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Contents2 Industry updates
3 Planning for a crisis
4 Why you should hire a CEO you may not necessarily like
5 The impact of the Royal Commission
6 The new retail landscape
8 Lastest news
A publication examining issues for the Australian mid-market
Out with the old, in with the ethicalThe Royal Banking Commission has had a ripple effect for businesses across Australia, prompting reviews of the aged care, policing and other sectors.
As we start a new year, our awareness shifts to unethical and ineffective protocols, and the need to create more transparent and robust businesses.
This issue of Contact magazine looks back at the events and forces driving a shift in consciousness. It examines the impact of the Royal Commission on the financial, insurance and banking industries and outlines the changes to come. It also explores good governance; modern communication strategies to turn clients into advocates, not customers; and provides a step-by-step guide to help leaders review their risk management procedures and avoid crises such as the needle-in-strawberry incident last year.
CONTACT SUMMER 2018/19
Industry updates
Tax
Government extends deadline to register business names
The new deadline to register business and trading names with the Australian Securities and Investments Commission (“ASIC”) is 31 October 2023.
Are work vehicles exempt from Fringe Benefits Tax?
The Australian Taxation Office (ATO) released Practical Compliance Guidance PCG 2018/3 to help employers determine whether the private use of work vehicles is “minor, infrequent and irregular”.
New draft ruling places religious practitioner FBT exemptions at risk
The ATO released Draft Taxation Ruling TR 2018/D2 on 11 July 2018, which is the current preliminary position of the ATO on the Fringe Benefits Tax (FBT) implications of benefits provided to religious practitioners.
Decision turns class trusts and contributory mortgage schemes upside down for tax purposes
The decision in Aussiegolfa Pty Ltd (Trustee) v Commissioner of Taxation [2018] may have significant ramifications for the way class trusts under the AMIT regime, or contributory mortgage schemes, are treated for tax purposes.
Treasury releases new "anti-business" Division 7A proposals
The Treasury has released a discussion paper claiming to amend Division 7A to reduce compliance costs for businesses.
LIC Update: Reduction in corporate tax rate – resolved at last
Parliament has passed the 'Base Rate Entity Bill' which ensures a 30% company tax rate is applied to companies with mostly passive income, rather than the 27.5% rate.
ATO seeks to reduce uncertainty around changes to the company tax rate
The ATO issued revised guidance, PCG 2018/D5, which aims to address the current uncertainty as to when to apply the lower company tax rate of 27.5% for company tax payments and dividends.
Business Advice
Crowdfunding start-ups – dumb money or smart move?
New legislation that extends access to equity crowdfunding platforms increases opportunities for start-ups.
New Phoenix Laws
In August 2018, the Federal Government circulated draft legislation aimed at detecting, deterring and disrupting both participants in and facilitators of illegal phoenix activity.
WA: What the changes to local content rules and procurement policies mean for you
The WA Government has implemented a number of changes to ensure benefits generated by government projects remain in WA – introducing a range of new procurement hurdles for businesses.
Director Penalty Regime extended to include GST
As part of the 2018 Federal Budget, the Government extended the Director Penalty Regime to GST and other indirect tax debts of a company.
ACNC Legislative Review Released
In August 2018, Treasury released its recommendations arising from the review of the Australian Charities & Not-for-Profit Commission (ACNC).
Registration expiry for PPSR to impact businesses
The Australian Financial Security Authority (AFSA) has sent a reminder warning all stakeholders that seven-year registrations will start to expire on 30 January 2019. Once a registration lapses, it cannot be extended.
Investing & Superannuation
Australia’s first agricultural REIT debuts on the ASX
Australia’s first standalone or non-stapled Agri-REIT – Vitalharvest Freehold Trust – debuted on the ASX.
Three-year SMSF audit plan won’t save on effort: Pitcher Partners
The Federal Government announced a proposed measure to reduce compliance requirements for trustees of Self-Managed Superannuation Funds (SMSFs) in its 2018-19 Budget, including plans to change the annual audit requirement to a three-yearly requirement from 1 July 2019.
Read the full stories at www.pitcher.com.au/insights/news2
Businesses can learn from last year's experience of fruit growers and horticulturalists after the needle-in-strawberry crisis. The series of events at grower and retailer level were covered extensively in the media, and are a wake-up call for all businesses to assess, consider and prepare to manage risk.
Australia’s $500 million strawberry sector experienced the kind of crisis many businesses don’t think to plan for. A widely publicised contamination issue involving needles in fruit triggered an overnight collapse in domestic strawberry markets. Major supermarkets either cancelled or reduced orders, while strawberry exports also stalled. The crisis will likely devastate some businesses and there will be long-term impacts on horticultural producers and how they mitigate such risks.
For the wider business sector, what does this all mean? At a minimum, it reminds owners and managers of the importance of having an effective risk management plan. Typically, this includes a process of identifying potential risks, assessing their likelihood and potential impact and implementing policies to mitigate their risk to an acceptable level. In the event something occurs, the business should also have monitoring in place to identify a risk or event as soon as possible after it is triggered, and a response plan to react quickly.
Benefits of risk management planning
Often cynically viewed as a compliance matter or box-ticking exercise, if undertaken effectively the process can create value for an organisation beyond minimising damage to a business’s reputation or revenue when a risk is realised.
An effective risk management program can have a broad and positive impact including:
• giving owners greater peace of mind as to the security of their business/investment as by definition, risks will be reduced, or at least easier to spot
• creating enterprise value (the tangible, money in the bank kind) by removing a future acquirer’s risk perception of your business
• potentially producing operating efficiencies and a leaner business by identifying and removing complex, riskier and often manual processes
• allowing business owners to focus on value creation, rather than working in the business and responding to issues, as the process should mitigate many of these occurrences. Owners may even be able to step away from the business more often
• supporting a proactive culture, as managers are focused on outcomes, and achievement of such, within the safety of an operating framework
These advantages alone should prompt the adoption of an effective and meaningful risk management plan.
First steps towards risk management
In order to adequately safeguard your business in the event of a crisis, there are a number of factors that should be considered immediately, at a commercial level.
Insurance: Is your insurance adequate to address an event of this nature? A range of possible covers exist, from loss of profits, recall cover, key person insurance and fraud protection. Ensure you have considered each and understood the terms of the cover.
Action Plan: Do you have a plan of action ready to implement immediately following a disaster event? While hopefully never needed, a plan of what to do, who to call and how to contact the whole organisation is critical.
Resources: Do you have the resources to leverage in the event of a disaster? Monetary resources are the obvious need, whether in the form of undrawn facilities or a ‘rainy day’ reserve. But consideration should be given to people, their ability to respond quickly, their skills, and their proximity to an event.
Relationships: How strong are your relationships? In the event of a disaster the ability to seek support, understanding, and flexibility from suppliers or customers is critical to managing the stresses of the situation and maintaining an ongoing commercial relationship during and beyond the event.
Reputation: Who is in your corner? Brand and public perception of your business will be impacted in many scenarios. Knowing what to say, and how to get your view across in public will be critical to preserving your goodwill. Consider establishing a relationship with a public relations expert that can be activated immediately.
While your business may never face a crisis of the proportions experienced by growers during the needle-in-strawberry crisis, it would be remiss of any organisation to believe that a situation on this scale could never happen to them. Businesses should assess their risks immediately, and put the appropriate processes and insurance policies in place, in order to protect hard-earned assets, valuable staff, and cash flow, and ensure the longevity of the business and brand.
Planning for a crisisAdvisory By Mark Harrison, Partner, Business Advisory
3
Losing a leader is a costly exercise for any organisation. The early, and unanticipated, departure of a CEO impacts organisational identity and direction, and ultimately the bottom line. Yet many organisations are getting this challenging appointment wrong, with up to 40% of new CEOs failing to meet performance expectations in their first 18 months.
To avoid costly errors in judgement and find the best CEO for your organisation – rather than the one you like the most – we recommend the following objective strategies.
Replace emotion with reason
You cannot hire the right CEO if you’re unclear about your organisational strategy. Before meeting any candidate, the Board and/or executive team must reach agreement around the organisational direction. In understanding the organisational direction, a profile of the best CEO will emerge. For example, a company looking to make significant acquisitions as part of its growth strategy will require a CEO who is a bold visionary and great integrator. In contrast, a company focussing on its core business may seek a CEO with deep industry and operational experience.
Look past loyalty
Many companies lose sight of the need for the ‘right person for right now’, and hold onto a CEO who has shown great loyalty to the business but is no longer the right fit. Given the CEO is typically a long-term ambassador for the organisation, it can seem counter-intuitive to let a loyal one go. However, intuition stems from the emotional, right side of our brain, and although many successful businesses were launched off the back of a hunch or a ‘good feeling’, today’s organisations must make savvy decisions based on business insights and a deep understanding of the current phase of the organisation.
Risk a fresh perspective rather than bank on a familiar face
Whilst research suggests that external CEOs outperform internal CEOs by a margin of about five to one, the overwhelming majority of top-performing CEOs are actually insiders. High performing outsiders bring a fresh external perspective and a willingness to challenge the status quo. Insiders have the advantage of understanding the organisation’s ethos, and knowing the key players to influence in order to drive innovation and growth.
When considering an internal candidate you might ask: Are they progressing as expected in their current role? Is it time to stretch them? Do they have the right experience to transition into this new role? And most importantly, are they – and the team – ready for this new challenge? Looking for a candidate from outside the organisation requires a different set of considerations. Does the organisation need a fresh perspective? How do they compare to our in-house talent? Are we willing to be challenged?
Don’t let the charming CEO overshadow the predictable performer
The myth of the stereotypical CEO as a charismatic and confident executive who has climbed to the top with an elite school qualification, has been busted by a new 10-year study called the CEO Genome Project. Emerging from extensive research by a leadership advisory firm and economists from two business schools, the project found that just over half of the CEOs who did better than expected were actually introverts.
Half the candidates earning an overall ‘A’ rating when evaluated for a CEO job in the study had distinguished themselves in more than one of four unexpected management traits – outlined in the blueprint below.
Why you should hire a CEO you may not necessarily likeConsulting By Karen Frenkiel, Principal Consultant
CEO blueprint
Being a people person and reaching out to stakeholders
Being willing to shift course by being highly adaptable to change
Being reliable and predictable rather than showing exceptional,
repeatable performance
Making fast decisions with conviction, if not
necessarily perfect ones
Candidates with confidence, charm, likeability and loyal service may immediately feel right for the role of CEO. However, if you have a strong understanding of what your business stands for, the opportunities and challenges it faces, and the areas it needs to grow, you will have the confidence to think outside the box and seriously consider the candidate you didn’t initially ‘like’ for the role.
Read the full story at www.pitcher.com.au/insights/news4
Compliance By Geoff Gray, Director, Risk and Compliance
In the wake of revelations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, extensive changes are expected in the financial services, insurance and banking industries.
The Royal Commission revealed a number of failings in the financial services industry, including:
• commissions and other remuneration incentives creating potential and actual conflicts of interest
• boards and senior management acting in their own best interests (or to the benefit of shareholders) to the detriment of customers
• significant cultural and leadership issues exhibited across the industry
Whether legislatively enforced or coming from industry itself, changes will be widespread, and the impact will be felt by the general public, investors, and those working in the industry.
Changes to the management of business
We will see increased accountability for boards and senior management, with greater accountability and governance of non-financial risks, improved decision-making, improved dealings with customers and enhanced identification of emerging risks and remediation. We will also see a significant rise in the influence and authority of the risk management and compliance functions across the organisations, including training and constructive debate. Risk and compliance teams will become more independent of the business and will have a stronger voice within the business and through to the Board. Risk committees will play a very important role moving forward and they must be structured, sufficiently experienced and resourced to handle a diverse range of risks, including emerging risks.
Changes to the financial services industry
It is anticipated that changes to the educational requirements of the financial planning industry brought about by the Royal Commission may spark a large exodus of financial advisors nearing retirement, as well as a shortage of new advisors entering the industry. There is now a requirement for new entrants to hold relevant degree qualifications and to undertake a supervised professional year, whilst non-degree qualified advisors will need to undertake bridging courses. Ongoing examinations to keep skills and knowledge current, will also become compulsory.
We should expect further demergers from the banks and financial services providers as they spin-off or sell investment, insurance or financial advisory divisions. This may result in a number of smaller, more nimble, financial services practices which will compete within the advisory space. We also anticipate that a number of financial advisors will look to further differentiate themselves from these brands. This could lead to the creation of more independent firms, eventually leading to further mergers as these firms are faced with a significant compliance burden.
Changes to the scope of ‘retail investor’
The definitions of retail, sophisticated and professional investors are likely to be substantially reformed in the near future. For the ‘sophisticated investor’ test, the lack of indexation on the $250K income and $2.5 million net asset tests (unchanged since 1991) and the substantial increase in real wealth due to superannuation and property prices means that the intention of the original legislation is no longer being met. Expect the eligibility test to be tightened, with a number of investors who currently qualify as ‘sophisticated’ under the dollar-based eligibility tests to no longer be eligible. This will come about by higher (probably indexed) dollar-based eligibility tests and/or the removal of certain assets, such as the family home, from the test. Dare we also suggest that investors will be required to undertake a test or assessment before qualifying as ‘sophisticated investors’? Will the knowledge of the investor become more important than the magnitude of their wealth?
Changes to superannuation funds
Retail superannuation funds are now at risk of being ‘sold off’ or ‘wound up’. If compliance costs rise and margins shrink, we don’t expect it will be business as usual as the companies demand minimum returns for shareholders. We may see the evolution of the retail funds industry as they are forced to become competitive: re-pricing and going head-to-head with the industry superannuation funds. The Royal Commission might also become a trigger for a review of the criteria, experience and qualifications required of investors who are wanting to maintain or establish Self-Managed Superannuation Funds (SMSFs). Will this result in the rise and evolution of Small APRA Funds (SAFs) if there is further regulation and SMSF trustees decide that it is too complex, costly (including penalties) and time consuming to fulfil trustee duties? For this to eventuate we believe SAFs will need to be more flexible and accommodating in what and how investors can invest.
More to come
It has been heartening to witness the Royal Commission’s emphasis on client care, something that is a core value to Pitcher Partners. The Commission exposed how banks, financial service firms, superannuation funds and lenders put profit and personal interest ahead of the client. In contrast, our commitment since our foundation has been to prioritise the client: it is the reason we were established. We have always invested heavily in our staff as part of our client-centric model, through training, mentoring, and international exchange. We know that the best people give the best service to our clients.
The impact of the Royal Commission
Read the full story at www.pitcher.com.au/insights/news 5
Over the last decade, retail businesses have been buffeted by constant change, which has challenged our traditional view of retail. Competition has been sparked by improved accessibility to digital technologies that lend to greater efficiencies in the supply chain, ushering an influx of online and international retailers and new entrepreneurial endeavours in our local market.
Whilst some retailers have embraced change and reaped the benefits, those who have only made incremental changes are now struggling to remain relevant to a new generation of empowered consumers. Stories of success and struggle in the retail sector provide valuable insights – the most important of which is that change is no longer fixed, but continuous. Those businesses experiencing success understand this notion; constantly adapting to the needs of the market to remain relevant.
The new retail landscape: seizing opportunities to thrive
Industry By Melanie Dawes, Partner, Business Advisory
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Below, we examine the core thinking driving new-found success for retail businesses
Brand advocates, not the hard sell
Value, not price
Transparency, not slick marketing
Data, not gut instinct
Brand advocates, not the hard sell
Consumption habits change over time, subject to social, political and economic influences. As loyal followers age and their tastes evolve, and newer customers in the segment display new desires, habits and preferences, brands, products and channels to market must also change. Retailers who succeed today are those that have mastered the art of cultivating an advocate, rather than pursing the ‘hard sell’ or rolling out generic marketing strategies. Brand advocates are loyal customers worth far more than the value of a repeat purchase. They act as a referrer by spreading the word about your brand with peers, and have a powerful voice enabled by technology. Consumers want to hear what actual customers are saying about a product or service, which is why websites have made online reviews a key component of their selling.
Mecca Cosmetica is an example of a retailer with a holistic approach to consumers that has created loyal brand advocates. Mecca’s stores draw customers in to freely play and test their products, but the well-trained staff, membership gift boxes and exclusive members' events bring them back for more. Their online platform dispatches beautifully wrapped items purchased before 2pm on the same day, prioritising customers’ desire for immediacy. Mecca continues to expand, with 1.5 million customers a year, 90 stores, and almost 350,000 devotees on Instagram.
Value, not price
Consumers are attracted to brands not just for the competitive price of goods or services, but because of the additional value the brand creates for them through experiences. These tangible offerings elevate products and services and establish the brands as an extension and enabler of consumers’ values and desires. Although research shows millennials are more enamoured with experiences than material things, experiential consumption has proven attractive to many consumer groups.
At Melbourne’s day spa and clinic Miss Fox, beauty and facial treatments are complemented by an after-hours program of anxiety workshops, yoga classes, and inspiring lifestyle talks. Similarly, Purebaby runs ‘Nesting Workshops’ covering swaddling, bathing and sleep tips to tap into the market for baby advice. Stationery merchant Kikki K hosts national masterclasses in goal setting (using their goal setting journal, naturally), to align with consumers’ desires to shape their dream lives. To engage today’s savvy consumers and turn them into advocates, retailers must give each customer a value-add experience.
Transparency, not slick marketing
Today’s generation of consumers value connection and authenticity. They look for a brand whose values align with their own, seeking out ethical and honest retailers. Through transparency in their practices and process, rather than slick marketing campaigns that can ring false, retailers can demonstrate their commitment to the issues and causes that matter to the more conscious consumer.
Grill’d is a retail food chain that has successfully created a community united by shared values, around their tagline of ‘Burgers done good’. The business is premised on the mantra: ‘be good; do good; feel good’; with ethically sourced produce, tasty burgers with options for different dietary needs, and a support programme for local causes. With each purchase, customers donate a token to a charity of their choice, creating a feel-good factor and a sense of making an impact. Simple branding, honest messaging, and the open-jar token system create a retail brand that feels authentic and sincere.
Data, not gut instinct
Data is your most trusted guide to making good business decisions and remaining relevant in a competitive marketplace. Data allows you to personalise the customer journey. Sales data tells you what and when your audience makes a purchase and can be used to predict what type of items different customers prefer to buy.
Marketing data from social media and email such as likes, clicks, opens and comments can be used to test what appeals to customers, and what products or services need to be replaced or improved. Broader demographic data can assist in expansion plans to reach new audiences, while performance and expenditure data will identify new operational policies and procedures.
Retail giant Woolworths uses the Everyday Rewards card to better understand consumer interests and habits. Online stores such as Amazon and Catch of the Day are now capturing new forms of data using their new bricks and mortar stores. By deploying eye-tracking and movement-tracking software, they are better able to understand customer preferences and needs. A retailer that uses their data to differentiate themselves and find a way to keep their customers engaged will outperform every time.
In the competitive retail space, it is essential to understand what appeals to today’s consumers, and shift business practices and processes to address these new demands, needs, mindsets, and consumption habits. Retailers willing to put the work into long-term, meaningful and informed interaction with their customers, who constantly innovate and do so with excellence, will see the benefits of a loyal and active consumer base.
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ALL THAT GLITTERSIS NOT GOLD
Latest news For comments on this edition or if you wish to be removed from the Contact mailing list please email us at [email protected]. You can view Contact electronically at www.pitcher.com.au/insights/contact-magazine.
The material contained in this publication is general commentary only for distribution to clients of Pitcher Partners. None of the material is, or should be regarded as advice. Accordingly, no person should rely on any of the contents of this publication without first obtaining specific advice from one of the Partners of Pitcher Partners. Pitcher Partners, its Principals and agents accept no responsibility to any person who acts or relies in any way on any of the material without first obtaining such specific advice. © Pitcher Partners 2019 PrintPost Approved PP381827/0043Contact is printed on paper Certified Carbon Neutral. With 55% recycled fibre it is FSC Mixed Source Certified, sourced from sustainable plantation wood, Elemental Chlorine Free and manufactured by an ISO 14001 certified mill. PP
0119
MelbourneBrendan Britten | Managing Partner +61 3 8610 5000 [email protected]
SydneyRob Southwell | Managing Partner +61 2 9221 2099 [email protected]
PerthLeon Mok | Managing Director +61 8 9322 2022 [email protected]
AdelaideTom Verco | Managing Principal +61 8 8179 2800 [email protected]
BrisbaneNigel Fischer | Managing Partner +61 7 3222 8444 [email protected]
NewcastleMichael Minter | Managing Partner +61 2 4911 2000 [email protected]
Pitcher Partners is an association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation.
PITCHER.COM.AU
Most influential
Sue Dahn (Melbourne firm, left) and Ben Travers (Brisbane firm, right) were shortlisted for the Financial Standard Power50 list, which is made up of the 50 most influential financial advisers in the country according to the readers of Financial Standard and FS Advice – The Australian Journal of Financial Planning.
Top 500
In September 2018, Pitcher Partners was proud to be recognised among the IBISWorld Australia Top 500 Private Companies list, ranked by revenue. Pitcher Partners was ranked 256th, with $252.2 million revenue reflecting 7.3 per cent growth in 2017-18.
Critical learnings
Our Adelaide and Melbourne firms held successful Critical Point Network (CPN) conferences in their respective cities, showcasing a variety of advice from our Pitcher Partners experts. Melbourne delegates were delighted to hear from keynote speaker Ita Buttrose.
Inspiring industry
We held another successful Business Recovery and Insolvency Conference in Brisbane.
New digs
Our Perth and Melbourne firms successfully relocated to new premises. For details, visit www.pitcher.com.au/locations.
Consulting launch
Our Perth firm recently appointed their first Executive Director and Director to launch their Consulting practice.
Hall of fame
Michelle Crouch (left), Manager in our Brisbane firm, was inducted into the Brisbane Pitcher Partners Hall of Fame for 21 years of dedicated service. Inductees are a selection of our people – both past and present – who have made a significant contribution to the firm, those of which will leave an enduring influence.
Read the full stories at www.pitcher.com.au/insights/news
