What’s going on at Fletcher Building?

Thursday, 13 June 2024

Former Fletcher Building chief executive Ross Taylor talks to journalists at one of the company’s operation bases in Auckland in 2019. Taylor left the company earlier this year after its latest poor result, with a permanent replacement still to be found.

Sam Stubbs is the managing director of Kiwisaver fund Simplicity and a regular commentator on financial and economic issues.

OPINION: In my opinion, over the past five years the board of Fletcher Building has been a masterclass in how to govern badly.

Examples include the recent Gib fiasco, a $180 million International Convention Centre impairment and an unexpected $122m write-down of its Australian-based Tradelink business.

Fletcher Building’s recent profit guidance for 2024 financial year was well below analyst estimates, and announced surprisingly late, with the Australian Stock Exchange receiving key information before the New Zealand Exchange did.

Rather than an orderly rotation of directors and executives, this year the chairperson, chief executive, chief financial officer, and two directors resigned within weeks of each other.

Meanwhile, the acting chief executive appears to have no clear mandate, and the current general counsel and company secretary is a (presumably) temporary appointment from a law firm.

The Fletcher Building share price says it all. While the NZX50 share index has risen 1.5% in the last year, Fletcher’s share price has fallen 40%.

A file photo of a previous Fletcher Building AGM, being addressed by then-chairperson Bruce Hassall. He left the company in March and Sam Stubbs argues it has been essentially leaderless since.

It’s worse over time. The NXZ50 is up 14% in the last five years, while Fletcher Building is down 43%.

Of the seven directors recently on the board, five of them were there for all those years of underperformance. Three remain on the board.

After all the resignations, little of any significance seems to have happened. We are still waiting for a new chair to be appointed, three months after the previous one left.

This is an unacceptably long time for the highest-paid listed company board in New Zealand to find a new leader.

Unfortunately, the board is giving more of an impression of fiddling while Rome burns, rather than making a transparent and credible attempt to fix the problems.

And the problems have cost shareholders hundreds of millions of dollars, including some of the retirement savings of well over 1 million KiwiSavers.

The chief executive and directors who departed recently were reported as saying they left the company in a better shape than when they arrived.

If they believe this, I can only assume that they had forgotten that superior shareholder returns were part of the job they were paid to do - with shareholder money.

In the absence of any news about a new chair, rumours have circulated that an existing board member was positioning themself for the job. Fortunately, any notion of that happening was quickly disabused by shareholders.

The acting chair was not present on the most recent analyst call announcing the profit downgrade. When it comes to delivering more bad news, the chair should front up.

It gets worse.

In recent discussions with shareholders and their representatives, the board has emphasised that its focus is on appointing a new chief executive.

But corporate governance 101 says that focusing on hiring a chief executive before a new chair is simply the wrong thing to do. The board should prioritise appointing a new chair, who then leads the search for a chief executive.

Given the acting chair has said she will not be seeking the position permanently, a new chair is urgently required.

A suitable candidate, Mark Cairns, has already been mooted as the new chair of Fletchers, and endorsed by some key shareholders, including Simplicity, whom I work for.

But, three months on, it remains a mystery why he has not been appointed or discounted.

When a new chairperson is finally appointed, they can then begin the process of hiring a chief executive and re-building the Board.

Why the urgency? Because Fletcher Building is a huge company, and vital to the well-being of thousands of employees, suppliers and customers. They can all prosper when Fletchers does, but suffer when it doesn’t.

Sadly, we seem to have no idea what’s going on at Fletchers.

But it’s clear what should be done. A new chairperson should be appointed - now.

And, as requested by the Shareholders Association and Simplicity two years ago, the remaining directors should either resign or put themselves up for re-election at the next annual meeting.

If they do, then new directors with skills more suited to the huge task at hand can be appointed, and get on with it.