Hosking steps down at Aconex

Martin Hosking resigned as a director and chairman of Melbourne, Australia-based construction collaboration technology provider Aconex on 15 June, according to a news release on its website.

Mr Hosking will now “focus on his role as CEO of RedBubble,” having over the last seven years helped increase revenue by over 15 times. He is succeeded as chairman by US-based Simon Yencken, a non-executive director of Aconex since 2008.

The news release makes no mention of the reasons behind the resignation, but, as previously covered in this blog (1 June, 12 June), Aconex has recently been drawn into media controversies regarding RedBubble merchandise through Mr Hosking’s dual role with the two firms. The move may also placate some Aconex shareholders who raised concerns about his leadership at an EGM in January (post).

Update (17 June 2011, 22.45pm BST) – Following Martin Hosking’s resignation, I talked to Aconex CEO Leigh Jasper and new chairman Simon Yencken this evening, not long after news emerged via The Register and Australian newspaper The Age of legal proceedings relating to January’s EGM.

Regarding the resignation, Mr Hosking told The Register that his decision was not due to Aconex pressure:

“there was no pressure on me from the Aconex board in relation to this matter. Aconex is an entirely separate business and they did not have any involvement in the decision.”

But the controversy clearly angered Aconex shareholders who had demanded:

“urgent attention before Aconex may suffer further, and possibly irreversible, loss and damage to its business reputation by its association with Mr Hosking.”

In the meantime, as The Age also reports, legal proceedings have been instituted in the Australian Federal Court by Aconex shareholders, including Ian Baillieu, alleging director misconduct, including conflict of interest, by Mr Hosking before and at the EGM. The latter’s resignation doesn’t appear to have halted the Baillieu/Hawthorn Glen action; The Age reports the court application “is the first step in a process that could ultimately lead to legal action against Mr Hosking”. A court hearing has been scheduled for Monday afternoon 20 June, and The Age adds:

Mr Baillieu is seeking to inspect internal Aconex documents ”addressing the potential conflict between the interests of Mr Hosking and those of the company”. Mr Baillieu has also told the court he wants to examine Aconex records related to how the company’s board directed proxies at January 28’s extraordinary general meeting of shareholders.

The Aconex board perspective

This evening, Leigh and Simon (right) were both keen to stress Aconex’s “major achievements” under Martin Hosking’s chairmanship, pointing out the 15x growth in revenues, the successful capital raising that brought in Francisco Partners in 2008 (post), and the big push into the US market. However, it appears there was already a plan in place for him to step down, probably later this year, in line with the board renewal and succession plan mentioned at the time of the EGM.

Leigh told me RedBubble had apparently been absorbing an increasing amount of Martin Hosking’s time, and as he had already served more than two three-year terms, he was contemplating eventual resignation as a director of Aconex. Meantime, the company has been engaged in a search for a new board member(s) – its constitution allows for a board of up to nine – ideally someone with good insights into the US market. This had proved time-consuming but, Simon stressed, there was no rush to appoint new people as the company had thrived perfectly well under a five-man board prior to Francisco Partners’ investment, and seven since then.

Would the change of chairman lead to a change of strategy? Not at all, I was told (or at least it would only “evolve slowly over the next 12 months”). “We are unanimous in pursuing our agreed strategy just as we were unanimous in our support of Martin,” said Leigh.

Continuing his support for Martin’s achievements, Leigh stressed that the company had under Martin’s leadership returned to growth after the tough times caused by the global financial crisis. He repeated some points from our February conversation (see Accounting for Aconex), adding that the company had withdrawn from Libya due to the ongoing civil war in the country. He reiterated that the north American market was growing fast for Aconex, highlighting a recent new client, Calgary-based Vista Projects (news release), and talking about client testimonials regarding existing projects at New York City Hall and in Denver (videos). He echoed my view (post) that the US AEC market was waking up again to the potential of SaaS-based collaboration applications after poor experiences in the early 2000s with some US-based service providers, with BIM likely to add further impetus to collaboration adoption there and in the UK and Australia.

I asked, of course, about Monday’s legal proceedings, but neither director was willing to comment, conscious that there could be legal implications if they did so ahead of the court hearing (mention of Australian contempt of court rules effectively ended that bit of the conversation).

My view

Two main points, I think, plus a minor one.

First, if Aconex had already determined that Martin Hosking would step down this year, I wonder why it didn’t act more decisively and earlier. It could have brought forward Simon’s succession, allowed Hosking to resign, and so underlined the separation between its operations and those of RedBubble. A prompt response when this controversy first surfaced would have prevented some of the reputation damage (and gloating by competitors) that we have seen over the past fortnight.

Second, shareholder/board tussles rarely benefit either side. The strong growth experienced by Aconex throughout most of the 2000s has certainly faltered in recent years as construction in many countries was affected by the global financial crisis. Aconex has fared better than some due to the wide geographic spread of its activities, so it hasn’t seen the big revenue down-ticks experienced by one or two UK-based competitors (eg: BIW, 4Projects). But its strategy of overseas expansion away from its stronghold in Australasia and south-east Asia has taken it into markets where there is stiffer competition and which – in the case of the USA – have required significant investment to build a credible regional presence. This – as I mentioned in February – led some shareholders to wonder when Aconex might deliver on its promises of growth and resulted in the EGM.

While the shareholders’ concerns might be understandable, the EGM, the related Allens Arthur Robinson issues reported in February and the unfortunate recent Hosking/RedBubble controversy will have:

• diverted management time, energy and attention away from running the day-to-day business,
• caused additional expenditure on legal advice, and
• damaged Aconex’s corporate reputation.

If these impacts can be contained, then the damage may only be short-term, but another bout of legal action, if prolonged, won’t help disaffected shareholders achieve the return on their investments they desire, and may continue to distract the board from delivering its strategy for growth.

Finally, as a blogger and industry observer, it is difficult to avoid becoming part of the story. My main focus is on the construction collaboration technology market and I am rare in my focus on that sector. So, when a scandal erupts concerning a prominent player like Aconex, it is almost inevitable that this blog will be used by some to comment on the issues (I also received several emails, some from parties directly involved in different aspects of the controversy). I became concerned that, rather than just reporting what was happening, that the blog also became a channel for people – apparently including Aconex competitors – to voice their opinions (over 40 comments across the two RedBubble posts, to date) and fan the flames, so to speak. It’s something I will be thinking about….

Update (12 September) – Further adverse publicity for Redbubble in the Australian press (eg: Herald Sun article) suggests that, without Hosking’s resignation, the RedBubble affair could have continued to affect Aconex’s reputation.