There are plenty of James Hardie related questions for Telstra’s
new chairman Donald McGauchie, as Jimmy Hardy (no relation) expliains.

When the new Telstra chairman and his handlers finally have the
courage to stick him up for some public exposure, he will of course be
asked a lot of questions about telephones, televisions, broadband,
services and the like.

And no doubt the headline hunters
among the media will ask about waterfront reform, relationships with
pollies, including the Prime Minister, the bush and other matters close
to Don’s heart.

But for me there’s only one lot of
questions I would like to see asked and judge him on his answers – the
reasons why he decided to join the board of James Hardie in August last

I would like Don to be asked about the level of due
diligence he did on James Hardie and its asbestos claims. Sure he
looked at the business, the building products, America, Holland, but
the big test for me is Hardie and its handling of those asbestos
claims, which could reach more than $1.5 billion by the time the dust

There’s the business of the separation of these
into a trust in 2001, then the shift of domicile to Holland later that
year. Did Don acquaint himself with all the details? Did his insurer,
or the company’s Directors and Officers (D&O) insurer discuss the
asbestos situation with him? Did the company’s legal advisers (in house
or external, such as Allens) brief him on the asbestos matters?

since then, has he separately briefed himself on matters that happened
before August 2003, and which are now subject to the Jackson Special
Committee of Inquiry in NSW?

Don was put onto a three person
board sub-committee of the Hardie board to handle the special offer the
company disclosed 10 days ago to try and cap the claims (with the help
of the NSW Government). Why did he do that?

Does Telstra have
any claims from current or former employers involving asbestos or
asbestos-related diseases? Does the membership of the Hardie board and
any claims at Telstra give rise to a conflict of interest, given that
the company would have used Hardie products in years gone by, and may
still have some in its older buildings?

And, finally, Don should
be asked if he believes in the Hardie line that it has “no”
responsibility for asbestos-related claims past 1937. Does he support
the handling of the matters revealed in the Jackson Inquiry (he must,
because he remains a member of the Hardie board)?

If he
answers yes, Don should be asked if that makes him a fit and proper
person to be chairman of Telstra, given that Hardie’s handling of its
asbestos related claims has one of the sorriest affairs in recent
Australian corporate history, with responsibilities completed
disregarded in favour of a black and white approach to favouring
shareholders and management.

Don has been part of a board that
signed off on the legal and moral approach of Hardie to the Jackson
inquiry, and the change of tactics 10 days ago, which disclose a worry
on the board that the previous hardline attitude might not be enough to
save Hardie from a monstering and legal action, and possibly damages.

finally if Don bails from the Hardie board, why, what went wrong? He
should also be judged on that performance. Financial returns and
shareholder value are all worthy goals for directors to pursue but so
too is reputational risk, the most dangerous variable for companies,
and the one insurers have grown to hate.

The reputational risk
levels at Hardie are high and rising. For example the Foundation it set
up in 2001 is approaching insolvency and the directors of it were in
the NSW Supreme Court last week seeking court approval to effectively
trade while insolvent. That is to continue to pay successful claimants
in the knowledge that the money it has to make these payments will soon
run out. The directors told the court that insurers around the world
have refused to write D&O insurance for the Foundation board, which
is a sign of how worried the insurance industry has become about
asbestos and Hardie’s way of handling its claims.

If Don remains
a member of the Hardie board, while being Telstra chairman, the
reputation of Telstra could be damaged. That is a big risk!

Click here to
see the James Hardie announcement of his appointment to the board, and
that of Peter Cameron, the Allens partner who has emerged as a major
figure at the Jackson Inquiry.

And go here for an interesting report on Hardie establishing a special three man committee of the board