It seems that rarely a day goes by where the construction industry isn’t making headlines recently.
Since Carillion’s infamous fall from the top, fears for the security of the remaining construction giants are mounting, and people are keeping a close watch on how they will deal with the fallout.
It was announced last month that Interserve is under close scrutiny from the government amid profit warnings, Galliford Try last week shocked shareholders by asking for a £150m fundraise (knocking the share price down by 18.2%) and Skanska launched a massive restructuring that will cost 3,000 jobs as the group broadcast the details of its own financial woes. And this is just to name a few.
One thing all these struggling companies have in common – they are all publicly traded companies.
This is not to say that privately owned limited companies are not facing the same tough times as the rest of the market. Far from it. Just this week Lagan Construction Group sent four of its arms into administration and Laing O’Rourke have delayed the filing of their 2017 accounts, raising concerns.
The difference is that the Limited companies don’t have the added pressure of a panel of shareholders eagerly waiting to find out the dividend they will be taking home or what the share price is trading at today. Reporting the big losses that are all now coming out of the woodwork means somebody’s head is on the line.
As a result, this culture of “aggressive accounting” as the House of Commons so tactfully put it, has been allowed to foster in some contractors.
In a lot of industries, the strict financial reporting and auditing plc’s are subjected to would highlight critical financial issues sooner rather than later. But in the construction world, with major projects lasting 4+ years, there is a certain level of flexibility as to what is reported and when.
It can be very tempting to recognise a nice chunky profit at the start of a scheme as opposed to when it is actually certain. Similarly, why report that unexpected loss in the first year of a project? Surely things will turn around before completion, right?
But in the long run, this flexibility isn’t giving an accurate picture of the company’s health, which is why between 2012 and 2016 Carillion paid out £376m in dividends, yet its cash from operations was just £159m*.
In contrast, for Limited companies, they don’t need to make announcements to the stock market and there is little incentive for them to hide losses allowing them to deal with the issues as they arise – hopefully before things get out of hand.
Financial motivations aside, people are looking at these big Plc’s in a new light, and from a candidate perspective, there are certainly some downsides (and upsides) to working at a plc as opposed to a private company.
What are the main differences from a candidate perspective?
1. Short term vs Long term views
Publicly traded companies have access to significantly more capital than their private counter parts, and this will attract candidates looking for access to the big, prestigious major projects. However, with the big financial input comes short term targets, and many plc’s will focus on the immediate share price impact of a decision rather than the long-term. Ltd’s tend to have a longer term outlook and as a result slightly less turnover in their executive teams.
2. Management style
The focus on share price and financial reporting often results in more CEOs and MDs from accounting backgrounds at plc contractors. This creates a distinct culture within organisations which when combined with the frequent structural changes in acquiring and divesting different arms of their business, isn’t for everyone.
Limited companies are usually run by CEOs from an operational background and tend to benefit from more of a family feel, with shareholder’s objectives very closely aligned with the goals of the business.
3. Decision making
Large plc’s often come with the drawback of added bureaucracy. This can make decision making a lengthy and drawn out process which can restrict entrepreneurial instincts.
4. Prestige
Whether deserved or not, having ‘Plc’ at the end of a company name can add standing and prestige. There is a sense of status about a plc that its private company counterpart just doesn’t quite have – particularly when the added capital means that plc’s have a significant advantage when competing for major projects.
Whether a plc or an Ltd, the construction sector is having to face some major challenges. But it’s not all doom and gloom, the shake up across the industry is also providing businesses the opportunity to review their current models and make changes, if you are looking to make any changes to your senior teams, get in touch HERE to see how we can help.
* http://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-8206
