James Hardie shares rose after the release of the Jackson report into James Hardie’s asbestos liabilities but there are still plenty of problems on the horizon for the disgraced building products company.
Bagged yes, prosecuted. Who knows? ASIC is still trying to get HIH and OneTel figures to the starting line in our legal system on more substantive allegations (criminal not civil), so if any charges are to flow from the Jackson Commission of Inquiry into James Hardie’s handling of its asbestos liabilities, then we will be still waiting in 2007 for action.
Here’s one report from the Sydney Morning Heraldon reaction with the good Federal Treasurer, Peter Costello sounding really, really serious.
So have the Liberals returned the Hardie donations, just as the ALP did?
The trouble is for all those baying for blood is that ASIC will have to investigate all of this again, and will then have hand its brief to the Commonwealth Director of Public Prosecutions, which will then have to review the case, then decide whether or not to prosecute.
Then it will have to go through the courts. And you can bet that which ever company provides or provides the Directors and Officers Insurance back in 2000 and 2001 to Hardie and its directors and Officers, will object to paying and legal costs. All sorts of excuses will be though up to try and avoid paying out on the policy.
But what is apparent from a reading of early reports of the inquiry’s findings is that the whole board of Hardie should be wearing this one, not just poor Peter Macdonald who seems to be a bit of a bunny.
After all, isn’t it the job of boards like Hardie’s to approve executive decisions and corporate statements.
If, as David Jackson QC says that statement to the ASX in February 2001 was not kosher, why single out Mr Macdonald, after all it was considered at the Hardie board meeting wasn’t it?
And the written statement that featured in the Jackson inquiry in February 2001 was drafted by the company publications department and was checked at a board meeting?
In his long 576-page report, the Commissioner Jackson said a statement by James Hardie to the Australian Stock Exchange on February 16, 2001, that the foundation it set to handle the claims was fully funded was “misleading and deceptive”.
“The assertion that the foundation was fully funded was made without qualification,” he said.
So if it was misleading and deceptive, what of the whole board, including the current chairman, ‘Sorry’ Meredith Hellicar?
And, Greg Baxter’s, then then head spinner at Hardie, now crafting his trade at News Ltd.
Macdonald didn’t escape censure and it hard seeing him continue at Hardie(or anywhere else for that matter). David Jackson is quite damning of Macdonald, but less so of Peter Shafron, Hardie’s current Chief Financial Officer, and the former CFO, Phillip Morley.
Jackson found that a that a statement by Macdonald that the asbestos liabilities had been “fully funded” was misleading. The statement was “false in material particulars and materially misleading”.
However Commissioner Jackson did not give a recommendation for Mr Macdonald to be prosecuted, saying “It’s now a matter for commonwealth authorities to determine whether any further action should be taken in respect of the contraventions of (the corporations law) and, if so, against whom.,”
“This is not an area where it has been possible to carry out an exhaustive investigation in relation to these aspects.” “Mr Macdonald’s evidence, on so many matters, was so difficult to accept,” Commissioner Jackson said.
“A particularly unattractive feature was his unwillingness to accept personal responsibility for matters in which he was obviously personally engaged.”
Commissioner Jackson was critical of the evidence that two key James Hardie executives had presented to the inquiry.
It also found that James Hardie’s chief executive Peter Macdonald and chief financial officer Peter Shafron had breached their executive duties.
“In so far as Mr. Macdonald and Mr. Shafron are concerned, in my view they breached their duties as officers of James Hardie,” Jackson said.
The report also said it found breaches of the Trade Practices Act.
Commissioner Jackson also said of Peter Shafron, the current chief financial officer of James Hardie. “His evidence, too, I think, was tailored to a result, though not to the same extent as that of Mr Macdonald,” he said.
However Commissioner Jackson found that a former chief financial officer of the company, Phillip Morley, was a “fundamentally honest” man.
The above comments about Mr Macdonald lead to an important question, just why didn’t the board think that was anything wrong about the statements from Mr Macdonald. They can hardly turn around and censure him(though they will undoubtedly try to do so) and try to sack him.
But I bet “Sorry’ Meredith Hellicar, the chairman, and the others go the profoundly misled route(or some variation) that James Packer and Lachlan Murdoch have been using at OneTel.
The Hardie establishment will argue that they did not get the full picture from Macdonald and the company’s advisers, including consulting actuaries Trowbridge(part of Deloitte).
And that gets us to Trowbridge whom the Commissioner also found had been misleading in the estimates of Hardie’s asbestos liabilities.
He said there could be grounds for Trowbridge to be sued for about $31 million by a foundation established by James Hardie to take over its asbestos liabilities.
James Hardie established the foundation – The Medical Research and Compensation Fund – in February 2001 in February 2001. The MRCF was provided with $293 million to meet future compensation claims.
Commissioner Jackson said he felt it was disturbing that none of James Hardie’s many advisers ever appears to have said that the company’s restructure in 2001, which cut the company off from its asbestos liabilities, was “unlikely to be successful unless the foundation was fully funded and that this was required to be rigorously checked”.
So what about Allens, from whom most if not all the legal advice sprang and Mr Peter Cameron, the Hardie director and former Allens partner(and soon to return to the firm, according to a Sydney Morning Herald story a couple of months ago? Mr Cameron is a corporate law expert and worked extensively on the Hardie deals.
So far as the fund itself, the report says that the funds provided were “significantly inadequate,” although “there was no legal obligation for James Hardie to provide greater funding to the foundation,” it went on to say.
Jackson’s finding estimated that an extra $1.5 billion would be needed and the funds of the Medical Research and Compensation Foundation would run out within three years.
James Hardie initially set aside $293 million for the foundation, although earlier this year two auditing firms Trowbridge Consulting and KPMG estimated that the liabilities would be $1.09 billion and $1.57 billion respectively.