By Simon Evans
James Hardie Industries investors say the company should appoint a chairman untarnished by its ill-fated decision to buy American decking giant Azek in a $14 billion deal, after they took less than 20 minutes to sweep the incumbent Anne Lloyd and two other directors off the board.
In an unprecedented show of shareholder anger after months of growing disquiet, fewer than one in three votes were cast in favour of retaining Lloyd as James Hardie chairman at the annual meeting in Dublin on Thursday morning. Investors had fumed for much of the year that they had not been given a say on one of the company’s largest-ever takeovers.
The Azek deal was followed closely by an earnings downgrade, and investors have been smarting over the decision by Lloyd, an American, not to bother visiting Australia to meet with shareholders. Lloyd was ousted alongside two others: Rada Rodriguez and Peter-John Davis.
Investors and influential governance advisory firms – all of whom had recommended their institutional clients vote against Lloyd – are urging James Hardie’s board to look for a fresh face, although they are split on who that could be. Some pushed for Jesse Singh, Azek’s chief executive, who was elected to the board with 98.2 per cent of votes cast in his favour, to be given the chairmanship, given the importance of integrating the business.
Wilson Asset Management portfolio manager John Ayoub said that although James Hardie would ideally find an external chairman, the practicalities suggested that the best pick for the job would be Singh.
“He has the ear of the US shareholder base. He has built a successful business in Azek,” Ayoub said. “That’s not to say that Australian shareholders would support such a move.”
Preston Hamersley, the founder of Indian Pacific Funds Management, said it would be difficult for a chairman to come from outside the company, but the work of repairing relations with investors could not be started by a current director. “Everyone internal is tarnished. It will be a hard one to take on, given the damage is now done and can’t really be unwound,” he said.
Lloyd unrepentant about Azek acquisition
Despite the outsized vote against her – an unprecedented rejection of a board of a company on the S&P/ASX 200 – Lloyd was unrepentant about the Azek acquisition. She had been chairwoman for three years and a director since 2018, having previously been an executive at Martin Marietta.
“The board acknowledges the significance of these outcomes and will engage with shareholders to understand the feedback received,” she said, insisting that the deal to buy Azek was the right thing to do.
“We are poised to drive long-term growth and success. We have always acted in the long-term interest of all James Hardie stakeholders.”
The annual shareholder meeting lasted all of 17 minutes, with no questions from investors, given that it was held in Dublin. ASX-listed James Hardie moved to the Netherlands in 2001, which it said was to position it for international growth. Critics accused the company of making the move to minimise how much it had to pay to victims of the cancer caused by its asbestos products. It moved to Ireland in 2010 in the hope of lowering its tax bill.
Lloyd had expected a significant backlash, given advisory firms from CGI Glass Lewis to Ownership Matters had recommended voting against her.
Ownership Matters’ Dean Paatsch said the vote was a damning result for a company that had lost the trust of its shareholder base.
“The board has been deemed not worthy of investor trust. I’d interpret this as confirming a diagnosis of an ailing patient. They have gone out of their way to get every type of shareholder offside,” he said, adding that James Hardie needed to conduct a comprehensive overhaul of the board.
“The worst of all outcomes after the defenestration of the three directors, and the emasculation of two other directors [Howard Heckes and Gary Hendrickson] would be that the board tries to dig in,” he said.
Heckes and Hendrickson were narrowly re-elected, with 44.6 per cent and 41.5 per cent of votes cast against the two men, respectively.
The Australian Council of Superannuation Investors, which represents some of the biggest retirement savings managers in the industry, said the result was a sign that significant change was needed at James Hardie.
Ed John, executive manager of stewardship at ACSI, said an external appointment as chairman would be crucial. “It’s really up to shareholders to now find a cleanskin to come from outside,” he said, adding that the required board renewal could not come from within the company.
Australian investors still account for more than 60 per cent of James Hardie’s share register, even though it moved to having full ordinary shares trading on the New York Stock Exchange after the Azek deal. James Hardie now generates about 80 per cent of its revenues from the United States.
‘Anne is a courageous woman’
The company’s shares finished 3.07 per cent lower on Thursday at $32.83. The stock is down 36 per cent since the Azek buyout was first announced in March.
In an interview with The Australian Financial Review earlier this week, James Hardie chief executive Aaron Erter had urged investors not to take their anger out on directors because it would create instability. “Anne is a courageous woman because this deal, you know, took some courage to be able to go out and believe in the prospects for the future,” he said.
James Hardie’s executive remuneration report also received a 66 per cent protest vote. While this amounts to a second strike against the company, it did not have to put a vote to spill the entire board to shareholders, like other ASX-listed groups, because it is domiciled in Ireland.
Citi analyst Samuel Seow said he was “cautiously optimistic that we may have seen the low point in terms of governance concerns” and investors had made their views known “without damaging board experience too much”.
Seow said either Heckes or Hendrickson could be the company’s next chairman, “albeit an external candidate may have better optics given a near majority voted against both directors, and all major proxy advisers recommended against them over perceived conflicts”.
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