Time for peace at troubled board
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.
Frequently Asked Questions about this Article…
Leighton Holdings' share price bounced back after initial panic because investors initially overreacted to the sudden resignation of three directors, including chairman Stephen Johns. The rebound showed the market realized the board changes were part of a longer overdue renewal process rather than a signal of deeper crisis.
The turmoil stemmed from a long-running dysfunctional relationship between Leighton's board, its major shareholder Hochtief, and strategic decisions like the forced early retirement of former CEO Wal King. A board war erupted last year over non-executive director nominations, culminating in the resignation of key directors including the chairman.
Bob Humphris, a long-serving director since 2004, was unexpectedly made chairman after the mass resignations. By forming a splinter group with remaining directors, he secured his place on the board and is seen as a temporary leader till a permanent chairman is found.
Hochtief owns 54% of Leighton Holdings and its changing agenda has heavily impacted the board dynamics. The complex relationship between Hochtief, independent directors, and executives has often caused friction and power struggles, including during hostile takeover attempts and management shifts.
Grupo ACS' hostile takeover bid for Hochtief, Leighton’s majority shareholder, rattled the company and exposed board dysfunction. Some independent directors complicated the bid by involving regulators, which in turn intensified internal tensions and led to executive turnover.
The Leighton story is a reminder that having a strategic major shareholder requires solid, transparent relationships between independent and executive directors. Investors should watch how governance issues and shareholder disputes impact company stability and stock performance.
Leighton is working to restore unity by appointing up to four new independent directors, but the pace of stability depends on how well the new board balances its roles with the major shareholder. So, while there's hope for peace soon, some uncertainty remains.
Board composition matters a lot when a major shareholder like Hochtief holds majority control. For smooth operations, independent directors, executives, and major shareholders need compatible agendas and good teamwork to avoid conflicts that can hurt company value and investor confidence.
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