Fletcher: End of an empire

By CARROLL DU CHATEAU and WARREN GAMBLE

Last week when shareholders voted to sell Fletcher Energy to Royal Dutch Shell/Apache, they signalled the end of a family empire that spans a century.

Over 92 years, three successive generations had built a conglomerate which, at its finest hour, was the largest, most powerful company in the country. The only multinational on the New York Stock Exchange - and holding the nest eggs of thousands of New Zealand families - Fletcher Challenge was a national icon.

Today, debt-ridden and and playing out the old adage that the first generation makes a company, the second keeps it and the third loses it, Fletcher Challenge has been reduced to a shadow of its former glory. The Norwegians have got paper, the Dutch energy and the Chinese will possibly get forests. New Zealand will be left with the ashes of an empire.

The story started with the drive of pioneer settler James Fletcher (1886-1974), the sixth of 14 children, born in Kirkintilloch, near Glasgow. He arrived in Dunedin in 1908 with a bag of tools and a couple of pounds in his pocket. He was 21.

By the time he died in 1974, the company he founded was constructing and producing almost everything needed for every type of building - from houses to office blocks, factories and museums. He had also founded the country's first pulp and paper company, bred brilliant racehorses and fathered a daughter and two sons.

Charismatic, warm and close to government after forging a lifelong friendship with Peter Fraser and Walter Nash on the Auckland to Wellington express, James had vision. He was convinced that the way out of the terrible depression of the 1930s was to keep people working, fulfil their needs and stimulate the economy at the same time.

His scheme was state housing - small and sturdy houses with three bedrooms for the four-child families of the day. They were brick and weatherboard constructions with small windows.

Despite the conventional wisdom that he built his fortune from it, James' budget-house business (won by submitting the lowest tender) lost the company so much money (around £250 a house) that his brothers, who were by then his partners, insisted he move state housing into a separate company. True to form, by the end of the state-housing boom in Auckland James had found a way to make his project pay.

His other big idea was vertical integration. The company became its own supplier, moving into brick, tile and steel manufacturing, introducing new technology almost as soon as it was tested overseas.

He bought timber mills, a concrete-production business and a marble quarry. Over time these became the core assets of the company, which was publicly listed as Fletcher Holdings, with James its executive chairman, in 1940.

A war-stricken government spotted his talents and co-opted James to become commissioner of defence construction. The job proved two things about James: one, he could push through projects at amazing speed; two, he was deeply ethical, resigning from his chairmanship of Fletchers to avoid any chance of collusion.

He returned to private industry in 1944 as chairman of Fletcher Holdings and was knighted in 1946.

Fletcher Holdings remained very much a family business. By 1942 the board included not only three of James' brothers, but also his two sons, notably James junior, also known as JC, who replaced his father as managing director.

Like his father, JC was a warm, charismatic character with a dollop of the common touch. He was also a cunning and brave businessman.

Soon he moved his family from Dunedin to Auckland, into a house sitting on volcanic rock, just a few hundred metres up the road from the company headquarters in Penrose.

Built by the Scotts brothers, the graceful, solid, kauri house with its three-sided veranda was the Fletchers' home for more than 30 years before JC and his wife Margery offered it to their son Hugh and wife Sian Elias, now Chief Justice, when they were expecting their first baby. It is still typically modest - today, when most millionaires' gates suggest palaces behind, the Fletchers' gate is just a gate.

Probably the same gate was swinging open in 1952 when Fletcher Holdings joined with the National Government to form Tasman Pulp and Paper. Centred on a newsprint manufacturing plant at Kawarau, it was designed to process the wood from the Government's Kaingaroa Forest.

It was a bold and expensive move and once again the family's relationship with government - and government's trust in the family - proved invaluable. Although Fletcher Holdings had only a minority stake in Tasman it scored executive control. Sir James became chairman and by 1960 the plant was responsible for 20 per cent of the country's exports. Five years later, when he was 79, Sir James resigned and JC took the chair.

It was not until the mid-70s when labour problems and government-imposed newsprint prices landed Tasman in trouble, that the family first fell foul of government - in the squat shape of Prime Minister Robert Muldoon. Muldoon blamed JC for the company's problems. JC blamed the Government.

In December 1979, aged 65 and after 37 years at the helm, JC stepped down as managing director of the Fletcher Group in favour of his second son, Hugh. He had turned a relatively small construction company with capital of $500,000 into a diversified group with capital of more than $32 million. He was knighted four months later.

Although JC remained chairman, the company lost the flavour of a brilliant businessman who had built it into a national icon, run in the family style that suited the job-for-life ethic of the day - and now dismissed as patronising. "We worked on the principle that our office doors were always open," says JC. "Anyone could come in at any time if they had a problem."

In 1942 the company introduced a superannuation scheme for salaried staff, followed by a subsidised cash accumulation scheme for "the girls" - an hourly workers' scheme that guaranteed a £300 payout on death (worth a year's salary) "which we then made a retiring allowance," and £5 for every child born to an employee.

JC also started the Fletcher Trust, which gives away around $1 million a year. Its projects span areas as diverse as cochlear implant operations for deaf children; Fletcher's famous free business mentoring scheme, which will this year organise mentoring for around 4000 businesses in trouble; and the Young Enterprise and Prep schemes, designed to teach school children about business and money.

Then there was Fletcher's New Zealand art collection, started by JC and George Fraser "to get something decent on the walls to replace the girlie calendars." Today the Trust's top 10 paintings alone ("after a recent cull we got the collection down to 800") are valued at $2 million.

The succession of Hugh, the second, rather than the elder son Jim, caused some comment. Jim, three years older than Hugh, had worked his way up the Fletcher ladder for 16 years, but missed out on the managing directorship to his younger, brilliant brother in 1979 at the request of group senior executives.

In understated Fletcher fashion any sibling rivalry was played down. The most allowed by his father was that any disappointment from Jim at Hugh's succession was natural and had been talked through. But in 1982 Jim left the family firm to head another New Zealand corporate institution, Dominion Breweries.

The conventional wisdom at the company was that Hugh's academic and business excellence made him an obvious heir apparent, and Jim decided to leave to fulfil his dream of becoming a chief executive.

A Fletcher insider said there was also speculation that the 1981 merger with stock and station agents Challenge Corporation had created tension between Jim and some of the new Challenge management.

At DB, Jim took the reins from 87-year-old patriarch Sir Henry Kelliher. He initially won praise for his shake-up of the brewery giant and played up his rivalry with fellow brewery leader Douglas Myers, head of Lion.

Stories of the time described him as having a "new-wavish hairdo and a breezy" manner. He favoured the outsized glasses also worn by his brother Angus. But in December 1986, three months before his five-year contract expired, Jim resigned from DB during the amalgamation with Magnum Corporation. In the next few years he held directorships with consulting, property, insurance and horticultural companies.

In 1989 he married a second time, to Bronwyn, and two years later they had a son, Roderic. He had two sons from his first marriage, Jim and Richard.

Jim rejoined the family business as executive chairman of Fletcher Construction seven months before being murdered at his beach house in the Bay of Plenty on New Year's Eve, 1993. He had confronted four burglars in the lounge of the modest Papamoa Beach home and was stabbed through the heart with a bread-and-butter-knife.

Fifteen-year-old Siale Fotu, a Te Puke youth, is serving a life sentence after being convicted of the murder that devastated the family and shocked the country.

Known as "Gentleman Jim," or "JR" - his second name was Roderic - Jim's business approach was a far cry from the ruthless JR of television's Dallas fame. Former Fletcher executive John Hood told the more than 1000 people at his funeral that Jim was instinctively people-oriented, and at all times a gentleman.

Youngest brother Angus, the forgotten Fletcher, ended 28 years with the family's building and energy groups in January. He joined the firm from university, working his way up to head its house-building arm, Fletcher Residential, in the 1980s.

At the end of 1989 he became corporate affairs director of the newly acquired Petrocorp, later the Fletcher Energy group. For the past two years he has been back at head office.

A promising cricketer in his youth, Angus Fletcher played a straight bat to the Herald, declining to comment on his future or the end of an era. "I retired from Fletcher Challenge at the end of January so that's really all there is to the matter," he said.

Asked about his future plans, he said he had private business interests, but did not want to talk about them. Then he signed off with the trademark Fletcher politeness: "I haven't got any comments to make, but I will read your article with interest."

His public profile has always been thin, eclipsed by that of his wife, former National MP for Eden and now Mayor of Auckland, Christine Fletcher. In a 1993 speech he co-wrote with his then parliamentary wife and delivered to the Auckland Employers' Association he made light of the family's changing reputations.

"Before the last election, the New Zealand Herald, whenever it commented on Chris, always led its article with 'Chris Fletcher, sister-in-law of Hugh Fletcher, managing director of Fletcher Challenge.' So some of these comments should be attributed to 'Angus Fletcher, who is married to Hugh Fletcher's sister-in-law."'

That speech, backing MMP, also caused a minor political stir; the only episode approaching controversy in Angus Fletcher's public life. It criticised the National cabinet of the time as having a disproportionate number of farmers or politicians from provincial areas, and few with tertiary qualifications.

"You won't get exceptional people in my opinion working their way through the current system," Angus said.

In a 1998 Metro article on her mayoralty bid, Christine made an intensely personal revelation: she disclosed that her husband was a recovering alcoholic, who had received treatment at Hanmer Springs and in Australia during the past decade.

The decision to appoint the boyish-looking, Kings College (Auckland) and Stanford University (California)-educated Hugh Fletcher brought huge intellectual capability and education to the company. He did not, however, have either his father's or grandfather's people skills, or in time, passion for the business.

Surrounding himself with press officers and assistants, he was way out of step with the Business Roundtable of which Ron Trotter was chairman. At heart he was a liberal who had big problems with the Government's dismantling of the welfare state on which his grandfather and father had built the company.

A Fletcher insider, who did not want to be named, said he had never detected sibling rivalry between the three brothers.

"I don't think it has ever been an issue between them. I have never heard them speak ill of each other, in fact I have never heard them really take it to someone, either behind their back or directly.

"They are good citizens, they genuinely care about the country and their community."

Within 18 months of Hugh becoming MD, Fletcher, Challenge and Tasman merged to become New Zealand's biggest company. There followed a brilliant decade.

In the early 80s Fletcher Challenge had replaced NZ Forest Products as the country's largest listed company, a position it held until Telecom listed in the early 90s. During the 80s it was the only New Zealand company listed on the Australian, London and New York Stock Exchanges and profit soared from $87 million in 1981 to $662 million in 1990. Hugh was appointed to the New York Stock Exchange and to Merrill Lynch's prestigious International Committees.

During the 1990s, however, Fletcher's fortunes flipped. In 1992 the company recorded a loss of $158 million, caused by depressed pulp and paper prices and a decision to spend huge amounts of money on UK Paper and the rest of its paper, pulp and forestry sector. It was also hard hit during the Asian crisis.

By then the New Zealand public expected a lot from their biggest, most famous and reliable company. When it lost money they were horrified. And when Hugh Fletcher and his team brought in complicated and elaborate share schemes to get them hooked again, they were confused.

Many who saw Fletcher Challenge as a stable company, with profits in one sector offsetting downturns in another, lost interest. And, explains JC, who did not agree with splitting the company, "once that happened it actually made it inevitable that the larger units should pass to overseas buyers." Why? "Before, no one wanted to take on the whole group. Divided, they were tempting targets."

By then of course, Hugh was out. Tiring of the corporate grind, the constant travel and the responsibility, he wanted more time with his two sons, Ned and Ben, buying his meat and vegetables in nearby Ellerslie village, riding his horses to hunt in Pakuranga as his father did before him, running his racehorses, enjoying himself.

Last year his and Elias' mare Pravda won the President's Cup at Randwick, Australia. This year his father, who has raced horses since 1934, hopes to take him on with his mare Forfar, which won the St Ledger at Trentham last Saturday.

At the time of his early retirement three years ago, at 50, it was obvious that he was excited to be getting out of the business world. "I've spent a third of my life as a student, a third as general manager - and now I'm getting a crack at what I really want to do."

He was also jubilant about the success of his restructuring "We are the only stock in the Southern Hemisphere to do it. And it's been a screaming success ... not only has it dramatically improved the value of some stocks, but it has energised the whole company."

What he didn't mention was that the separated companies were also ripe for takeover. Fletcher paper was sold to Norwegian firm, Norske Skog, last year. Last week Royal Dutch Shell/Apache wrestled control of Fletcher Energy from Peak Petroleum and Central North Island Forest partnership (jointly owned by Fletcher Forests and the Chinese company Citic*) was put into receivership by a consortium of 12 banks, leaving only Fletcher Construction and Rubicon (the company's biotech, gas and retailing arm) still trading.

Last week ANZ bank research said that Fletcher Challenge destroyed around $8.5 billion of shareholder wealth by "getting into the wrong businesses, paying too much for them and failing to make proper adjustments when that became evident."

Meanwhile JC, who at 86 still usually arrives at work at 7.30 every morning - and whose first great-grandson, Oliver, was born three weeks ago - is typically philosophical. He defends his son Hugh, talks fondly but matter-of-factly about the murdered Jim - and a great deal about the lack of long-term investment money available in New Zealand today.

"If you wanted to build a Tasman today it'd take you up to 10 years to get through all the resource consents necessary to get things started. Say it was going to cost $1 billion. In order to finance that you'd need half the equity and investors wouldn't get a dividend for 10 years. Who on Earth in New Zealand could afford that?

"If we want to bring New Zealand back to its rightful place, there's got to be more opportunity for new New Zealand companies to be introduced." JC brings a different perspective to the current browbeating about Fletcher Challenge's terrible performance over the last few years.

"It depends what darned 10 years you're talking about," he says, between sips of water. "I've been a shareholder from the beginning and I've done very well out of them.

"What gives me heart is that there are still some opportunities to build new industries, introduce new products. If we can maintain sufficient ownership and the headquarters in New Zealand I can't see why we can't start again."

Despite 92 years of hard slog, the family is not spectacularly wealthy in the style say, of Hugh's contemporary Douglas Myers. Possibly Sian Elias is now the biggest earner with her $285,200 salary as Chief Justice and both Ned, back from two years at Oxford, and Ben, working in law, are unlikely to move into the family business.

Says JC: "The family shareholding is insignificant. Hugh had a relatively big holding at the split, but that's going to the boys in a family trust."

Meanwhile Hugh, who now describes himself as semi-retired, declined to comment. "Why would I, with all the rubbish that's going around at the moment?"

All he would say was that he is doing a "little bit" of work at Auckland University and that he and Sian have bought a three-quarters share in Lake Station 50km down a dirt road west from Hawarden, in north Canterbury. The 8000ha property with its five lakes, native bush and birds, rivers, rainbow and brown trout, salmon, mountains and wild deer has three air strips, runs 800 head of cattle and 12,000 sheep.

Although Elias' huge work schedule means the couple won't settle there for a while, they plan to build a house there in the next two years.

Whether Fletcher Building, will get the contract is uncertain.

* This is a version of this story. The original version incorrectly stated that Fletcher Forests had been placed in receivership.