Hochtief’s interference in Leighton’s proceedings have been interpreted as a breach of the company’s governance model, resulting in the resignation of three senior employees
The chairman of Leighton Holdings, Stephen Johns, has – in March of this year – resigned amid an ongoing relationship breakdown between the independents and the group’s majority shareholder, German construction company Hochtief.
Johns, as well as non-executive directors Wayne Osborn and Ian Macfarlane, have handed in their resignations in light of their views being that Hochtief “no longer supports an independent board at Leighton,” as was stated by the company to the Australian Securities Exchange.
The departure mirrors similar circumstances to have played out in 2011, wherein then Chairman and Chief Executive of Australia’s largest construction group, David Mortimer and David Stewart respectively, stepped down within 24 hours of each other.
Daniel Smith of ISS Governance said of the resignations: “when three directors resign in protest, it suggests that Hochtief is exerting undue influence on the workings of the board.” John’s resignation is thought to have been an immediate response to executive chairman Marcelino Fernandez Verdes, an ACS executive and representative on Leighton’s board, having dictated the appointment of a new independent director. “These actions gave rise to serious concerns that Hochtief no longer supported the important principle of Board independence,” as stated by Johns.
The recent issues to have permitted the resignations are to the contrary of the corporate governance framework agreement with ACS in November of 2010. In which, Leighton claimed to “enshrine” arrangements specifically designed to preserve its independence and the interests of its minority shareholders.
Hochtief currently holds a 54 percent stake in the company, though has previously allowed for a significant degree of autonomy in how the company’s operations have proceeded. At present, Hochtief’s stake in Leighton account for approximately 90 percent of its entire market capitalisation, though relations with Leighton have experienced a sizeable degree of strain since the German group was taken over by Grupo ACS in 2011. Mortimer said that: “We believe that ACS’s agreement to provide certain governance undertakings should protect and enhance value for Leighton’s many stakeholders and specifically its minority shareholders,” in his expanding on his reasoning for leaving.
Since the resignations, Goldman Sachs have persisted that it hasn’t changed its valuation on Leighton’s stock. Analysts Nathan Reilly and Will Charlston maintained that they would “continue to monitor Leighton’s corporate governance situation,” keeping a watchful eye on Leighton’s promise to continue operating under an independent board and management.