Why are two long-serving Fletcher Building directors still on the board?

Sunday, 6 July 2025

Decisions made by the directors of Fletcher Building have resulted in a loss to New Zealand of $2.2 billion, reckons Sam Stubbs.

Sam Stubbs is the managing director of KiwiSaver fund Simplicity.

OPINION: Kiwis are a polite and friendly lot. When one of us makes a mistake, we are generally forgiving.

And because we are a small nation, we tend to be careful about whom we offend, lest they know someone who could hurt us. In New Zealand, two degrees of separation and professional politeness go hand-in-hand.

However, there is a downside to all this niceness. Because when someone really stuffs up, they can hurt a lot of people and effectively escape the consequences.

And this is particularly the case in business, where decisions made by the board and management of big companies can cause plenty of harm, with all too few consequences for the individuals responsible.

Fletcher Building’s board has made plenty of mistakes, but there doesn’t seem to be much by way of consequence for that, and most are paid handsomely.

Perhaps the best example of this recently has been Fletcher Building, a company that has critical to the future of our building industry, and the ability to get the homes we all need actually built.

Fletchers has many great, well meaning employees, trying to do the right thing. But like all companies, the individuals responsible for the company’s performance are the Board of Directors. They are the paid representatives of the shareholders, which in Fletcher’s case includes over 2 million KiwiSaver members.

I mention this because many shareholders, including KiwiSaver members, don’t think that directors are responsible to them. But they certainly are. And given it is the board’s responsibility to approve the strategy of the company and hire the managing director, the decisions they make really matter.

And in Fletcher’s case, some of the key decisions made by past, and some present, members of the board have been appalling.

This is reflected in the company’s share price. At the start of 2018 the value of the company was $5.4 billion, now it is $3.2 billion. That is a $2.2 billion loss for shareholders, including many KiwiSaver investors.

Fletcher Building takes companies to court after convention centre fire.

Another way of saying that is that the decisions made by the directors of Fletcher Building have - directly and indirectly - resulted in New Zealanders having $2.2 billion less wealth than if the same money had been invested in an averagely performing listed company.

And to see this another way, the total return for shareholders in Fletchers since 2018 has been -44%, vs a gain of +49% for the New Zealand share index.

Given this appalling performance, one would expect that the directors of Fletcher Building would do a mea culpa and ensure they are paid below-average Directors fees.

But it just ain’t so. Directors were paid $155,000 a year last year, and the chairperson received $320,000. And on top of that, directors get an additional $15,000 to $30,000 a year for sitting on - or chairing - sub-committees. And remember, these fees are for a part-time job. I would be agnostic if those fees were paid by a private owner of the company, but in Fletchers case it’s shareholders who paid them, including millions of hard working KiwiSavers.

And to rub salt into shareholder wounds, the directors tried at the 2024 annual meeting to get themselves a 25% pay rise. Even polite NZ Shareholders baulked at that, and the directors finally backed down from trying to award themselves a big pay rise.

Sadly, it gets worse. This appalling performance might be somewhat forgivable if the company was mis-pricing its products and selling them too cheaply. Given how dominant Fletchers are in certain building materials eg. GIB, that would have the desirable effect of cheaper homes for all of us.

Fletcher Building chief executive Andrew Reding, who is trying to turn things around for the company.

But far from it. Fletcher Building has annoyed a whole generation of builders by consistently raising its prices, to the point of infuriating a whole industry. Just ask any builder what they think of Fletcher's pricing practices, or anyone who has had to bear the brunt of them when building or renovating their home.

I would like to see what Fletcher's net promoter score was. I doubt their board of directors would.

But with the GIB crisis of a few years ago, even the directors of Fletchers couldn’t stand the wrath of customers and shareholders, and many resigned. And to be fair to many of the new directors and management, they have inherited a pup.

Simplicity founder Sam Stubbs has remained critical of the board of Fletcher Building for many years.

But it flabbergasts me that two of the long serving directors are still on the Board, and one has been made it’s chairperson. Amongst the reasons given for them remaining are continuity and knowledge of the multitude of lawsuits the company faces. But, with due respect, continuity of mediocrity is the last thing shareholders want. And in what other job does knowing what’s wrong - because you were there when it happened - qualify you to stay?

Fletcher Building is a ship with some very serious leaks. And the inability of the company to identify them and plug the holes is becoming monotonous. From memory, there have now been five successive announcements of write-offs and provisions for previously unseen or unknown problems in the company. This inability to identify and deal with problems quickly speaks to lack of accountability and communication.

Sadly, the finance industry is partly to blame for the Fletchers debacle. For too long banks, investment banks, stockbrokers, and fund managers have been too muted in criticism of Fletchers, for fear of losing their business. What stockbroking analyst is going to be allowed to really speak their mind if their employer also wants to get the job of raising capital for the company? The finance industry is riddled with conflicts of interest, and they bear some responsibility for fiddling while Fletchers burned.

However, credit is finally due to stockbroking firm Forsyth Barr, for for speaking truth to power and shining the light recently on poor governance in Fletchers. In a very critical report it highlighted their poor capital discipline and balance sheet management, badly timed acquisitions, slow response to change, gaps in skills at the board level, limited internal challenges to decisions, poor strategic focus, too many acquisitions at the expense of operational improvement, high levels of borrowing, weak internal controls and stakeholder engagement, and lack of an annual self review at its Board. Enough said. Bravo.

Fletcher Building is likely to be a business school case study in hubris and appalling governance for decades to come. It’s sad that setting such a bad example has cost Kiwi investors billions, and builders and home owners unnecessary grief for far too long. I wish the new management and team the best. But fixing Fletchers, and earning shareholders their billions back, will need radical surgery, not hubris infused sticking plasters.