Fletcher Building chairman Sir Ralph Norris doubled down in the face of Shareholders' Association calls for Fletcher directors to put themselves up for re-election in October.
Norris confirmed the company's poor results this week in the wake of a disastrous performance by its construction arm on the International Convention Centre (Auckland) and the Justice Precinct (Christchurch).
Fletcher Building's net profit fell 80 per cent to $94 million for the full financial year; this after Fletcher Construction chalked up losses of $292 million (primarily on the two signature projects) and the board made significant writedowns on the value of two other Fletcher businesses.
At a Wednesday press briefing to announce the financial results, Norris made it clear he was not playing into the association's agenda.
The shareholders' lobby has effectively demanded the board prostrate (my word) itself in front of shareholders at the October 26 annual meeting. But Norris was protective of directors' individual reputations during the briefing at Fletcher's Penrose HQ. He made clear that there will be changes to the board's makeup, putting that in the context of continual renewal. "We will have board members stepping down at this particular ASM, which is part of the normal rotation of directors," said Norris.
Potential candidates were being scrutinised and one addition to the board would have a construction background.
But is that sufficient when it comes to board accountability?
The Fletcher board includes some of the biggest names in New Zealand business.
As well as Norris, the directors are: Tony Carter (chairman of Air New Zealand and Fisher & Paykel Healthcare and a director of ANZ Bank NZ), who was appointed to the board in September 2010; John Judge (chairman of ANZ Bank NZ and a former chairman of EY NZ), who was appointed a director in June 2008; Alan Jackson, who was first appointed in September 2009; Kathryn Spargo (chair of ASX listed company UGL), appointed in March 2012; Cecilia Tarrant (deputy chair of the Government Superannuation Fund Authority), who was appointed in October 2011; Steve Vamos (former CEO of Microsoft Australia and NZ), who was first appointed in July 2015; and Bruce Hassall (chairman of Farmers Trading Company), first appointed in March 2017.
These directors have wide-ranging commercial experience and competencies.
It goes without saying: they also have big reputations on the line.
If the rotation is applied by virtue of seniority, the following three directors would stand down: Judge, Jackson and Carter.
There has been no signal that Norris - who came onto the board in April 2014 before taking up the chairmanship in October 2017 - intends to resign.
And while there are plenty of people baying for his blood, his track record suggests he would rather get the company back onto the track of sustainable profits and under the leadership of a new CEO before stepping down.
In my view, that is the right call.
Norris certainly has no intention of taking up the CEO's reins himself, in a repeat of the Air NZ scenario when he came off the board to lead the company after the 2001 bailout.
But aside from getting new directors in place, the board should give attention to the makeup and performance of its audit and risk committee. That committee's charter spells out that management is responsible for the identification, evaluation, treatment and ongoing monitoring of risks to the business.
It says the audit and risk committee will provide oversight to the risk process undertaken by management, and in particular: (a) review the company's risk profile to ensure that material risks to the company's business are dealt with properly and reported at least annually to the board; (b) ensure that there is a regular review and update of the company's risk profile; (c) ensure that the material business risks have been dealt with in a timely manner to mitigate exposures.
On Wednesday, Norris said the risks from the two construction projects were not identified until late last year (September).
The question is whether these material business risks should have been identified earlier.
The audit and risk committee is chaired by Judge. Spargo, Torrant and Vamos are the other members.
My soundings indicate that these directors were caught off-guard by the construction debacle.
Norris has to some degree rectified the situation by putting in place a CFO at Fletcher Construction, tightening the bid process for new contracts.
It is clear from discussions with Fletcher Construction personnel that they felt intimidated when it came to passing bad news upstairs.
Former CEO Mark Adamson has paid the price for this.
But in my view the board underperformed when it came to identifying material risks in a construction boom by ensuring tight risk controls were in place.