Robert Millner AO FAICD and son Tom Millner GAICD talk business, family and the reasons behind the continued success of Washington H Soul Pattinson, a company that has never missed paying a dividend in 120 years of operation.
bert Millner AO FAICD was one of more than 40,000 people who ventured to Omaha, Nebraska, on the first weekend in May this year for what American business magnate Warren Buffett calls “Woodstock for capitalists”. The annual shareholder sojourn for Buffett’s Berkshire Hathaway group, where one of the world’s most revered investors and his vice-chair, Charlie Munger, this year explained how to avoid mistakes in life and business, has been a fixture on Millner’s calendar for many years.
“Tom [Millner GAICD] and I first started going over to Omaha before COVID-19 hit. We would be away for five to six days together,” says Millner of his son, who could not make the trip this year. “We’ve done it together seven times now. To listen to those great men has been absolutely unbelievable. One regret we have is that we didn’t start going 20 or 30 years earlier.”
Robert Millner is only the fourth Millner family member to run Australian investment conglomerate Washington H Soul Pattinson (WHSP) throughout more than 100 years. It is the nation’s second-oldest listed firm. Better known as “Soul Patts”, the company is widely regarded as the closest investment vehicle Australia has to Berkshire Hathaway.
Following Buffett’s style of high-conviction investing has seen Soul Patts take large positions in disparate industries including coal, building materials, telecommunications, pharmaceuticals, retail, agriculture, property equity and listed investment companies.
“We are very honoured to be spoken about in the same breath as Buffett and we are a very similar type of business, even if his scale is a lot larger. We are long-term investors,” says Robert Millner.
Tom adds that, like Berkshire Hathaway, Soul Patts is a closed-end investment company. “It is not like a fund where there are redemptions during a downturn,” he says. “So you can genuinely wait, be patient and, as Buffett would say, be greedy when others are fearful. Sometimes, we’ve sat on $1 billion worth of cash.”
Soul Patts has never borrowed money or missed a dividend payment, even during WWII when Robert’s uncle Jim Millner was a prisoner of war in Singapore.
Robert notes that one key difference between the firm he chairs and Berkshire Hathaway is the daily diet of the chair. “I don’t have a cheeseburger, a Coke and an ice-cream every day for lunch,” he says, in reference to the 92-year-old Buffett’s penchant for junk food.
A deeper difference between the two firms is the family business culture at Soul Patts. Robert is the great-grandson of Lewy Pattinson. The business as it is known today resulted from a merger of Pattinson & co and Washington H Soul. This venture grew through the Great Depression and two world wars into the multibillion-dollar public conglomerate that is Soul Patts today.
Over the decades, Soul Patts has been run only by Lewy’s eldest son, William Frederick Pattinson, William’s nephew, Jim Millner and, most recently, by Robert. He has been on the board since 1984, chair since 1998 and was joined by his son Tom as a director in 2011. Over the past three years, the company has gradually refreshed its board and management.
Cross-investment
Soul Patts also owns 44 per cent of listed building materials group Brickworks, which has a 26 per cent stake in Soul Patts. This cross-shareholding structure has been criticised over the years, most notably by funds management giant Perpetual, which launched a Federal Court action in 2017 claiming the cross-investment structure had the effect of depressing share value and was therefore “oppressive” and costly to minority shareholders. Justice Jayne Jagot held that the maintenance of the cross-shareholding was neither oppressive nor unfair in all of the circumstances, dismissing Perpetual’s claim with costs.
But Brickworks and Soul Patts, whose boards are also closely intertwined, claim the structure has long helped smooth the economic cycle and deterred hostile takeovers. Celebrating its 120th year in 2023, Robert says the secret sauce of Soul Patts is simply personnel.
“We have been very fortunate that we have had very good people,” he says. “The people before me have always been conservative and well- mannered. Every morning, when I’m in the office, I walk around to the senior staff. There aren’t many chairs who would do that. We’re common people and we look after and support our employees. It has always been a good place to come to work.”
The Millners like to be low-key. They have never owned a boat or a plane, and fly economy domestically. They have also carried on the family tradition of supporting the Royal Flying Doctor Service and donate to the Salvation Army.
Tom says another secret of the company’s success has been its governance culture. “Being an investment house, the relationship of the chair and the board with management is really vital. You want the bad news in an investment company to travel even faster than the good news. So if you have got a good relationship with the management team and something doesn’t go to plan, you can address it quickly.”
Rise of compliance
Some have argued that the ASX Corporate Governance Principles and Recommendations are overly prescriptive in Australia, leading to more pressure on boards for compliance and less scope for focus on strategy and growth.
Robert describes the rise of compliance regulations in recent years as “disturbing”.
“We are in an era where 11 per cent of people’s super money is being taken from them to grow their future, yet the average person with a self- managed super fund cannot understand a listed company annual report,” he says, holding up a Soul Patts annual report from 1971, which is just 13 pages long. He then holds up a 190-page 2002 version. “There is nothing wrong with it, per se, but sometimes you just get bogged down in a board meeting talking about this other stuff.”
Tom believes over-regulation is now a broader problem for Australia, with the consequence that the next generation of business leaders won’t want to join public company boards. “There is a lot of risk, you won’t get rich by taking a director’s fee, and you’re better off being an executive or a CEO,” he says. “So the age of the people who sit on boards is deteriorating, unfortunately. Going forward, if that trend continues, we might run into a sad state of affairs when it is very difficult to find good-quality board members.”
Robert’s advice for those who do choose to serve on boards is to “be honest with yourself” and when starting out, to “sit there and listen — read your board papers, use your common sense and don’t say something stupid”.
But once through the initial phase of joining a board, Tom says it is important to actively participate in the discussion. “You’ve been asked to join that board for a reason — because you bring a different background, a track record and benefits to the company. So you need to produce that at board level.”
Separation of powers
Robert has always lived by one golden rule as a chair and non-executive director: directors are not there to manage the company. He puts the mantra into practice at Soul Patts. The investment house has strategic shareholdings in a number of companies where it has board seats. Robert occupies several of them.
“That’s a very important point,” he says. “I’ve come across a few ex-managing directors who never liked the board asking too many questions. But when they become a director, they will throw darts at the present management. An important lesson for directors is that you’re not running the company.”
With the push to zero emissions, Soul Patt’s investment in carbon-heavy assets — notably through its investment in coal miner New Hope — is becoming a focus for stakeholders. But the Millners see no issues resolving the tension between profits and corporate responsibility, and taking account of ESG issues.
Robert claims New Hope has long been regarded as being at the forefront of rehabilitating coal mines “as we go” and says that it has always been a good neighbour and integral to the prosperity of the nearby town of Muswellbrook in the NSW Hunter Valley.
“If an investment opportunity doesn’t stack up from the environmental side, it shouldn’t be investment-grade,” says Tom. “If it leaves a bad social impact, that shouldn’t be investment-grade. ESG has become quite a trendy term and at the forefront of a lot of people’s supposed investment checklist. But deep down, we’ve invested in various businesses that have looked at those aspects over generations.”
Family dynamic
Tom Millner has long had a passion for funds management and equities. He wrote the prospectus for the BKI Investment Company, which he went on to run. Since listing in 2003 with $173m, BKI has now paid out over $1b in dividends and franking credits to its shareholders. Today, he is a full-time executive at Contact Asset Management.
“It wasn’t forced on us as the next generation,” he says. “That’s the beauty of how the family has been so successful. I have liked funds management and enjoyed it.”
Robert began working for his uncle at the family business after a stint as a stockbroker, straight after school. He says he has never expected his son to follow in his footsteps. “You can’t force people to try to do anything.”
They now talk at least once or twice a day and say there is no line between their business and personal lives, which blur into one, sometimes to the frustration of Robert’s wife of 48 years, Janine.
“I’m very fortunate to be married to a lady who’s very, very patient,” he says. “I’m away a lot, so she doesn’t get to see much of me at times. She is a wonderful mother.”
Tom has been married to his wife for nearly 20 years and they have twins. “With the rock and grounding she provides, life is so much easier,” he says, adding that the greatest learning from his father has been “downright common sense”. “If you don’t know enough about something, try to find it out, and if it’s still above you, don’t invest in it… you’re probably better off putting your money elsewhere,” he says. “The other big thing is alignment. When you’re managing people’s portfolios or wealth, you must be on the same page as them.”
The Millner family tops up its shareholding in Soul Patts every six months. “Don’t tell shareholders what they should do if you don’t do it yourself,” says Tom. “Put your money where your mouth is.”
Soul Patts is now in uncharted waters as it transitions to the fifth generation of Millner family involvement. Formal succession planning on the public company board remains a work in progress.
Robert notes there are no public companies left in Australia with a history quite like the firm he has now chaired for a quarter of a century. But his son is confident that, like Berkshire Hathaway, its ability to make long-term bets will stand it in good stead, with or without a Millner at the helm.
“From the next generation coming through, the guys we’ve got in our team have that ability,” says Tom. “Knowing it’s closed-end and we don’t have to fund all these outflows in a bear market, we can actually fund the next long-term investment. That’s where the continuation of our outperformance will come from. People that have already done it before will do it again. We can because we have a really good team and we look long-term. That’s been the secret of our success over generations and it is still very ripe today.”
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