Bloodbath not over for James Hardie as investors sack their chair

James Hardie investors have dumped chairwoman Anne Lloyd and two other board members in an unprecedented display of anger over the board’s disastrous $14 billion acquisition of US group Azek and its deliberate actions to avoid investor control.

More than 67 per cent of proxy votes were directed against the re-election of Lloyd, and the board lost a $US1 million ($1.52 million) pay rise they were seeking at the annual meeting in Dublin on Thursday morning.

“It appears that Rada Rodriguez, PJ Davis and I have not secured sufficient support to be re-elected, and if this position remains on final tabulation, we will each retire automatically at the conclusion of the AGM,” Lloyd told the meeting.

“PJ Davis, Rada Rodriguez and I are honoured to have served on the James Hardie board. We have always acted in the long-term interest of all James Hardie stakeholders, shareholders, employees and customers alike.”

However, proxy advisers who recommended that five of the six directors up for re-election be sacked were not on the same page as the three ousted executives.

Ownership Matters boss Dean Paatsch said James Hardie’s board had “drastically underestimated” the opposition to the Azek deal and that the intensity of shareholder anger indicates the management purge may not be over.

“There’s definitely another act in this play,” Paatsch said. “The stage is set for investors to nominate fresh blood to the board to act in their interests rather than protect incumbent management.”

Paatsch blasted the board for backing the Azek deal and its deliberate design to avoid investor approval. He also took aim at the board for “having the absolute audacity, in the same breath, to make the CEO’s bonuses easier to get and proposing pay rises for the directors”.

Governance advisory group the Australian Council of Superannuation Investors (ACSI), which represents investors managing more than $1 trillion in funds, said more change is needed to remove control from James Hardie’s incumbent board.

“Directors have to come from outside to address the issue and start a rebuild,” ACSI executive manager Ed John said.

The annual meeting on Thursday concluded in 17 minutes, with the company defending its decisions and offering no apology to investors for the board’s actions.

Lloyd did not say who would replace her as chair, but a spokesman said the surviving directors would carefully consider shareholder input as they reviewed the board composition and governance structure.

“Looking ahead, we are focused on taking the right steps to drive shareholder value,” Lloyd told investors.

“At the same time, we recognise that we have more work to do to deliver on our promise to shareholders. Your duly elected board is committed to holding both itself and the management team accountable as we execute our plans to drive out performance over the long term.”

James Hardie chief executive Aaron Erter said that “we take the perspectives of all shareholders seriously” in AGM documents published on Wednesday evening.

“We have engaged extensively with many of you during the past several months and deeply appreciate all the feedback that we have heard,” Erter said.

He did not speak at the AGM, and no questions were asked by investors.

Four major proxy advisers recommended dumping the three James Hardie board veterans as well as two of the directors who joined the board from Azek. The latter had previously worked with Erter at another company.

Former Azek directors Gary Hendrickson and Howard Heckes both received votes of more than 40 per cent against their re-election to the James Hardie board.

James Hardie also received a massive strike against its remuneration report, with 66 per cent of votes against it. Shareholders also voted down one of Erter’s bonus packages and a resolution to increase board fees by $US1 million.

James Hardie shares are more than 30 per cent below the level they hit before the announcement of the Azek deal, which means investors from both sides of the transaction have lost billions of dollars. They slipped 4 per cent to $32.28 in the morning session on Thursday.

James Hardie blindsided its shareholders in March with news it was raising billions of dollars in debt to acquire the US group Azek – in a deal offering them $14 billion in cash as well as James Hardie shares.

James Hardie investors later learnt that the ASX gave James Hardie’s board permission to avoid giving them the right to approve the deal.

The group shocked the market again in August when it revealed earnings for the June quarter had sunk, with order volumes going backwards and the demand outlook for the US housing market still challenging.

US law firm Bronstein, Gewirtz & Grossman has now launched a class action lawsuit against James Hardie over the downgrade, which also attracted inquiries from the ASX.

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