THE DISTILLERY: Leighton lesson

Jotters argue Leighton's size is to blame for its recent difficulties, while JB Hi-Fi fails to impress with its results.

The mismanagement of the Airport Link project and the Victorian desalination plant construction had already done enough to significantly undermine the formidable reputation of Leighton Holdings. Revelations that the company is under investigation for alleged illegal payments to secure construction contracts in Iraq has helped undermine the goodwill Leighton might otherwise be entitled to for improvements made to the aforementioned projects, not to mention the company’s broader image. The Australian Financial Review’s Chanticleer columnist Tony Boyd says management should take this as an opportunity to see Leighton for what it is at the moment – too big and too complex to manage. The Age’s Adele Ferguson says Leighton is making sure to keep as many of the details under wraps, while The Australian’s Damon Kitney makes the point that the company was under no obligation to reveal the details in the first place, which could mean there’s worse to come.

But first it’s The Australian Financial Review’s Chanticleer columnist Tony Boyd, arguing that the size of Leighton Holdings makes it too complicated to govern effectively.

"The latest ethical lapse at Leighton Holdings ought to be a catalyst for chairman Stephen Johns and chief executive Hamish Tyrwhitt to admit that this sprawling, global conglomerate is too complex to manage. Years of international expansion have created a company with annual revenues of $20 billion and earnings this year of up to $650 million. But it has also created a behemoth that is far too complex for the management and in need of simplification. The company’s failure to understand the complexity of three projects in Australia was behind a series of impairment charges exceeding $1 billion. Even now, few understand what is really going on in the group’s Middle East joint venture, Habtoor Leighton Group.”

The Age’s Adele Ferguson warns other companies operating overseas to take particular notice of news that Leighton Holdings is being investigated for possible breaches concerning payments made to facilitate work in Iraq.

"The company has decided to keep details of the investigation scant, except to say it volunteered the information to the AFP and that it was now co-operating fully with the investigation. The truth is the board became aware of the scandal on November 7 but decided to inform the market more than three months later, on the same day it released its profit results. It also comes as the Australian Securities and Investments Commission continues its inquiry into Leighton over continuous disclosure obligations that date back to last year under a previous chief executive.”

Then again, The Australian’s Damon Kitney says the construction company had received legal advice saying it was not compelled to release the information to the market and thus should be praised for doing so.

"The company is still the subject of inquiries by the corporate regulator over its failure to disclose a number of major issues in last year's half-year accounts presentation – issues that forced it to book massive writedowns and launch an emergency capital raising two months later. Indeed, there is some irony that the alleged improper payment is believed to have come to light as Leighton's lawyers reviewed documentation relating to the Australian Securities & Investments Commission's ongoing inquiries. So Tyrwhitt is doing his best to come clean. But the decision to disclose the AFP investigation also suggests the matter could be far more serious than Leighton first imagined.”

Staying with company news, The Australian’s John Durie says there wasn’t much to like about JB Hi-Fi’s numbers yesterday, but if they’re bad then Harvey Norman is probably going to be worse. His colleague Tim Boreham also looks at JB, along with Minemakers, UCL and Leighton Holdings in Criterion. The same newspaper’s Bryan Frith finds Danish engineering group FLSmidth scrambling to find out whether its chief executive has accidentally declared their offer for Australia’s own Ludowici, following a superior offer from Scotland’s Weir Group, while Richard Gluyas says the consumer watchdog’s updated code of conduct is a positive development, but it needs to be held to even higher standards.

Meanwhile Matthew Stevens, who’s now at The Australian Financial Review, casts his discerning eye over the ANZ rates decision.

The Sydney Morning Herald’s Michael Pascoe makes two observations about the latest retail figures. Firstly, the decline in traditional retail was greater than the increase in online retail. Secondly, Australians are moving away from credit cards and into cash.

Finally the rioters in Greece have won some sympathy from The Sydney Morning Herald’s Ian Verrender and The Age’s Tim Colebatch, who both conclude to varying degrees that the concessions that the Greek government has made to secure a bailout from the European Union will do little to stabilise the country’s debt-to-GDP without significant currency devaluation.

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