Dismantling a Kiwi dynasty

Hugh Fletcher’s departure from Fletcher Building this month will end a dynasty of the country’s foremost industrialists.

Mr Fletcher is the last family link to the organisation which helped shape a nation – from state houses to iconic city buildings and the Auckland wharves.

The dynasty dates back to Dunedin and 1909 when the first Sir James Fletcher (1886-1974) emigrated from Scotland with a set of carpenter’s tools and big ambitions.

Within a decade, Fletcher Brothers was established in each of New Zealand’s major cities.

The firm rose to prominence after winning government contracts to build state housing in the 1930s.

As New Zealand expanded, so did the Fletcher construction empire, building thousands of state houses and creating numerous residential subdivisions.

Sir James’ son, also James, became managing director of the company in 1942. He was a junior accountant, aged 27, with less than five years’ experience with the company but was appointed managing director ahead of his uncles.

James Fletcher junior spent his working lifetime extending the company from a builder of state houses into a diversified giant of the construction and milling industries, which merged with Tasman Pulp & Paper (another venture of Sir James II) and Challenge Corporation to create Fletcher Challenge in 1981.

The artificial conglomerate, which Sir Ron Trotter and Hugh Fletcher successively ran, was later deconstructed when conglomerates fell from grace. The rationale for being big, diverse and having a spread of earnings gave way to latter-day business theories of “sticking to your knitting” and “unlocking value”.

Speaking to NBR in 2004, the late Sir James junior maintained the big merger which formed Fletcher Challenge in 1980 was a “tragedy” because of the philosophical differences between the major players.

He instanced the concessions over control made by Hugh to the Sir Ronald Trotter-led Challenge Corporation, over which Hugh agonised at the time.

And so Sir James junior viewed the break-up of Fletcher Challenge in the late 1990s as a good result, out of which an increasingly successful Fletcher Building company was reborn.

Diversified fortunes under Hugh Fletcher
Presiding over the carve up of Fletcher Challenge was the most controversial chapter of Hugh Fletcher’s 34-year career with the company and tenure as chief executive between executive 1987-97.

Commentators at the time said the carve-up underscored the failure of his controversial four-pronged letter stock policy aimed at unlocking shareholder value, with separate shares targeting each of the group’s four divisions – paper, energy, forests and building.

Fletcher letter stocks or target shares, introduced in 1993, were Hugh Fletcher’s answer to attract international investors to the group. The idea was that, with discrete businesses which would appeal to investors looking for different characteristics, there would be greater recognition of the value of each division.

Proponents of the scheme argued the sum of the company’s parts was greater than the value given the group by the market.

But not all the directors saw it that way.

Rod Deane, then a recent recruit to the board, was among those who thought it could be a halfway house to complete separation. And among investors and financial analyst there was scepticism from the start.

For one thing, the group faced the immediate accusation it was protecting itself from takeover. That was always adamantly denied.

Former chairman from 1995-99 Bill Wilson told shareholders on a number of occasions that if anyone made a fair offer for a division’s assets the board would consider it.

Apparently, there never was one.

Tax was an issue for many in the financial community. A complete break-up at that time would have resulted in shareholders footing a huge tax bill on the difference between the transaction value and the book value of the assets transferred.

There was also concern about the capacity for one letter stock to affect the others.

By the mid-1990s, Mr Fletcher acknowledged “half the company was in an industry that was destroying value”, although only in the northern hemisphere assets.

In 1993, NBR reported Mr Fletcher had recognised the company made three big mistakes: Allowing Australian associate Jennings Group to make its disastrous foray into commercial property, buying UK Paper at the wrong time and loading up with debt in a difficult economic climate.

Soon another problem emerged: In 1996 the group was part of a consortium which paid $2 million for Forestry Corporation’s central North Island forests.

The acquisition was financed with a swag of debt and the idea was to fast track the logging of douglas fir and repay borrowings rapidly. But in mid-1997 Southeast Asian economies went into a tailspin and demand for logs dried up.

Mr Fletcher stepped down to a non-executive director role in 1997 and Michael Andrews took over as chief executive.

By December 1999 the time for tinkering had run out. A purged and slimmed-down Fletcher Challenge board met and voted to dismantle the Fletcher Challenge Group and let the four divisions find their own fates.

The break up
Once the country’s biggest and most powerful company, Fletcher Challenge was broken up in 2001.

It seemed the Fletcher family were faced with watching namesake company Fletcher Challenge sail into unpredictable waters with a future of largely foreign ownership.

At the time, family patriarch Sir James Fletcher said it was tragic the company would be lost to foreign ownership. He blamed the media and the Asian economic downturn for the demise of the Fletcher “letter stocks”.

Hugh Fletcher told NBR then that he was philosophical about the end of the company that bears his family name.

“Most empires fall apart form within. The colonies’ passion is to be apart rather than to stay together.”

Could there be another company like it? Mr Wilson, a Fletcher Challenge director for most of the group’s 20-year history, doubted it.

“When you look at establishing a major industrial in NZ today, with all the resource consents and all the other things you’ve got to get through, you'd think long and hard before you’d tackle it,” he said.

Fletcher Building one of the last green bottles left
In his later life, Sir James junior seemed less concerned about business globalisation and the increasing overseas ownership of New Zealand assets.

“They can’t take it with them and if they are making profits they are employing people and paying taxes,” he said in an interview with NBR in 2004.

"New Zealand is a small country and it cannot produce enough world-class managers for its needs.”

This week, his son had different views about foreign ownership of local companies.

Speaking to NBR ONLINE after the announcement he would leave the board at the end of the month, Hugh Fletcher acknowledged the vulnerability of any New Zealand-owned company to offshore acquisition.

“We all understand there are lots of people trying to knock you off the shelf,” he said.

“We’re just about the last green bottle left in New Zealand,” he said, referring to large, New Zealand-headquartered companies.

“If Fisher & Paykel goes, Fletcher Building is the only one left.”

All New Zealand companies are at risk of foreign takeover and tax laws are not friendly to companies being New Zealand-domiciled, he said.

But he thought Fletcher Building’s diversification would afford it some protection.

“Very few construction companies that are in steel, plastic, wood … and it’s very rare to be a contractor, manufacturer and a distributor.

“It’s a unique combination which probably makes it less vulnerable to acquisition,” Mr Fletcher said.

“Few people think they would be able to run the business better. They are right.”

A family business
Sir James junior married Vaughan, whom he first hired as an assistant accountant in 1939, and had three sons – Jim, Hugh and Angus.

All three sons worked in the firm until 1986 when the eldest, the late Jim Fletcher, left to join Dominion Breweries. However, Jim later stepped back into the family company when he became chairman of construction activities.

Jim was murdered at his holiday home in the Bay of Plenty on New Year's Eve 1993, aged 49.

Younger brother Angus, once married to former MP and Auckland mayor Christine Fletcher, retired from Fletcher Challenge in 2001 and now chairs the board of the charitable Fletcher Trust, responsible for the family’s philanthropy and guardian of one of the most significant private art collections.

Hugh Fletcher was appointed to the board of Fletcher Holdings in 1978. He was a non-executive director of Fletcher Building since 2001 and was chief executive officer of Fletcher Challenge, the forerunner of today’s company, between 1987 and 1997.

Sir James stepped down as president of Fletcher Challenge in 1990. He died in August 2007, aged 92.

The family retains few shares in the Fletcher Building empire.

“Making money wasn’t my personal motivation, but the pleasure in establishing companies and getting projects completed,” said the late Sir James junior.

“This has been a building family, first and foremost, and we wanted to create things.”

Hugh Fletcher told NBR ONLINE this week his parcel of shares in Fletcher Building was tiny, at less than 1%.

Inspiring more books than any other Kiwi company
The Fletcher companies are understood to be the most written about business in New Zealand history.

Battle of the Titans, charting the rise and fall of Fletcher Challenge, was published in 2001. Written by journalist Bruce Wallace who worked for Fletcher Challenge for seven years, it is for now the last word on the Fletcher empire.

An earlier book was about the original Sir James Fletcher (1886-1974) the Scots-born builder who moved his business from Dunedin to Auckland, converting it first into the Fletcher Construction Co (1925) and Fletcher Holdings (1940).

Titled James Fletcher: Builder and written by Neil Robinson, it charts Sir James’ spectacular rise and friendship with the first Labour government, including his appointment in 1942 to the all-important war administration posts of commissioner of defence construction and controller of shipbuilding.

The second book, Made in New Zealand: The Story of Jim Fletcher, written by Selwyn Parker, explores the contribution of Sir James’ son, James Muir Cameron Fletcher, to the family business.

Made in NZ covers the emergence of Tasman Pulp & Paper Co and the creation of Fletcher Challenge by way of a three-way super merger of Tasman, Fletcher Holdings and Challenge Corporation.

Hugh Alasdair Fletcher – more university professor than archetypal head

• Born 1947.
• New Zealand businessman and former Chancellor of the University of Auckland.
• After attending Kings College, he gained a BSc 1969 and MCom (Hons) 1974 from the University of Auckland, in addition to an MBA from Stanford University.
• Appointed to the board of Fletcher Holdings in 1978. He has been a non-executive director of Fletcher Building since 2001 and was chief executive officer of Fletcher Challenge, the forerunner of today’s company, between 1987 and 1997.
• Stepping down from the board of Fletcher Building, the company his grandfather founded more than 100 years ago, at the end of the month.
• Remaining directorships include the Reserve Bank of New Zealand, Vector and IAG New Zealand (chairman).

Hardly surprising given his strong academic background (M Com [Hons] and BSc at Auckland University and MBR at Stanford).

The mix of academia and business is an unusual combination for a New Zealand company boss, and gave him something of a contrarian reputation, which occasional put him offside with politicians and business leaders, former NBR journalist Graeme Hunt wrote in 1994.

Mr Fletcher is at heart a strategist and during his 12 years as head of Fletcher Challenge, steered the group from a New Zealand-based and heavily protected conglomerate to a sizeable multinational.

Interests outside business include horse riding, hunting and chess.

He is married to the country’s most senior judge, Chief Justice Dame Sian Elias and the couple have two sons, Ben and Ned, who have followed their mother into the legal profession.

Hugh and Dame Sian have significant investment in their horse racing interests and own properties in Auckland, Wellington, Tawharanui Peninsula and a magnificent home on the 5000ha Lakes Station high country farm near Lake Sumner.

gbond@nbr.co.nz