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James Hardie (ASX:JHX) terminates CEO after code of conduct breach

James Hardie Industries plc (ASX: JHX) has terminated its CEO Jack Truong after he materially breached the company’s code of conduct.

The building suppliers share price has sunk 5.29% after the news to $50.94.

Absence of “operating with respect”

In a six-page release to the market, the James Hardie Board explained the termination and the historic events preceding today.

Mr Truong is credited with James Hardie strategic transformation since his appointment in 2019.

However, employees have raised concerns about his work-related interactions.

The Board initially employed a third-party consultant to conduct due diligence and retained outside counsel.

Opportunities were provided to Mr Truong including training to improve conduct.

Additional complaints were raised after this process. After direct input from executives, third-party consultant surveys and additional information, Mr Truong was terminated at today’s board meeting.

“…Mr. Truong’s conduct, while not discriminatory, extensively and materially breached the James Hardie Code of Conduct…The Board took this action to uphold the Company’s core values, including Operating with Respect…”

He will only receive statutory entitlements and forego his long-term incentives.

Current independent non-executive director Harold Wiens will step into the role of Interim CEO while a replacement is found.

Additionally, Chairman Mike Hammes will become Executive Chairman to bolster the leadership team.

Finally, Sean Gadd has been promoted to North American President.

Earnings upgrade

While most of the attention will be focused on the CEO termination, James Hardie also upgraded its FY22 profit estimate.

“Based on the continued, strong execution of the global strategy across all three regions and the expectation for continued residential and market growth in the USA, the Company is raising its guidance for fiscal year 2022”

Management expects FY22 adjusted net income in the range of US$605 million to US$625 million, compared to the prior range of US$580 million to US$600 million.

FY21 adjusted net income was US$458.0 million.

My take

It’s rare to see such clarity in announcements surrounding a CEO termination.

Often a generic explanation is provided such as “personal reasons” or “differences of opinion”.

Despite the share price falling 5% today, I think the move to publicly call out poor governance conduct will ultimately lead to the market holding James Hardie and its management team in higher regard.

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At the time of publishing, Lachlan does not have a financial or commercial interest in any of the companies or funds mentioned.

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