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Super fund questions Domino's

Adele Ferguson

First Super has written to the fund managers that invest its members' money questioning the Domino's business model in the wake of Fairfax Media's investigation into the pizza giant.

The letter, written to Perpetual, IFM, Allan Gray and Eley Griffiths Group, notes that over the long term companies that adopt best practices across environmental, social and governance (ESG) factors deliver better returns and have lower risks.

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'They blackmail us': Domino's boss

Domino's CEO Don Meij blasts franchisees who have underpaid 2,400 workers by $4.5 million as "criminals".

First Super has some $55 billion under management and almost 800,000 members.

"Would you advise First Super how your firm applies ESG principles when evaluating whether to invest in companies that generate revenue through franchise operating models with particular reference to the sustainability of franchisees' businesses and implications for staff and contractors?" First Super chief executive Bill Watson asks each fund in the letter.  

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In a copy of the correspondence obtained by Fairfax Media, Watson says that based on other Fairfax Media investigations, including 7-Eleven, "it would appear that underpayment of staff and contractors within franchised businesses is widespread".

For First Super that raises the question of the sustainability of companies that operate franchise networks or outsource business activities.

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"As we have seen from the outcome of the 7-Eleven expose, the franchisor has had to step in to compensate franchisee employees. In the case of Domino's there has been, at least, in the short term, a fall in the share price."

To date 7-Eleven has paid more than $70 million to underpaid workers, with speculation it will exceed $100 million.

Watson sent a separate email to the Australian Council of Superannuation Investors (ACSI), which has 29 members, who manage more than $450 billion on behalf of eight million super members, asking it to put the franchise model on their agenda in the lead-up to annual meetings.

"I wrote to ACSI to put on their agenda those businesses that operate a franchisee/franchisor model," he tells Fairfax Media this week.

This isn't the first time First Super has taken a particular interest in a company.

"We did it with UGL in relation to the remuneration package and other matters," he says in an interview.

It would appear that underpayment of staff and contractors within franchised businesses is widespread.

Bill Watson

At the heart of First Super's interest is whether the franchisor is potentially on the hook when things go wrong.

"I don't think plausible deniability exists any longer," he tells Fairfax Media.

"For a franchisor to say we aren't aware of it or we have an audit program doesn't cut it with us."

The Domino's media investigation alleged widespread underpayment of wages across its network of stores, mostly franchisees, and a model that some franchisees allege pushes them to cut corners.

During the week Domino's released a record interim profit and confirmed that it had audited 102 stores out of more than 600 stores and found that 2400 workers have been underpaid and 22 franchisees, equivalent to more than 30 stores, had been asked to leave the network.

Domino's denies it has a problem with wage fraud and vigorously defends its business model as profitable and sustainable. Not everyone believes them.

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