Fletcher Building: should he stay or should he go?

Friday, 9 February 2018

Sir Ralph Norris at the 2017 Fletcher Building AGM.

OPINION: Fletcher Building is a bit of a mess and I don't think anyone knows how this situation will play out in coming months.

Not just commentators and analysts, but the company itself. And especially not the shareholders.

This week's news – and NZX and ASX trading halt and warning of banking covenant breach – pending further buildings and interiors losses wasn't widely expected.

While the company said in October that a KPMG review forecasted a $160 million loss after major cost blowouts on two key projects, SkyCity's New Zealand International Convention Centre (ICC), and the Christchurch justice and emergency services precinct, on Thursday it warned the losses were going to be higher than previously stated.

* Investigation finds Fletcher Building kept investors informed during horror year

On Monday morning, Fletchers will release an update and new chief executive Ross Taylor will front to media and analysts to answer some tough questions. (A tough job for him as he's a new addition so none of this happened while he was at the helm.)

Given that, I'm not sure I have much confidence that even more budget blowouts and/or construction delays won't be unveiled by the beleaguered company in coming months.

That's a shame as most of the Fletcher Building group is performing well. (As it should, given the building boom the country is in the midst of.)

SkyCity, for whom Fletchers is building the ICC, is expecting there to be legal 'argy bargy' (to quote chief executive Graeme Stephens).

It's likely SkyCity will take action over breach of contract, and that Fletchers will hit back saying design changes by SkyCity are responsible.

The truth probably lies somewhere in the middle (on a sliding scale in SkyCity's favour).

Anyway, the end result will be a lengthy and costly legal battle which I don't believe will serve anyone well.

When this first kicked off, my take was that the chief executive and chairman should both resign. It seemed like an almighty stuff up that those at the very top needed to take responsibility for.

Then-chief executive Mark Adamson did depart but chairman Sir Ralph Norris didn't.

Instead, Norris said in October that the troubled buildings and interiors division had caused the company 'a whole lot of grief' but that he felt he had an obligation to fix what was one of the worst situations he had faced in his business career.

He said the company's former executives 'should have been on top of many of the issues that have led to what has actually happened'.

He, along with the rest of the board, apologised and took a pay cut.

That wasn't enough for me at the time. I thought he should resign as, by his own words, responsibility ultimately lay with the board.

But this latest update has changed my mind.

The business (well that part of it) is obviously a shocking mess and with a new chief executive in place, it makes sense for a chairman with a longer Fletcher history to stay put.

For now only though.

When this is all sorted, I would hope Norris would step down.

He was right when he said he needed to stay and fix the mess. But the mess happened on his watch and shouldn't have been a mess in the first place. So he must take responsibility at some stage.

We mustn't let the company's board become fix-it heros for people with a very short memory.

Let's hope the resolution for all involved happens swiftly and with the best interests of shareholders at heart.

At the moment, all I see on the horizon is a whole bunch of corporate lawyers rubbing their hands with glee.

And that's a scary prospect.