Shared value unlocked

Saturday, 01 July 2023

Damon Kitney

    Something has always attracted Peter Yates AM FAICD to work for wealthy and successful Australian business families. In more recent times, he is doing so in lower-profile, private company chair roles.

    The storied career of Peter Yates AM FAICD in advising and running public companies included 15 years at Macquarie Bank and stints on the boards of telco One.Tel, gaming giant Crown, pay TV producer Foxtel and television broadcaster Nine Network.

    Arguably, his greatest claim to fame was being sacked as chief executive of the Packer family-backed media and gaming group Publishing and Broadcasting (PBL) in early June 2004 by its chair, Kerry Packer.

    Yates and Packer had a spectacular falling out over PBL’s hostile takeover bid for the Burswood casino in Perth.

    The billionaire media mogul believed his then CEO had exceeded his brief and overpaid for the asset.

    History now shows that the deal was a masterstroke for Crown, as PBL was able to double Burswood’s earnings within five years.

    Yates also walked away with a handy $6.54m termination payment.

    Nearly two decades on, he happily jokes about being fired by an Australian business legend.

    “James was the person who quipped to me at the time how pleased he was that the normal world order had been restored,” says Yates. “Because I got fired, he got a kick in the pants and Kerry made a billion dollars.”

    Yates has worked with a number of wealthy and successful Australian business families.

    In the 20 years since he worked for the Packers, Yates has joined the board of Mutual Trust Pty Ltd — backed by the rich-lister Myer and Baillieu families — and become a director of the billionaire Fox family’s Linfox Group.

    He is also good friends with Carol Schwartz AO FAICD, a member of the Besen billionaire retail fashion family and a non-executive director of the Reserve Bank of Australia.

    Passion projects

    However, two of Yates’ greatest passions in more recent times have been lower-profile, private chair roles.

    The first is at AIA Australia, (AIAA) the local arm of the Hong Kong-based insurance giant AIA Group.

    The second is with the Shared Value Project, a movement encouraging businesses to become involved in solving society’s problems.

    When Yates joined the AIAA board in 2010, under its then chair Theresa Gattung, the insurer generated $200m in revenue.

    By 2021, when he took over from Gattung as chair, it was generating $3b.

    Alongside the group’s CEO Damien Mu, Yates has driven AIAA’s radical re-pitch of life insurance as part of a much broader and affordable relationship around health and wellbeing.

    He pushed to make AIAA a household name, with advertising campaigns spearheaded by tennis star Ash Barty and surfing champion Stephanie Gilmore.

    He believes this work has a direct link with the goals of shared value.

    “At AIAA, if we can help Australians to change their behaviour, we end up with a better pool of insured customers and we have a healthier society,” says Yates.

    “That is a good example of shared value, which is all about solving a social problem — ill health — but profitably.”

    Yates points out that life insurance as a financial services industry has run “second or third fiddle” to banking or superannuation in Australia for the better part of 20 years.

    “So one of my ambitions has been to reposition the life insurance industry to its proper place within the financial services sector and the role that it plays in the financial security of Australians,” he says.

    “Why is it so important that you actually have life insurance as well as superannuation? Because your superannuation doesn’t come into your bank account until you retire. But if you lose your means to work, then superannuation is irrelevant.”

    AIAA’s flagship product is AIA Vitality, which began in South Africa as a scientific wellness program that offers to educate and improve customer health by providing rewards such as lower premiums for better lifestyles. AIAA is now the health and wellness sponsor for a number of Australian Football League clubs, including Collingwood and St Kilda.

    “Vitality has been deployed across the world in different countries and that data is now available to us,” says Yates. “So we have a really good understanding of what behavioural change we need to encourage and what incentives we need to put in front of our customers to increase the prospect that they will change their behaviour.”

    Landscape development

    Yates says the common theme of his involvement across the boards of AIAA, Shared Value, Mutual Trust and Linfox is that each business is seeking to improve the landscape in which it operates — and at scale.

    AIAA is the second-largest insurer in the country after its $3.8b purchase of CBA’s ANZ life insurance business CommInsure, in September 2017. Linfox is also one of the nation’s largest transport companies, while Mutual Trust is one of the biggest financial advisers to highnet-worth investors.

    At the latter, Yates chairs the investment committee and has introduced several clients to the concept of shared value.

    “Mutual Trust has actually developed shared value investing as a product for our clients,” says Yates.

    “We manage wealth for very wealthy families, and the younger generation of those [families] is very invested in environmental, social and governance [ESG] issues,” he says.

    “You can have the simple concept of a negative screen for investing — that is, no tobacco, no coal, no uranium. But that actually doesn’t tell you how you are going to make money. You just screen out things that may be profitable or unprofitable on an ideological basis. That doesn’t necessarily fit very well with people who actually want to make money over the long term.”

    At Linfox, where Yates chairs the risk committee, the goal has been to make the reduced ESG footprint of the firm’s global logistics operation a strategic benefit for the business.

    “Safety has always been a very, very big component of Linfox,” says Yates.

    “Our founder, Lindsay Fox, has driven that for all of his life. But moving from just safety into compliance and understanding how we reduce the impact of our movement on society is something that is very important to Linfox. So again, in a shared value sense, we can prove to a big customer such as a Coles or Woolworths that we have this very strong system of compliance and we have this very strong system of managing the impact of our operations on society. We can show them a cost-effective way to solve social problems profitably, therefore we can win their business.”

    Lessons learned

    Notably, all of Yates’ current board roles are outside the sharemarket-listed environment.

    He says this has been a deliberate strategic decision, especially in the wake of the collapse two decades ago of then fledgling telco One.Tel.

    Yates was dragged into a decade of litigation following the failure of the company. Looking back, he says it was one of the greatest regrets of his business life.

    “I’d been at PBL for three weeks,” says Yates. “The lesson is: never, ever accept any role without doing full due diligence. One.Tel taught me, in a very harsh way, the risks of being on a public listed company board.”

    He stresses that he has no regrets about his time at PBL, running one of the top 20 listed companies in the country at just 40 years of age.

    “The skills and experiences that you get running a large public listed company are tremendous. You learn a lot.”

    Reflecting further on his current family company board roles, Yates believes a key difference between the Myer, Baillieu and Fox families has been the way their succession planning has evolved.

    The Myer family, he says, has not had a patriarch at the helm for a long period. Following the death in 1934 of Sidney Myer — who started the Australian retailing dynasty — the family empire was managed by his nephew, Norman. The business was later headed by Sidney’s eldest son, Kenneth Myer, who was killed in a plane accident in 1992.

    “The Baillieu family is much more disparate,” says Yates. “They have had different successful people at the helm at different times. At the Fox family, clearly the patriarch and the matriarch are still significantly involved in the businesses. It is a different situation to the Myer and Baillieu families, much more concentrated. That succession story with the next generation is still unfolding, but in a positive way.”

    Private vs public

    Yates’ cross-industry experience in the media, investment and entertainment industries, plus a long list of active directorships and chair roles, equip him well to discuss the challenges of both listed and private companies — and to deal with different stakeholders. He has also held significant board positions in the NFP sector, including as a director of the Australian Chamber Orchestra, the National Portrait Gallery, the Centre for Independent Studies and the Australia-Japan Foundation.

    He has also been chair of the Royal Institution of Australia, the Australian Science Media Centre, and the Royal Children’s Hospital Foundation.

    Yates notes key differences between strategy and director workloads at a private company versus a publicly listed entity.

    These differences have driven his decision to focus on the former. One key issue is time management.

    “Being involved in private companies, I don’t have to turn my attention to somebody who decides to sell or buy stock at a quarter to three on a Friday afternoon,” says Yates.

    “So I don’t have that time pressure. The fact that the clock is always running when you are at the helm of a publicly listed company — you are, in effect, permanently trading — means the timelines are completely different to unlisted companies. Also, in the private world, I know who my shareholders are. With a publicly listed company, you have no control over what happens to your stock at quarter to three on a Friday afternoon. You don’t totally know who your shareholders are. Yes, it might be a superannuation fund, but who else? Especially when you have nominee companies on the register and offshore holders. I like to know who I’m dealing with.”

    Yates also believes that contrary to the consensus of public opinion, private boards pay better than public boards, “if you adjust for the risk equation and time commitments”.

    His advice for public company directors going into the private world is to be clear on the skill set they are bringing to a board.

    “I might not be a transport person, but I’m well seasoned in risk management,” says Yates. “As soon as I joined the Linfox board, Lindsay and [Linfox Logistics executive chair] Peter Fox AM made it very clear they wanted my skills in risk management and compliance. My being on the board of a life insurance company also helped, because we are so highly regulated.”

    Banking experience

    Yates spent 15 years with Macquarie Bank, working on public company mergers and acquisitions, leading Macquarie’s gaming and entertainment team to the successful acquisition of the Melbourne Casino licence by Crown.

    Alongside an understanding of corporate advisory he also has interesting observations about the evolution of the local banking sector.

    “It has reshaped itself, in effect, by the banks becoming retail banks after getting rid of their wealth management businesses,” he says. “The Australian banking business is now primarily about supplying mortgages to Australian households. Not quite what I expected 20 years ago.”

    Yates professes nothing but admiration for the Macquarie model, remaining friends with many of its alumni.

    “What Macquarie did particularly well with its infrastructure and commodities trading businesses was to build a global footprint,” he says. “It began with [CEO] Allan Moss AO and then [his successor] Nicholas Moore really drove it in a superlative way. Few Australian companies have been as successful as Macquarie internationally. It has always been a place of highly intelligent people with extraordinary energy who are prepared to take calculated risks.”

    However, there was one landmark deal Macquarie was at the heart of that Yates did not support — a controversial, highly-leveraged $11.1b takeover bid of Qantas in 2007 by the Airline Partners Australia consortium, which included the late David Coe’s now failed Allco Finance Group, private equity group TPG and Onex Corporation.

    “I didn’t think that transaction was a good idea at all,” says Yates. “In fact, I was so anti that David Coe asked me to resign as CEO of AEP [Allco subsidiary Allco Equity Partners]. I thought it was not a sound transaction. There was too much leverage. Also, not many people have made money out of owning an airline.”

    Yates rates the most important piece of advice he has received on chairing companies as coming from Peter Hay FAICDLife, chair of Mutual Trust and formerly of Newcrest Mining.

    “Peter has a set of notes on how to be an effective chair — he gave me a copy of those and they have been very helpful,” says Yates, stressing that the most important priority of a chair must be to have a clear and close working relationship with the CEO.

    “You need to make sure that there is a relationship of respect, rather than one of interference,” he says. “Most importantly, there must be absolute transparency in your communication channels.”

    Yates was one of the key supporters of Kathleen Folbigg, who walked free from prison in June more than 20 years after being found guilty of the deaths of her four children.

    He raised funds to pay for the scientists who argued genetic evidence made it clear there was doubt about whether Folbigg killed her children. A NSW judicial inquiry accepted there was reasonable doubt about Folbigg’s guilt and she was pardoned unconditionally.

    “I became involved as the genetic research was done at the ANU Centre for Personalised immunology, which I chair,” he says. “Our director, Professor Carola Vinuesa, in effect discovered the Folbigg gene and I took a public position almost 18 months afterwards. I became involved as we needed to raise significant funds to finance the experts to come from Europe to attend the inquiry.”

    Yates says his for-profit and NFP boards were aware of his involvement and supported it. But he believes directors should be clear to separate their positions as to whether they are pushing a personal or corporate cause.

    “At AIAA, I advocate for shared value as it is corporate belief,” says Yates. “AIAA is also a company with compassion in how we seek to help our customers, [who] only experience our services at a time of great hurt. Kathleen Folbigg has been seriously hurt and let down by the NSW legal and judicial system, and deserves great compassion.”

    Shared Value Unlocked

    Shared value harnesses the resources, skills and innovation of an organisation to target issues that intersect with its business.

    It seeks to address these in a way the rest of the market does not. The concept was introduced in 2011, by Harvard professors Michael Porter and Mark Kramer in a Harvard Business Review article, “Creating Shared Value”.

    The Shared Value Project (SVP) was established in Australia in 2014. It aims to help businesses rethink the relationship between profit and purpose.

    Shared value policies and thinking can also be adopted by government and NFP organisations. Shared value can be achieved by:

    1. Reconceiving products and markets — creating new products and services for existing or new markets that better serve societal needs
    2. Redefining productivity in the value chain — accessing and using resources, energy, suppliers, logistics and employees more productively 3. Enabling local cluster development — improving the local operating environment by supporting skill development and capacity building.

    SVP runs mentoring circles providing a discussion forum on such issues as impact measurement, cultural competency or stakeholder engagement for shared value implementation.

    One example of work being done includes the AIA Australia (AIAA) and CancerAid Coach Program.

    Cancer-related claims are in the top three for AIAA, costing more than $220m annually.

    AIAA customers who lodged a cancer-related income protection claim received free access to the CancerAid program, which aims to provide better health outcomes by helping patients engage with their treatment through support and a behavioural change program.

    Initial results of the program found 82 per cent of customers who enrolled in the program returned to work, and more than half were supported into government-subsidised allied-health support programs as a result of their participation.

    This article first appeared under the headline ‘Sharing the Value’ in the July 2023 issue of Company Director magazine.

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