Where Fletcher's 'blamestorming' boss went wrong

AUT professor John Tookey focuses on the economics of the construction industry. But he says old-fashioned office politics appear to have played a role in Fletcher boss Mark Adamson’s surprise departure.

“Fletcher is a highly professional organisation and has been for many, many years,” he says.

“[But] like every other large organisation it's personality-driven, and there are always going to be personality clashes.”

He says that seems to be what was behind an email sent by Mr Adamson to Fletcher staff, in which he called the company’s building and interiors division “incompetent,” “highly politicised and chauvinistic” and “full of pompous old farts who are hierarchically obsessed” and called for 100 staff to be culled in quick order.

After the email was exclusively revealed by NBR, a number of readers praised the (now ex) CEO’s plain speaking, including Ben Franklin who posted, “I don't see any problem with his email. In an age where leaders are often rightly criticised and/or ridiculed for using impenetrable jargon, cliched management speak or ludicrous euphemisms, this is clear, direct and to the point.”

But Fletcher’s board said it went against the company’s values.

And Prof Tookey says Mr Adamson was also guilty of trying to divert blame or at least attention.

“If you’re trying to defend your position because things have gone sideways, the easiest exercise is to do some ‘blame-storming’ and find someone to take the blame and throw under the bus,” he says.

Low-ball bidding
Prof Tookey says the abusive email was inextricably linked to Fletcher’s shock $85 million profit downgrade and $220 million asset write-down, which came on the back of an earlier $110 million downgrade in March.

It was losses on projects by the division’s B&I unit that were responsible for Fletcher’ shock $110 million profit downgrade in March, less than a month after it had reported its first-half results, which had already revealed problems within the B&I unit.

The problems with various projects, including the Justice and Emergency Precinct in Christchurch and the Sky City Convention Centre in Auckland, appear to have first surfaced in September last year.

Prof Tookey says the root cause could have been overly-optimistic, low-ball bids when the projects were up for tender.

“The truism of life is that a lot of companies go bust with full order books. It’s not hard to get business. Getting the business is relatively straightforward. Making the business pay, that’s a different proposition,” he says.

"So if there is that substantial mismatch between different tenders, it strikes me that shall we say a ‘best-case-scenario’ was being pitched by the winning tender or the lowest tender, and a more realistic situation was being pitched by everybody else.

“Again, one of the truisms of dealing with the building industry is that very often the winning bid is the one that missed out the most [costs]. And that’s why a lot of large contracts or large projects, it’s very hard to actually make them pay.”

He gives sub-contractor costs as an example of where a construction company’s costs can blow out in this situation.

“If you look at a big company like Fletcher, like Hawkins, like any of the others, they’re committing themselves to project work which is two to three years of duration. How do they get a cost projected without substantial preliminary sums being put in place that are subject to revision and change as a result of the expanding market?” he asks.

“If you’re a sub-contractor, how can you cost something [when] the finishing work on a major project is in three years’ time for gib-stopping or whatever the trade is. How do you cost your piece rate in two to three years’ time? It’s almost impossible to do that.

“So actually a lot of the big organisations are struggling to find sub-contractors to fill these roles and they’re struggling to pin people down on the projected price – hence things going sideways in the way that we’ve seen.”

The hard-to-nail-down subcontractor pricing is against the backdrop of the new Sky City Internatitional Convention Centre and the the Christchurch Justice Precinct being fixed-price contracts.

So where to now for Fletcher?

“They will be looking very closely at any future work that they are taking on board and throwing substantial assets at closing out the projects that are potentially over-running for whatever reason,” Prof Tookey says.

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