In the yearly general assemblies of Kingspan during 2021 and 2022, more than 20% of participating shareholders abstained from endorsing the reappointment of CEO Gene Murtagh, indicating a lack of confidence triggered by the insulation firm’s corporate governance issues. The reluctance to vote is congruent with Institutional Shareholder Services’ (ISS) guidelines, a prominent advisory firm guiding investors on business management matters, which emerged in the wake of damaging revelations regarding Kingspan’s UK insulation board business during the Grenfell Tower fire inquiry of 2017.
The enquiry stemmed from the London-based disaster and probed into Kingspan’s business conduct, raising questions about the company’s corporate culture and marring its reputation. ISS published a 2022 report highlighting that the CEO should be held accountable for this reputational damage. However, the firm later revised its viewpoint, offering “conditional support” to the long-standing CEO during the last two general meetings, recognising Kingspan’s efforts in reforming their conduct and compliance strategies. ISS, however, added that the topic would be revisited upon the publication of the final inquiry report.
The comprehensive report published recently sealed the conclusion that the Kensington council block disaster was a result of perpetual oversight by the central and local authorities, regulatory bodies, the city’s fire department, and the systematic dishonesty of companies such as Kingspan, whose products were included during the refurbishment of the tower’s exterior a year before the deadly fire occurred. The inquiry’s chair, Sir Martin Moore-Bick, condemned Kingspan in his final report for deceitfully asserting that a type of K15 had cleared fire tests, making it suitable for use on high-rise buildings’ exterior walls above 18m in height. It was revealed that Kingspan’s Kooltherm K15 insulation board contributed only 5% to the insulation layer behind the new cladding, which was unknown to Kingspan as the main supplier, Celotex, faced supply issues.
The investigation discovered that the insulation from both businesses was not primarily responsible for the velocity and spread of the fire. The primary culprit was identified as the aluminium composite material (ACM) cladding panels — a product of a subsidiary of American metal heavyweight Arconic — that were assigned to the exterior layer of the 62m tower.
The chairman of the investigation, Sir Martin Moore-Bick, was highly critical of Kingspan in his final evaluation, for their dishonest assertions about a variant of K15 passing fire tests which enabled it to be applied to the outer walls of high-rise structures above 18m. The report described the assessments undertaken in 2007 and 2008 using systems featuring K15 boards as “disastrous”, even though Kingspan did not withdraw the item amidst its internal worries.
The report concluded that the narrative of Kingspan’s evolution and promotion of K15 for high-rise applications between 2006 and 2019, is a chronicle of deeply rooted and consistent deceitfulness from Kingspan for commercial benefit and total lack of attention to fire safety. Such behaviour led to the birth and proliferation of a bogus market for insulation in UK high-rises and also led Celetox to initiate its own dishonest plan to keep up.
Though the Kingspan findings are alarming, the worst behaviours of the group’s employees had been exposed years before Wednesday’s 11am final report release.
The hearings in the closing stages of 2020 focused on a former manager at Kingspan’s UK insulation division, Philip Heath, who had become notorious from his emails in 2008. His responses to a contractor’s difficult questions regarding the K15’s safety showed clear disregard.
The reactions from the investor base were evident from the fluctuation in Kingspan’s share price on Wednesday. Kingspan’s shares rallied up by 4% within half an hour from when the report was made public, although it did slightly drop later due to a weaker European market.
As of yet, no notable call for CEO Murtagh’s removal has been perceived from Kingspan’s investor community.
Despite his father being the principal shareholder with a 14.9 per cent stake, those who have remained loyal throughout the protracted investigation needed to convince themselves, as well as their companies’ ESG supervisors carrying clipboards, that the changes instituted by Kingspan have been thoroughgoing and that the shortcomings were restricted to certain personnel within the UK insulation branch.
Major shifts have occurred among Kingspan’s investors since the beginning of the investigation, spanning more than the attention-catching events in 2021 like the sell-off of shares by former top-four shareholders Baillie Gifford, Liontrust Asset Management and WHEB Asset Management. BlackRock, Allianz Global Investors and FMR have continued to be some of its leading investors since the inferno.
The best padding for Murtagh might be found in what is truly valuable to major investors. The group’s trading profits are predicted to exceed €900 million this year, marking a rise of 165 per cent compared to the yearly result prior to the fire, propelled by an increasing demand for insulation products in the worldwide race for net-zero carbon emissions.
Simultaneously, the company’s shares have appreciated more than 155 per cent from the night the Grenfell catastrophe occurred, leading to a market valuation of over €14 billion.
As for ISS? It plans to form an opinion on the CEO just prior to the annual general meeting next year.