THE DISTILLERY: Wayward Leighton

Jotters suggest Hochtief was only lenient while Leighton performed, but one says the group has faced governance issues since losing Wal King.

Three of Australia’s leading business scribes have been watching the unravelling of Leighton Holdings' awkward relationship with German majority shareholder Hochtief, which is majority owned by Spain’s ACS. With chairman Stephen Johns and independent directors Ian Macfarlane and Wayne Osborn gone, what do we make of the two remaining independents?

The Australian’s John Durie writes that Leighton is the federal ALP of the corporate world and that governance issues have been steadily simmering at the construction giant since the overdue departure of legendary former boss Wal King.

“Normality, it should be noted, is different at Leighton than it is in just about any other company on the Australian bourse. Relations between the 53 per cent shareholder Hochtief and the company have been dysfunctional at best but workable because Leighton was the star performer in the German's armoury. Since Spanish giant ACS took control of Hochtief relations have gone south in a hurry as evidenced by the fact Johns's predecessor David Mortimer resigned in protest against ACS insistence that he sack David Stewart as boss and replace him with King's preferred candidate Hamish Tyrwhitt. Between the lines there are myriad subplots, depending on who you talk to. Just why Johns would be sacked beggars belief because the independents think he did a great job.”

Fairfax’s Malcolm Maiden describes Leighton as the “majority-owned but independent super-satellite” of Hochtief and ACS, which pretty neatly sums it up.

“The situation is complicated by the fact that the two other independents, Paula Dwyer and Bob Humphris, have not resigned, and Leighton said in a late statement that its remaining Australian directors did not agree with ''conclusions drawn'' in the correspondence, and were not aware of anything that suggested that Hochtief no longer supported the independence deal. Those who resigned obviously believe otherwise.”

Many have made the point that Leighton’s awkward relationship with its majority shareholder functioned as long as it kept performing. The trouble is that its underperformance, which would naturally prompt immediate questions for the reasoning behind majority-shareholder but ‘independent’ governance, that is exacerbated by the debt problems at ACS.

In essence, as Business Spectator’s Stephen Bartholomeusz says, Leighton’s internal problems have come at the worst possible time.

“Leighton didn’t explain the precise reason for the rift between Hochtief and the independents although there are suggestions that it was sparked by the refusal of Hochtief’s chief executive, Marcelino Fernandez Verdes, a Leighton director, to accept the board’s nomination of a new independent director to fill a vacancy on the board. Verdes became chief executive of Hochtief last November as ACS, which had seen Hochtief’s value decimated since it took control in 2011, decided it needed to pursue a more urgent and radical strategy. Hochtief’s rejection of the proposed new independent would clearly have signalled to Johns and his fellow independents that the governance protocols ACS had agreed to were being challenged. It is believed that Verdes refused the independents’ request for assurances that ACS/Hochtief would continue to abide by their undertakings and subsequently asked Johns to consider resigning, telling him that he no longer had Hochtief’s support.”

Now that the Labor leadership issue has apparently been settled for good, The Herald Sun’s Terry McCrann is keen to focus on the moment in six weeks where Treasurer Wayne Swan will tell us the truth about the budget’s position.

“Well, at least the half truth, that has been bleeding obvious to everyone else, that the budget is deep in deficit. Just before Christmas, he finally 'fessed up to that. But did he bring out new numbers to tell us the full truth? No way. Until budget night, the only official figures we have are still those in the mid-year budget update, which was rushed out early in October, when Swan wanted to keep lying that the budget would get into surplus.”

Fairfax’s Ross Gittins makes the point that both sides of politics are engaging in budgetary dishonesty.

Meanwhile, The Australian’s economics editor David Uren offers a variety of input factors to consider when judging the rise and fall of productivity. It’s a good piece if you’ve ever read a story that stupidly isolates one factor and then claims it as the explanation for productivity movements.

Productivity: It’s a complicated beast.

Elsewhere, The Australian’s Robin Bromby has picked up on some industry word that speculative investors (we’re talking the average punter focused on resources stocks, specifically), have hit a bit of a wall and are having to cash out to meet their expenses.

And finally, The Australian Financial Review’s Chanticleer columnist Mike Smith notes solemnly that on the same day that two well respected ministers resigned, four Australian business leaders were calling for “inspirational” government leadership.

A week is a long time in politics. Let the new one begin.