The board of directors of Fletcher Building has “no choice but to seek a new mandate” at the company’s October annual meeting after last week’s firing of chief executive Mark Adamson and after a second major profit downgrade this year, the New Zealand Shareholders Association says.
“Right until last week, the Fletcher board was uncommunicative to the broader shareholder base and kept faith with Mr Adamson’s abilities,” said the association’s chief executive Michael Midgley.
“The recent disclosures are clear evidence that governance was not as robust as it should have been.”
A series of events suggested a serious culture problem at the country’s largest listed construction firm, which the NZSA first raised with the Fletcher board last year, he said.
He cited as evidence comments by Mr Adamson in 2013 to the Australian Financial Review suggesting the board didn’t understand his strategy but went along with it anyway, an angry email written earlier this year by Mr Adamson attacking senior staff that was leaked to the National Business Review last week, and “high staff turnover in some parts of the company”.
Such factors “may have suppressed or filtered the information flow to the board,” Mr Midgley said.
“We wonder whether it was a coincidence that the latest write-down came to light while the CEO was on leave.”
The 2013 comments earned Mr Adamson a public rebuke from the chairman at the time, Ralph Waters.
The Fletcher board is chaired by one of New Zealand’s most respected business leaders, Ralph Norris, a former chief executive at National Australia Bank and chairman at Contact Energy.
Other big names on the board include Tony Carter, who chairs Air New Zealand and Fisher & Paykel Healthcare and is a director of the New Zealand arm of Australia & New Zealand Banking Group; and John Judge, currently chair of ANZ Bank in New Zealand.
“The disaster was inevitable once former CEO Mark Adamson began insisting on winning large construction contracts almost regardless of price,” Mr Midgley said.
“The removal of many experienced senior managers and the reliance on construction work being almost entirely subcontracted has created problems and imbalances that may take years to fully address.”
The association had also taken “credible information” to Mr Norris after the first downgrade this year to suggest the $110 million estimate should be more like $230m, Mr Midgley said.
“Sadly, what we said to the company then and since has come to pass.”
Despite assurances to shareholders the construction division was a small part of the company, it was the public face of Fletcher Building and was causing the company serious reputation and financial damage, he said.
“Fortunately, the company has a strong balance sheet even with the two additional Australian subsidiaries also being written down, it will recover over time,” Mr Midgley said.
For the year to date, Fletcher shares have fallen 28 per cent.
In its latest downgrade, Fletcher said operating earnings in the year ended June 30 were about $525 million, down from $682 million in 2016 and below the $610 million-to-$650 million range the company gave in March, itself a 15 per cent downgrade against earlier guidance.