James Hardie sacks CEO Jack Truong, but won’t reset culture; shares in sharp fall

Global boss Jack Truong is gone from James Hardie after conduct breaches, but the building giant’s ‘aggressive, upfront’ culture won’t change.

A global search for James Hardie’s new CEO is now on.

James Hardie says there is nothing wrong with the building materials giant’s workplace culture despite a spectacular falling out between directors and Jack Truong – sacked as chief executive and accused of “intimidating” behaviour.

James Hardie chairman Mike Hammes said the environment under Mr Truong – who joined the company in 2017 – was “too hostile” and a score of senior executives had threatened to leave.

“Jack’s behaviour was cited by the management survey of these 30 to 40 people as intimidating, threatening and not respectful of the individual,” Mr Hammes said in a frank investor call.

“The report back to us through this independent, confidential survey was the work environment had become overtly hostile as a result.” Equity analysts described the removal of Mr Truong, and the candour of James Hardie, as unprecedented – praising Mr Hammes and other directors for their “decisive leadership”.

James Hardie chair Mike Hammes.

The move underscores an increasing lack of tolerance of poor executive behaviour from boards, which are increasingly eager to appease institutional investors and activist funds with cleaner corporate governance practices.

Mr Truong joins a growing number of business leaders departing their senior positions – including Vik Bansal, who left Cleanaway Waste in January 2020, Keiran Wulff, who resigned from Oil Search in July, and Paul Brennan, who quit PolyNovo in November – over concerns about workplace behaviour and disquiet about their management styles.

In March, former AMP chief executive Francesco De Ferrari said he would leave the company after less than three years after his tenure was marred by the exit of AMP Australia boss Alex Wade and the demotion of then AMP Capital boss Boe Pahari – both for inappropriate conduct.

Mr Truong’s termination, however, did little to soothe investors. James Hardie shares fell 4.1 per cent on Friday to $51.54 as the broader market rose 1.3 per cent.

Mr Hammes said terminating Mr Truong – who was appointed chief in February 2019 – was a difficult decision but came after extensive due diligence by a third party consultant. The chairman said the behaviour of Mr Truong was not discriminatory, but had attracted criticism from up to 40 James Hardie employees.

“The root cause was not this guy is too demanding, expects too much, too unrelenting. That is the Hardie nature,” Mr Hammes said.

“He started treating people over the last few months with a lack of respect, in intimidation, fear, humiliation, publicly and privately. And it wasn’t a one meeting problem. Why? I can’t answer that question but it was there.

“This was not a chemistry problem between Jack and his senior team. It was something much more fundamental.

“Our code of conduct is to treat people with respect in all cases, period full stop, and that wasn’t happening.

“In addition, several executives notified us directly that they intend to resign or we’re actively considering doing so as a direct result of Mr Truong’s actions.”

James Hardie’s former chief executive Jack Truong.

In the investor call on Friday, Mr Hammes ruled out resetting James Hardie’s culture, known for being “aggressive” and “upfront”.

“That culture won’t change and shouldn’t change. It needs to be managed with understanding and respect for people and that’s what we’ll take,” he said.

Mr Hammes said opportunities and support were provided for “sincere change in Mr Truong’s behaviour”.

“I personally did and the board had discussions with Jack to provide him support for behaviour change, and continue to monitor the situation very closely.

“But based upon additional employee concerns raised and further extensive due diligence, over these last few months, it was clear that sincere change did not occur and Jack’s behaviour remained inconsistent with the James Hardie code of conduct.”

In a note to clients, RBC equities analysts Paul Quinn and Marcus Campeau told clients they had “never seen something like this but appreciate the board’s decisive action”. “With a workplace that had become overtly hostile, there was a risk of a leadership exodus from James Hardie,” they wrote in a note to investors.

“Therefore, the board opted to remove the source of hostility and convinced executives to remain.

“Corporate culture is the biggest risk, but the candour from executive chairman Mike Hammes and team was refreshing. Several executives that were at risk of leaving previously have now indicated that they will stay given the ongoing changes.

“In our view, this reduces the risk of a mass exodus from the company‘s leadership ranks and hopefully indicates potential for a repair of whatever damage has been done.”

James Hardie has appointed non-executive director Harold Wiens as interim chief executive. He has persuaded staff who intended to resign to stay at the company, but declined to say whether they were paid retention bonuses.

“I can assure you that they will be staying, period,” Mr Wiens said.

“I will say we have an opportunity to improve our retention situation. And we’re going to do that. I’m not going to go into any more detail than that right now.”

In a statement, James Hardie said Mr Truong’s unvested long-term incentives would lapse and he would receive “only statutory entitlements”.

Mr Truong’s departure comes after he oversaw a strategic transformation during his three years at the helm, which Mr Hammes praised while revealing a profit upgrade.

The company is now expecting full-year net profit of up to $US625m ($873m), up from the previous guidance of between $US580m and $US600m.

“Investor focus is related to whether (Mr Truong’s) behaviour enabled the impressive financial performance,” RBC analysts said.

“The increased guidance is not overly surprising, with consensus already above prior guidance of $580m-$600m at $607m … James Hardie also guided to 24-26 per cent sales growth in FQ4.”

Mr Truong was previously James Hardie’s president of international before succeeding longstanding CEO Louis Gries in 2019. Mr Hammes said at the time that the board “selected Jack following a rigorous and extensive process”.

Mr Truong’s departure comes as investors increasingly demand better ESG performance.