curl and Oboz. Selling via these three channels provides the company with a “more balanced” route to market, he says. The strategy de-risks the balance sheet because it doesn’t have as many long-term leases as bricks-and-mortar-only brands, and can pass inventory costs onto wholesalers.
Kirk says one of the key challenges for the company is the difficulty in growing global brands from Australia and New Zealand because they lack the same sort of recognition as American or European brands. “You need to be able to represent yourself as special and as having roots,” he says. “Then you need to back that up with product.”
The COVID-19 lockdowns that shuttered stores were another major challenge for the company’s retail outlets and problems continue with stores sometimes being forced to shut when staff are sick — and the tight employment market makes finding replacements difficult. The company continues to feel the effects of the pandemic on earnings. It suffered a NZ$35m hit in the first half of the 2022 financial year, and expects operating earnings for the full year to be in the range of NZ$88m–$94m when it reports in September. “Trading conditions have improved in the second half, however COVID-19 continued to impact footfall, particularly in the third quarter, and caused sporadic store closures due to staff availability,” the company said in a trading update in July.
When the company, then Kathmandu Ltd, bought Rip Curl in October 2019 for $350m, it also secured a succession plan. Michael Daly, who had spent 19 years at Rip Curl, including eight as CEO, took over from former group chief executive Xavier Simonet, who resigned in November 2020 to take the top job at Austrade. Kirk welcomed Daly’s “relentless focus on brand, product, people and the bottom line”. (In July, Kathmandu brand CEO Reuben Casey left and Daly stepped in as interim brand CEO while the company explored options for a replacement.)
Pillars of wisdom
KMD Brands has four strategic pillars — building global brands, elevating digital, leveraging operational excellence, and showcasing leadership in ESG. The past decade has seen a shift in thinking in how Kirk thinks about value creation.
“I’ve gone on the journey, like a lot of directors, in that you start off thinking, my main job here is to make sure I get a good return to shareholders,” he says. “Obviously, I’ve got to focus on the governance and compliance requirements of the company, but I’ve also got to focus just as strongly, if not more strongly, on the financial performance of the company. Those are the two key pillars for directors 10 years ago.”
However, Kirk learned that in order to deliver a good financial performance, you’ve got to have a strong strategy and a good management team to deliver it. “You need alignment at the board and alignment between the CEO and the rest of the organisation,” he says. “So it works that you go from ‘here’s our aim for financial performance’ to ‘what strategy will help us deliver that performance?’ Then, when you consider strategy properly, increasingly ESG has been an important thing to consider. That’s why aspiring to be a leader in ESG to create long-term value has become one of our core strategic principles.”
Sustainability and ESG
People who love the outdoors — the walkers, surfers, climbers and campers who are KMD’s customers — tend to be interested in sustaining the outdoors, says Kirk. Sustainability and ESG have long been a focus for Kathmandu since it was co-founded in 1987 by Tasmania-based NZ businesswoman and philanthropist Jan Cameron. (Cameron sold 51 per cent of her share of Kathmandu for $247m in 2006.) Kathmandu had been tracking its carbon emissions for close to a decade and in 2020 set “Best for the World” targets to have a zero environmental footprint by 2025.
In 2021, KMD Brands undertook its first group-wide ESG materiality assessment by Drs Brian and Mary Nattrass of Sustainability Partners, who have worked for the likes of Nike and Starbucks. This assessment guided the company’s focus under ESG to three priority areas — its people and communities, science- based climate action, and adoption of circular economy business models. As the report notes, working out what’s material to the business is a way of “ground-truthing — otherwise, you could go off chasing things that the company doesn’t have any impact on.”
Kathmandu is a certified benefit corporation (B Corp), meaning it has been verified by not-for-profit network B Lab to meet high standards of social and environmental performance, transparency and accountability. The certification is in keeping with Kathmandu’s history as an outdoor equipment company with customers who love the environment and in keeping with what it’s doing now as a technically designed and manufactured apparel and equipment company. “That takes you all into lots of areas of ESG, including the circular economy, climate, supply chain, if things are made in Asia and we need to know what’s going on with our partner manufacturers,” says Kirk.
Being a B Corp is a way of being able to communicate what a company stands for to people who don’t know much about the company. CEO Michael Daly notes in the report that the assessment confirmed Kathmandu’s approach was heading in the right direction. “Now the challenge is to align all three brands.”
Among KMD Brands’ sustainability principles is a target to have 100 per cent of its products designed, developed and manufactured using elements of circular economy principles by 2024. Kathmandu head of product innovation and product sustainability Manu Rastogi, in the company’s latest sustainability report, says there is a misconception that the circular economy is “just recycling on steroids”.
“Recycling should be the last resort,” he says. “First, we need to see how we can make more durable products and keep value closer to the user.”
Kathmandu has recently released a fully biodegradable insulated jacket, which will break down in far less time than conventional material (over 50 years in landfill). Rip Curl and Oboz have similar values — the surf company has been working to clean up beaches for many years, for instance — and both are on the path to B Corp certification.
In 2021, Kathmandu secured New Zealand’s largest syndicated sustainability-linked loan ($100m). Sustainability-linked loans and bonds are tied to ESG targets. If the targets are hit, the interest rate on the loan decreases. The company says the loans are a way of ensuring that even the finance team has skin in the game when it comes to sustainability.
In the longer term, the company is working on internal change and digitisation, which Kirk says is about much more than customer acquisition. Investment in that “front-end” component has to be matched with investment in connected financial, inventory management, product lifecycle management (which manages the information and processes at every step of a product lifecycle across globalised supply chains) and warehouse management systems. Kirk speaks in considerable detail about tech and digitisation strategy, outlining how companies need “best of breed” systems that can talk to each other and a core platform able to use the cloud effectively. He says directors don’t need to be tech experts, but board members need to know enough to ask management how they came to the conclusion that a particular technology was the best for the company — and to expect a good answer.
“You can’t judge whether you’re being fed nice lines if you don’t have enough knowledge to ask the right questions and then interrogate,” he says.
While boards can have specialists with particular capabilities, Kirk says all directors should be able to contribute to all board discussions. “Gone are the days where directors could come on with a bit of an expertise in something and just glide through everything,” he says. “No-one’s an expert in everything. So what you’re looking for is people who have clear experience and capability in areas relevant to the company, plus good judgement, intellect and curiosity.”
Kirk, who favours smaller boards, says directors are excited about these sorts of boards because they have the opportunity to learn and contribute broadly.
In terms of how directors govern for excellence — and Kirk stresses he means govern, not manage — it’s done through senior appointments such as the CEO and overseeing strategy development.
“That has embedded in it the growth, drive, energy and aspiration we want, obviously led by the chief executive and his most senior team,” he says. “Then every board meeting we discuss and provide input, experience and judgement to the work going on in the company. Then we support management in the big steps, which might be making an acquisition and raising capital to do it, for instance, which we’ve done twice now with Oboz and Rip Curl.”
He says directors need to put their own reputations on the line and have the courage to act on their convictions. Even so, he agrees with former Fairfax CEO Fred Hilmer AO that the expectations created and enforced by Australia’s current approach to corporate governance are unreasonable and require boards to have a command of so much detail that they may not improve outcomes and consequently distract from more valuable activities.
Kirk adds that in some cases it is manifestly unfair for directors to be held accountable for a detail that was clearly the responsibility of management.
“If people further down the organisation don’t do things as they’re supposed to, and managers above them haven’t required them to do it, it’s pretty unfair to expect the board to be able to reach down three or four levels in the organisation and have influence on detail at that level,” he says.
He agrees with Hilmer that this dynamic is deterring potential investors, who are preferring to go into private equity or work for family offices instead.
Kirk is not only chair of Bailador, but also a founder. It had its genesis in his decision not to seek another CEO role. As leader of Fairfax, he’d gained exposure to digitisation and to making acquisitions such as Trade Me (the NZ equivalent of eBay) and accommodation website Stayz. He was interested in private equity, joining Pacific Equity Partners as chair of Hoyts cinema group to gain experience in that sector.
“It became obvious to me there was going to be much more digital change. In a way, the media industry and print media saw it very early, with the classifieds going to dedicated online providers of classified advertising,” he says. “I knew that would result in a lot of early-stage investment opportunities, but felt my experience and capability really lay more at the growth stage.”
So he teamed up with investment and private equity professional Paul Wilson MAICD, founding Bailador to make direct investments in private growth-stage companies. The company looks for startups that are moving into the growth stage, considering markers such as revenue, product maturity, a demonstrable go- to-market strategy, and a constant and repeatable ability to acquire new customers. They also want to see a plan for global growth and a clear understanding of the international customer acquisition pathway.
Only investing in 10 to 14 companies at any one time, it expects all to be successful, although some will grow faster than others. Some 20 investments have produced two big successes — where it has invested in companies with an enterprise value of $25m–$30m that have gone on to have upper-six-figure valuations. These are hotel booking software company SiteMinder, listed on the ASX with a market capitalisation above $1b, and cloud database company Instaclustr, which sold in a trade sale for more than $500m.
Investing in growth companies and focusing on sustainability are by their natures long-term ambitions, which raises the question of how directors of publicly-listed companies can balance some investors’ preference for short-term gain with planning for the longer term. Kirk says the first thing is to be really clear with investors about the company strategy and to give them a clear understanding of where you’re heading, including milestones to demonstrate it’s on track. “The market throws things at you so things don’t always work in the same timeline, as they do, but investors in the first place need to be brought into the strategy, need to agree with you,” he says.
As those milestones are reached, the share price will respond. But boards aren’t as savvy on capital management as investors, whose constant focus is where to allocate capital and who think about return on capital in a way that a lot of boards don’t, says Kirk. Sometimes, companies can have a misalignment where there is strong revenue and earnings growth, but the company is issuing a lot of capital to fund it, so the share price isn’t rising. This could mean changing management, cutting costs or making new investments.
“You’ve got to deliver,” says Kirk. “You have a pact with your shareholders and you have to work together to make it happen.”
He adds that management of the top and bottom lines is even more important in the current economic environment, and management will need help from more experienced directors in running a company through an inflationary period, as this will be new to many of them.
Having transitioned from sporting field to CEO to chair, Kirk knows the value of a good CEO-chair relationship.
“Having been CEO of a big company and worked with chairs, I know how important it is for chair and CEO to be on the same page... and there as a genuine thought partner,” he says. “It’s a very open relationship and you get to know each other quite well. You meet regularly and talk about things. It’s a whole range of things, so the CEO feels like he’s talking to someone who’s knowledgeable and capable, a good listener who gives his best opinion. That’s very helpful — they feel like someone’s in their corner.”
But at the same time, the chair also has to hold the CEO accountable — if the business doesn’t perform, they might need to sit down and tell them their time is up.
Kirk has one final lesson from top-level sport for chairs: there is a time to strive for a no-excuses, high-performance culture, and a time to bring people together, to be warm, to be understanding, particularly when things go wrong.
“You need to have that situational leadership where you actually realise the situation — that what people need now is an arm around their shoulder or some confidence that it’s not all their fault,” he says. “Maybe they’ve messed up, but they can learn from it. You do have to be a bit of a parish priest at times, supporting people, making them feel wanted and valued. Make them want to come to work the next day and give their best because they believe in the team and in their leader.”
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