Coles chair Rick Allert has reportedly been calling the larger investors with a heartfelt mea culpa – or as we say in Oz, “we stuffed up”.

The low performance targets described in the Coles annual report have been reviewed upwards to reflect the targets outlined by the board as part of the company’s defence against the raiders.

While Lew’s revelation is undoubtedly embarrassing for Allert and Fletcher, it must be seen in context. This is not a mortal, or even particularly telling, blow in the country’s longest running corporate stoush.

What Lew has done is to put the Coles profit target under a very bright spotlight so that every investor, from the mum and dad holders of 500 shares to the largest institutions, now knows exactly what the target is for Coles. A net profit of $1.06b in FY08 – OR ELSE.

The vibe we are getting from Coles’s Tooronga HQ is approaching despair. Morale is damaged. What is alarming is the damage at senior levels. People with whom I have spoken believe the FY08 target will be achieved, but at a horrible long term price. Thereafter, the consequences of what is happening this year will become harder to live with. An under resourced leadership group will be under increasing pressure and will seek greener pastures.

Some leaders involved in the strategic direction of the company appear to feel that much of what is being done in the short term will produce spectacular results. However there will be pain. One said to me that the current cuts can either be done by existing leadership or by KKR or another raider.

They speak of a break-up, with or without a sale, as inevitable.

Coles cannot be turned around without a fundamental shift in corporate culture. Bunnings did it when it took over McEwans. More recently, we see Myer doing it with success. It’s hard, but it can be done.