Adele Ferguson & Sarah Danckert, 1 October 2015
7-Eleven chairman and billionaire Russ Withers has resigned from the board of the convenience store chain, along with chief executive Warren Wilmot and another senior executive, in the wake of a worker exploitation scandal that has rocked the company.
7-Eleven has appointed Michael Smith as its new chairman with a mandate to fix the problem and repair the franchise giant’s damaged reputation. Mr Smith has been on the board of 7-Eleven since 1999 and became deputy chairman in August 2014.
In a candid interview with Fairfax Media on Tuesday, Mr Smith said he believed 7-Eleven was the tip of the iceberg for wage exploitation of young and foreign workers in Australia, adding: “We have a problem in this country.”
Fairfax Media has been inundated with emails from foreign and local workers across Australia since the joint media investigation with Four Corners into systemic wage fraud across 7-Eleven last month. The emails from staff at nail bars, takeaway food outlets, restaurants, petrol station chains and other high profile franchise networks all suggest wage fraud is taking place across the country.
Up until the wages scandal was revealed by Fairfax Media and Four Corners, Mr Smith was chairman of the prestigious Australian Institute of Company Directors. Mr Smith stood aside from this position to focus on 7-Eleven.
Mr Smith confirmed 7-Eleven general manager operations Natalie Dalbo has also resigned.
He said he had been “horrified” by the extent of the exploitation of workers at 7-Eleven, which he says “appears” to be happening at half of the chain’s 620 stores.
The company audited 225 stores in July and found 69 per cent had payroll compliance issues. A 7-Eleven whistleblower said wage fraud was closer to 100 per cent but had recently fallen after the company clamped down on worker exploitation.
Mr Smith said the decision by Mr Withers and Mr Wilmot to resign was “sad”. He said: “Basically one is appropriate, the other is logical.” He said the company would launch a search for a new CEO and appoint new board members.
“This horrible experience has been progressively revealing itself over time. It began as we saw it as a normal business problem. It turned out that we were aware that we had an element of franchisees who weren’t paying properly and we saw it as being inappropriate and being inconsistent with what we told them,” he said.
Mr Smith said the problem had progressively got worse and worse. “Your stories ran which were shocking and I think as we progressively got into it we saw we had a very big problem, and it is both in terms of our franchisees, and in our model,” he said.
Mr Smith described the situation at 7-Eleven as a “boiling frog” where a series of factors had led to the company not being aware of the problem and not acting soon enough to stem those problems.
“There’s a kind of Petri dish of factors that are all acting with each other. One on their own could not have caused it all. You’ve had a bit of a boiling frog.”
Mr Smith informed staff at 7-Eleven’s head office today of the changes, with staff understood to have been shocked by the announcement.
He said he had been “shocked” and “appalled” by revelations in Fairfax Media and Four Corners of systemic wage abuse and a flawed business model. The media investigation also found head office had been complicit in covering up the extent of the problem.
Mr Smith estimated the soon-to-be-announced changes to the company’s business model would cost “many millions of dollars”.
“Everything is on the table … The profit split needs to move.
“As incredible as this might seem, I’d like to think I’m a careful, competent director who has taken a lot of care in this business with a high quality board and high quality advisers,” Mr Smith said.
“If I was on the outside, I’d find that incredible to believe and I don’t expect people to believe differently,” he said.
How the scandal unravelled
Joint Fairfax Media/ Four Corners investigation reveals Australia’s biggest convenience store chain, 7-Eleven, is ruthlessly underpaying its staff.
A massive cover-up of employee exploitation being run out of 7-Eleven corporate headquarters as central database shows repeated findings of wage fraud.
Company announces review by “eminent Australian”. Workers and franchisees agitate over a class action.
Labor signals it wants Russ Withers to front Senate inquiry.
Savage critic, former Australian Competition and Consumer Commission tsar Allan Fels, announced as head of company-run review.
Hundreds of franchisees attend town hall-style meetings in Melbourne, Sydney and Brisbane as preparations for a class action against head office ramp up.
Russ Withers resigns from prestigious Australian Olympic Committee, 7-Eleven board member Michael Smith steps aside as chairman of the Australian Institute of Company Directors.
7-Eleven announces “substantial changes” to its business model, including a greater share of profits for franchisees.
Fairfax Media reveals a scramble to keep store owners from shutting their doors with at least one franchisee “abandoning” their store.
Franchisees are charging staff thousands of dollars to help secure Australian work visas. Advocate reveals he repeatedly warned the company’s head office of systemic wage fraud.
Russ Withers and senior executives front Senate inquiry. Company admits its central payroll system allowed franchisees to pay whatever rate they liked even if it was below the legal minimum.
The competition watchdog confirms investigation of potential breaches of the franchising rules and consumer law.
Heads rolls at 7-Eleven
Russ Withers steps down as chairman, Warren Wilmot resigns as chief executive
Extracted in full from the Sydney Morning Herald.