Back in 2007, Coles released a booklet imposing what it called ethical business practices on its suppliers.
Although it drew some smirks since many vendors felt they had been unethically treated by Coles for years, the initiative seemed to have merit. In his introduction, CEO John Fletcher called it “a set of values and behaviours that provide a framework for how we do business.”
Illustration by B&T Magazine
Last weekend Fairfax’s Business Day revealed how Coles used a labyrinth of corporate structures including a $10 company in the British Virgin Islands to buy a shopping centre in the upmarket Sydney suburb of Neutral Bay where arch rival Woolies has been turning over $75m pa as the tenant of some 18 years.
The story has now been widely reported and I’m struck that although some commentators have noted the almost absurd levels being reached in the supermarket war, few have discussed the ethical dimension of Coles’ actions.
The structure that Coles used to pay $40 million for the property – 30% above market rates and probably a record price – was hardly business as usual. The Sydney Morning Herald explained that the company which made the purchase – Sino Ace Investment Pty Ltd – had been registered just days before by one Bernard Chiu* which it described as a wealthy Sydney lawyer, and is owned by a company of the same name set up in the British Virgin Islands tax haven – preventing Woolworths from knowing the identity of its new landlord.
The true identity of the owner as Coles was only uncovered by The Herald from internal board papers – don’t ask how it got them but from this and other Fairfax reports it’s clear Fairfax has a well-placed deep throat in Coles!
Similarly, the terms of the sale were equally mysterious. The Herald found records showing that Sino Ace Investment bought the property from Vanbridge Pty Ltd which had purchased it in 1992 for $12.7m. Vanbridge is owned by Phun Lim and six members of the Mok family who list their company address in Sydney’s Pitt Street but home addresses in Hong Kong. The relationship between Sino Ace Investment and Vanbridge is not known.
Who is that masked man?
If you thought there must be some winner here, perhaps its Bernard Chiu, the man who registered Sino Ace Investment. Four months after the Neutral Bay deal with Vanbridge, he listed the ludicrously palatial 7 bedroom home shown above for $13 million. Trading up perhaps?
I’d like to reveal more about this ‘prominent lawyer’, but unfortunately I can find almost nothing about him. Could he be behind Bernard Chiu Legal & Business Solutions, the trading name of Bernard Hang Man Chiu … a sole trader entity with no website or other web presence whatsoever? Is he the Bernard Chiu listed on LinkedIn with absolutely no other information. Another approach: a Financial Review property feature says Chiu bought his house ‘through his Berneva Consultancy company in 2005 for $9 million’. Berneva Consultancy was registered as a company in 2005 (the year the house was purchased), only registered for GST in 2009 and has no web presence at all – not even yielding anything in a Google search.
And that’s it. No legal history, no public addresses, no awards, no big business deals, no splashy donations no business activity apart from buying and selling a multi-million dollar property with its Teppanyaki bar and kitchen and its ‘porte-cochere’. Who is the masked man behind this $40m property deal?
Extravagant corporate squabble or dishonest and unethical practice?
This is not the first time a war has erupted over leases. Woolworths evicted Coles from a centre in the Blue Mountains town of Katoomba in 2012 after buying the site in 2000. So perhaps this could be explained as tit for tat, a petty squabble between massive wallets, and the covert aspect simply business strategy being kept secret from competitors in the normal way. Perhaps.
Whilst presumably legal, Cole’s structure was clearly designed to hide the true nature of the deal. In 2011 Michael D’Ascenzo Commissioner of Taxation wrote “Proper governance should ensure that large public companies do not use tax havens for concealment purposes… We are in fact seeing dealings by large business that may involve related companies in tax havens and we will be reviewing such arrangements.”
For me, not just does this deal transgress reasonable and acceptable business practices, there is something else besides: under the terms of Neutral Bay lease, Woolies has to show its landlord its sales data.
To supermarkets, data is everything. Recently I’ve been working with a major national retailer that actually runs its marketing at a profit. How? By selling customer sales data to its vendors. Data is gold.
Using a concealed and devious means to extract critical intelligence from your direct competitor seems only one step away from corporate espionage. This is not seeking a competitive advantage through fair means – this is going to any extent to win by fair means or foul. This is the corporation as psychopath, working that gray space between what society accepts and what it clearly outlaws, the space that a book tellingly entitled Hardball: Five Killer Strategies for Trouncing the Opposition, labelled ‘so rich in possibilities.’
This tussle may be the tip of an iceberg. Woolworths recently floated a $1.5 billion property portfolio on the Australian Securities Exchange and some industry observers believe the Coles/Woolies fight will shift to property. The supermarket giants have been put on notice about their aggressive property strategies, with the ACCC looking into whether two recent proposed acquisitions by Woolworths in the ACT and NSW could ”substantially lessen competition” in the market.
Should we care about one chest-beating corporate slogging it out against another, dirty tricks or no? In recent years both Coles and Woolworths have moved beyond food into liquor hardware, pubs, pokies, petrol, clothes, loyalty cards and more. How they behave has the potential to affect not just countless other businesses, but almost every Australian consumer in one way or another.
The Mission Position
With a warm avuncular purr, Coles’ website says its mission is “To give the people of Australia a shop they trust”. Parent company Wesfarmers punishes punctuation to promise it “adheres to four core values: integrity; openness; accountability; and boldness.” Woolworths simply simpers “We strive to be open, honest, fair and transparent in everything we do.”
For the record, Enron’s mission statement included “We do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness and arrogance don’t belong here.” Maybe Pulitzer Prize-winning author Dave Barry had it right when he said “A mission statement is a dense slab of words that a large organization produces when it needs to establish that its workers are not just sitting around downloading Internet porn”
Adopting the Mission Position on websites is easy. Shafting suppliers and the competition is at odds with such statements. Let the supermarket Missionaries be judged on their actions.