Leighton Holdings Limited Essay

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Leighton Holdings Limited (Leighton) is a listed construction company in Australia, which is under control of Spanish Group ASC. On 24 February 2011, the company predicted a net profit of $480 million for 2010-11, but six weeks later on 11 April 2011 it warned of a $427 million loss. This remarkable reverse change of profit & loss announcement has caused an investigation by ASIC into the matters of the profit written down by $907 million. Leighton finally paid a total infringement of $300,000 for it had not complied with the continuous disclosure provisions of the Corporation Act 2001 and relevant provisions of the ASX listing rules. In addition, the company needs to engage in an enforceable undertaking of an independent consultant to review and recommend changes to its continuous disclosure procedures for three years.
The chairman of ASIC Greg Medcraft has told that Leighton was subject to enforceable undertakings following two previous incidents of tardy disclosure, one of which resulted in a $1.1 billion write-down three years ago. This figure finally only appeared in Leighton’s revised 2011 financial reports, after the projects had been launched five years later. Most of those bad debts related to Australian infrastructure projects such as the Brisbane motorway and the Victorian desalination plant, but the Middle East also featured prominently. In addition, it is estimated that the Middle East operation alone could amount to almost $900 million by some analyst after energy giant Chevron recorded a further $2.2 billion cost blowdown on the Gorgon project. During the year 2011, the company also experienced significant key executives’ replacements. The chief executive Hamish Tyrwhitt and chief financial officer Peter Gregg’s departure may have frustrated investors confidences on the collection of the delayed payments, along with an ongoing corruption inquiry by the Australia Federal Police. Shareholders of the company also considered to take legal actions to protect their interests.

Management compensation plans are mainly used to reduce the agent cost which is caused by the separation of management and ownership of the company. Various methods have been introduced to align the potential conflict interests. Initially, management’s bonus has been attached with the company’s sales or profit. But soon this method found to be too weak since accounting figures can be easily manipulated by management. Later market method has been developed to reduce accounting flattering, since it is believed that share price could better represents a company’s value rather than accounting profits. This short-term methodology seems does not work well in long run because management are only being involved in short-term interests. Their departure from company might be a disaster for quickly developing companies. Then long-term share option plans have been widely adopted by many firms across the world. This method usually has a five to ten years exercise period depends on management services and company’s performance. Executives share option plan puts managements and shareholders on the same boat, their interest seems have been aligned in such
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