Time for peace at troubled board

The fact that construction company Leighton Holdings managed to claw back some of its share value on Monday after a shellacking on Friday speaks volumes about the overreaction of investors to the sudden resignation of three directors, including chairman Stephen Johns.

The fact that construction company Leighton Holdings managed to claw back some of its share value on Monday after a shellacking on Friday speaks volumes about the overreaction of investors to the sudden resignation of three directors, including chairman Stephen Johns.

The brutal reality is board renewal at Leighton has been a long time coming. It is also the latest manifestation in the group's complex shareholder structure that changed in 2011 when its major shareholder, Germany's Hochtief, had a change in ownership.

For this reason a potted history of what has gone on at Leighton over the past couple of years helps put the latest machinations involving Johns, Ian Macfarlane and Wayne Osborn into context.

What it can't fully explain is how Bob Humphris has been elevated to the role of Leighton's new chairman.

Humphris is due for re-election at the group's board meeting on May 20 and by deciding to form a splinter group from the other three non-executive directors who left on Friday he has guaranteed himself a safe seat on the board.

There are some who believe he is a Band-Aid solution until the dust settles and a more permanent chairman can be found.

Whatever the case, Humphris has been a key player on the Leighton board in the past few years and the massive changes that have unfolded since its long-serving chief executive Wal King was forced to retire prematurely when his relationship with Leighton's major shareholder Hochtief soured.

The decision by the Leighton board to fast-forward King's retirement plans had an impact that continues to be felt. It is a decision that is believed to have resulted in Spain's Grupo ACS bringing forward its plans to make a takeover bid for Hochtief, which owns 54 per cent of Leighton. That was a bid that went hostile.

It also brought to light a dysfunctional board, particularly when some of Leighton's so-called independent directors tried to complicate ACS' bid for Hochtief by getting involved by going to the takeovers panel and the regulator.

Against this backdrop, two multibillion-dollar projects went pear-shaped, costing the company a fortune in writedowns.

In a column I wrote in August 2011, I said that since ACS took control of Hochtief in May 2011, Leighton had been waiting for the corporate version of a Spanish-German armada. It began in earnest when the new chief executive David Stewart and chairman David Mortimer left the company.

"It is inevitable that other board members will follow Mortimer, and some senior executives will also be feeling nervous at the next move of their major shareholder. Some of the most senior executives will be feeling that their demise might also be imminent," the column said.

The perception was that anybody who had sided with Hochtief in the takeover defence against ACS was living on borrowed time.

That included Johns, Macfarlane, Osborn and Humphris, who has been on the Leighton board since 2004.

Things seemed to settle down in the past year as the company started to get itself back on track and the board presented an image of a united front. However, letters released on Friday suggest that behind the scenes the board remained dysfunctional.

A board war broke out in February 2013 over a dispute about the nomination of a non-executive director and it culminated in Johns being told to resign by Marcelino Verdes, who is a long-time executive of ACS and now heads Hochtief and sits on the Leighton board.

Johns, along with Macfarlane and Osborn, stepped down on Friday, leaving Dwyer and Humphris as the last two remaining independent directors standing.

Leighton is once again trying to present a united front to staff and shareholders after the latest board controversy spilled into the public arena. But there is still a lot of water that needs to go under the bridge.

How quickly that will happen will ultimately depend on the quality and composition of the new board as it seeks to appoint up to four new independent directors.

At the end of the day the goings on at Leighton should be a salutary tale for any company that has a strategic shareholder. Hochtief has 54 per cent of Leighton and for the relationship to work there has to be a workable relationship between the independent directors, executive directors and the major shareholder.

It is a difficult path and, in Leighton's case, Hochtief at different times has had different agendas from Leighton. Three years ago, before the Spaniards were in control, it is understood to have made an unsolicited offer to merge the two companies.

The offer was never disclosed to the market and was rejected on the basis that it lacked detail and was not in Leighton shareholders' best interests.

But that is history; now there needs to be peace.

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