Leighton chairman Stephen Johns quit in protest after major shareholder Hochtief stared down a revolt from Leighton's independent directors seeking to reclaim management control of Australia's largest construction group.
Relations between Leighton's independent directors and 54 per cent shareholder Hochtief have become strained since the German group was taken over by Spanish construction giant Grupo ACS in a bitterly contested bid in 2011. ACS has been steadily taking over day-to-day control of Leighton, via Hochtief, since.
In his resignation letter, obtained by Fairfax Media, Mr Johns said relations with Hochtief had completely broken down and he could no longer operate as an independent chairman. Fellow independent directors Wayne Osborn and former Reserve Bank chairman Ian Macfarlane also resigned on Friday.
The flashpoint sparking Mr Johns' resignation came when Hochtief executive chairman Marcelino Fernandez Verdes, an ACS executive and recent addition to Leighton's board, interfered with the appointment of a new independent director, according to Mr Johns.
"These actions gave rise to serious concerns that Hochtief no longer supported the important principle of board independence," Mr Johns wrote.
All five independent Leighton directors, including Paula Dwyer and Robert Humphris, wrote a protest to Mr Verdes after he privately requested Mr Johns step down. The independents also requested a special board meeting to be held on March 13, but Hochtief's representatives on Leighton's board refused to attend. Finally, they wrote a letter asking Hochtief to maintain Leighton's independence, which it had enjoyed since 2000 through a series of corporate governance protocols.
"Hochtief provided a wholly unsatisfactory response to this letter, uncommittal to the core issue of Hochtief's support of the corporate governance protocols," Mr Johns said. This culminated in the resignations on Friday.
Mr Johns wanted the full correspondence between himself and Hochtief to be disclosed to the stock exchange in the interests of continuous disclosure. But a company stock exchange announcement on Friday merely said the three directors had resigned "following what they perceive to be a breakdown in relations with the major shareholder Hochtief and their view that Hochtief no longer supports an independent board at Leighton".
Instead, copies of the letter - including attachments marked as confidential - began finding their way into inboxes of journalists, revealing fissures at the board level.
"When three directors resign in protest, it suggests that Hochtief is exerting undue influence on the workings of the board," Daniel Smith of ISS Governance said.
The board would convene at the earliest possible time to elect a new chairman, Leighton said, and would make a "fuller statement in due course".
Shares in Leighton fell as much as 10 per cent during Friday's trade, abruptly ending a recent resurgence following a solid set of results announced last month.
Hochtief has a 54 per cent stake in Leighton, but has historically allowed a great deal of autonomy in how Leighton operates.
ACS amassed a majority 54 per cent stake in Hochtief and has made extensive management changes since 2011. ACS, via Hochtief, has the right to appoint four Leighton directors.