Hatchings

MAY 2025 – ISSUE 23

Author: Platypus Asset Management

WiseTech Global Ltd and XERO Ltd

The corporate governance debacle at WiseTech Global Ltd (WTC) shows the importance of succession planning in founder-led companies with key person risk.

Richard White the 36% owner, Executive Chairman, CEO and co-founder of WTC is certainly a key person at WTC.

In late 2024, after allegations were aired surrounding the personal conduct1 of Richard White, he stepped down as the CEO and director2. He then became the ‘founder and founding CEO’ and consultant at WTC. This seemed a sensible approach as it gave the board time to search for a new CEO and allowed Richard White to remain active in the business he had founded. Furthermore, the board of WTC engaged consultants to review the allegations surrounding the personal conduct of Richard White.

The partial but not full release of a conduct enquiry into Richard White3 led to the resignation of 3 independent directors and the chair on the 6 person WTC Board. Richard White then became the executive chair. Of the remaining 2 directors, neither could be considered ‘independent.’ Subsequently WTC appointed another director as ‘lead independent director’ and this director previously served on the WTC board for 12 years.

Despite this, WTC remains a public company, with the majority owned by external investors. The WTC share price is currently 25%4 lower than it was when Richard White was appointed executive chair and is still without a clear succession plan. Unsurprisingly, Platypus Asset Management is no longer a shareholder in WTC.

At Platypus we can tolerate corporate governance compromises if these compromises are not fatal to our investment thesis, but we cannot live with businesses that have poor succession planning. At Platypus, when corporate governance issues appear, our approach is to actively engage with companies. In regard to WTC, we had, as a shareholder, been actively engaging with the Board for a number of years discussing succession planning. Eventually events at WTC proved fatal to our investment thesis.

A successful example of succession planning is Xero Limited.

Xero Limited (XRO) was founded in New Zealand in 2006. XRO provides cloud-based accounting software for small businesses globally. Its products are used in over 180 countries, with over 2 million users5 It originally started as a ‘software business in a garage’ in Wellington NZ and the company has managed growth and succession well.

Rod Drury was one of two founders of the business in 2006 and remained CEO until 2018. Whilst his original shareholdings were diluted by capital raisings and outright sales over the years of his tenure as the CEO, Drury remains a substantial shareholder owning 6.5% of the company.

When Rod Drury decided to step down as the CEO, to enable the company’s next leg of growth, he transitioned to a consulting role where he was responsible for strategy and marketing. Steve Vamos became the CEO in 2018 after an executive career spent at Apple, Microsoft and Telstra (as a non-executive director). Drury remained on the XRO board as a non-executive director until August 2023.

Sukhinder Singh Cassidy replaced Steve Vamos in February 2023 as the CEO and once again the succession was well managed over a 4-month period. The XRO business has flourished as has the share price under the leadership of Sukhinder Singh Cassidy.

At Platypus Asset Management we are enthusiastic investors in founder-led businesses. We understand that some founder-led businesses come with corporate governance compromises, as well as key person and succession risk. When there are poor corporate governance standards and unsatisfactory succession planning, as at WTC, shareholders suffer. But when done well, as at XRO, shareholders can enjoy improved returns.

At Platypus there are three key criteria for a successful management transition:

1. Acknowledgement that a transition is needed: It’s crucial for the founder to recognise the importance and benefits of a management transition. This acceptance sets the foundation for a smooth and effective process.

2. A recruitment process with long-term and strategic focus: Identifying the type of leader required for the company’s next phase of growth ensures that the transition aligns with future goals and strategic direction.

3. Clear transition Plan: Clear transition plan: Communicating the transition plan to all stakeholders, including staff, board members, and shareholders, is essential for gaining their support and ensuring alignment.

1. Australian Financial Review October 8 2024, 2. Australian Financial Review October 24 2024, 3. ABC News February 24 2024 Bloomberg, 4. IRESS April 30 2024, 5. Xero website

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