Any remaining veneer of a collegiate-like board and management at Dick Smith during the past 18 months of its corporate life has been revealed as a myth. It sounds more like a factional war zone.
The NSW Supreme Court heard on Monday that the chairman, Rob Murray, saw departure of former director Bill Wavish – whose private equity firm Anchorage sold Dick Smith into a public float – was a blessing because of the negative aspects of Wavish's "leadership and behaviour".
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But even more astounding was that Wavish's long-time partner at Anchorage and previous Dick Smith chairman Phil Cave had the same view. He advised Murray not to go to Dick Smith finance and audit committee meetings chaired by Wavish.
The court heard this was due to Wavish's autocratic behavioural style and his attempts to intimidate others.
![Former Dick Smith Electronics chairman Rob Murray leaves a public hearing into the former retail giant's collapse.](/web/20161010173619im_/http://www.theage.com.au/content/dam/images/g/r/o/o/w/6/image.related.articleLeadwide.620x349.groxf3.png/1474891134544.jpg)
Murray said that Dick Smith finance director, Michael Potts, railed against working with Wavish.
Takeover guaranteed
Indeed it appears that it was Cave that spearheaded finding his own replacement to chair Dick Smith. Cave, who considered Wavish should not take over as chairman of the board, courted Murray, who he knew as they belonged to the same church.
Even though Murray joined the board as a non-executive director, Cave had given him a guarantee he would ultimately take over as chairman.
Murray later enlisted his former Lion Nathan colleague Jamie Tomlinson to join the Dick Smith board ranks.
![Bill Wavish clashed with Dick Smith chairman Rob Murray.](/web/20161010173619im_/http://www.theage.com.au/content/dam/images/g/r/a/4/q/t/image.related.articleLeadwide.620x349.groxf3.png/1474891134544.jpg)
And we know from Tomlinson's testimony a few weeks ago he didn't think very highly of the skills of Dick Smith's chief executive Nick Abboud – a man plucked out of the management ranks of Myer and elevated to the top job at Dick Smith by Wavish.
Murray saw it as his job to bring some harmony into the company and create a constructive board.
![Dick Smith held 12 years' worth of batteries on its inventory when it collapsed.](/web/20161010173619im_/http://www.theage.com.au/content/dam/images/g/r/9/f/x/o/image.related.articleLeadNarrow.300x0.groxf3.png/1474891134544.jpg)
Governance sideshow
The governance politics at Dick Smith are something of a sideshow to the real agenda of the liquidators hearings, which are attempting to dig into the operations, finances and disclosure of the company leading up to its collapse. The examinations are being undertaken on behalf of liquidators acting for the banks that have lost millions of dollars of loans to the retailer.
With Murray in the box most of the questioning dealt with his understanding of the use of supplier rebates and excess inventory levels
When Rob Murray joined the board he said he was given the impression that Dick Smith needed to be more competitive about getting a fair share of rebates, whereas under the previous ownership of Woolworths and private equity firm, Anchorage, it hadn't been.
He said the company raised $70 million in rebates (in 2014) and reported net profit of around $42 million – thus illustrating the importance of rebates.
These included pricing rebates, over and above rebates and advertising rebates.
Chairman no expert
March 2015 was his first chairman's meeting at which he sought to clarify the position on rebates and within months he was concerned about the sustainability of the contributions from supplier rebates.
But on several occasions throughout his testimony he admitted to not being a retailer.
Talking to the period between August 2014 and the end of December 2014 – before he was elevated to the chairman's position – he said he had only a broad rather than a specific understanding of how accounting worked for rebates.
He confessed to not being a financial expert but knew that two different accounting standards applied.
One applied to specific payments regarding specific inventory and a more general over and above rebate not specifically applied to particular inventory and there was more discretion about how you account for those.
By the end of December of 2014 he was not aware of any overspending on inventory, but admitted that by the board meeting in February he could see that the levels of inventory were rising above those that had been projected.
In response he asked for and got reassurances from management that cash flows would improve.
Blind spots
Indeed, in the months leading up to his March 2015 appointment as chairman, Murray was not aware of lots of things.
In October 14 he was not aware of a $15 million overdraft, nor was he told about an increase in the retailer's facility from Macquarie Bank.
He was also in the dark about management's discussions with suppliers to push back deliveries.
He was told the company had no debt when he accepted an invitation to join the board, but when he got into the role he learned of an $82 million line (of credit) with Westpac.
Meanwhile in December 2014 he was not aware of the portion of receivables that were unrecoverable.
The court also heard about a worrying increase in inventory, which went from 62 days at the end of the 2013 financial year to 95.7 days of stock a year later.
He said books are a lot easier to write after the conclusion has been written.
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