Getting to the heart of Fletcher’s problems
Profit downgrades at Fletcher Building have many people asking what went wrong. Former top company executive Jack Smith blames the move to a centralised management structure
When the boom overtook them, the company had neither the skilled people nor the computer programs . . . to control and keep an eye on costs Former Construction CEO Jack Smith
In 2011, the Fletcher Building board reiterated that their strategy was to progress the company as a “decentralised business model”. It is there on page 31 of the annual report.
In the following year’s annual report, Mark Adamson — who was to replace the existing CEO in October 2012 — introduced himself and stated “My immediate challenge will be to continue delivering on the strategies that we have pursued over the past few years.” However, in a few months of taking up his role, Adamson reversed his position, defied the board’s strategy and instituted a centralised business, and even boasted that he knew better than the board.
The board, having only just appointed Adamson to save them from what was, in my view, their inability to achieve a satisfactory return on their billion- dollar 2007 purchase of Formica ( having paid too much and been caught shortly thereafter by the collapse of the US housing market), capitulated and agreed to his centralisation programme, called FBUnite. Thenchairman Ralph Waters did at least publicly express the view that he didn’t agree with what Adamson was doing, but he quit shortly thereafter.
Directors Tony Carter, Alan Jackson, John Judge and Gene Tilbrook — who had earlier put their names to reinforcing the over 100- year tradition of conducting Fletcher business in a highly decentralised fashion with two- way communication — went with Adamson’s policy. Perhaps at that stage they had not realised it would also be replaced by what I regard as Adamson’s more arrogant method of control.
Cecilia Tarrant joined the board in October 2011 and Kathryn Spargo in March 2012, and can’t be held quite as culpable.
But in my view, the above four gentlemen and incoming chairman Sir Ralph Norris should have been only too aware of the risk that such a dramatic change of policy carried with it.
One tends to forget that Sir Ralph was a founding director of Fletcher Building from 2001 to 2005, and one of the initial resolutions of that board was to abandon an earlier McKinsey- suggested centralisation project.
Fletcher Holdings/ Fletcher Challenge, and Fletcher Building since its creation until the time of Adamson’s appointment, had a sound system of corporate support services without depriving the business unit heads of control and accountability for their respective business areas. It is fundamental that if you have to rely on a vital service, it must be excellent and fulfil your needs.
This centralised strategy, FBUnite, was touted as having the potential to save up to $ 100 million, and was reported as being well on its way to doing so. But one wonders if that is the case. Approximately 50 per cent of Fletcher Building business is offshore, so the savings would have to come from its NZ operations.
For example, it is hard to see labour recruitment being performed, and the legal needs met for Formica’s 20 worldwide factories from Penrose.
Did what Adamson has elsewhere called a “slash and burn” approach to head chopping count as an FBUnite saving?
The downsizing revealed in the infamous December 2016 email has received media attention. But Corporate earlier demanded a headcount reduction in late 2013. This resulted in 120 people being laid off in the construction subsidiary which was trying to gear itself up for the boom that was known to be coming.
Money, however, is not the only measure of a policy’s success.
In my discussions with the industry and Fletcher personnel, it is clear that right from the time of the introduction of FBUnite and Corporate involvement in business areas’ affairs, the morale of the loyal, proud employees of the 110- year- old Fletcher Construction company started to deteriorate.
Despite that lengthy company history, Adamson — in a rare interaction with staff — told them they had to prove they were worth keeping and pressed for higher and higher revenue targets. He was failing to get sufficient growth in the other business areas — especially Formica/ Laminex, and many of the once “golden” Australian operations were being sold off.
That personnel issue is a thing of the past, but the Fletcher Building board and the new CEO must address this strategy of centralisation and proper control of the construction company. Under FBUnite, Fletcher Construction was denied full control of — or not provided with proper assistance for — its finances; health and safety; to some extent purchasing; and the ability to obtain the best outside legal advice. Critically, it had no control of its IT and human resources services.
The manager of the beleaguered Building+ Interiors recognised in 2013 that the company didn’t have enough people, or the right people, to cope with the forthcoming boom; he voiced concerns but didn’t get the support from Corporate, whose responsibility it was under FBUnite to correct that.
When the boom overtook them, the company had neither the skilled people nor the computer programs ( again a Corporate responsibility) to control and keep an eye on costs.
There are still some good, hardworking people out there trying to get the work done. However, good, longservice, experienced people are still leaving because Fletcher’s Corporate HQ has not provided them with the necessary support and satisfying and pleasant working conditions.
The company is now turning away work on the basis that they have not got the experienced staff.
Given the right company structure and control, many of those who have left would gladly return to what was once such great company.
● Jack ( J. G.) Smith is a former CEO of Fletcher Construction, which is housed in Jack Smith House at Penrose. Smith was general manager of Fletcher Construction 1967- 73, managing director 1973- 80, executive director with responsibility for construction 1980 to his retirement in 1988, and a consultant for the company for many years after that.