The push to weaken director’s liability is continuing, with former high-profile director, John Ralph, telling the AFR that he wouldn’t join company boards if he were retiring today. Ralph stated that “it seems a lot more fun to go into private equity where you can just get on with things.”

Ralph’s sentiments support the views espoused by the Australian Institute of Company Directors (AICD), which is in the midst of preparing a report regarding director’s liability. Also speaking to the AFR , AICD boss, Ralph Evans noted that:

There are a number of instances under state occupational health and safety laws where there is a presumption of guilt under certain circumstances [and that] if people do the right thing, they should have a codified defence in the course – that doesn’t currently exist.

Crikey contacted the AICD to enquire as to specific instances of public company directors being unfairly held personally liable. The AICD were able to point to two cases which supported the contention that directors’ face undue onus.

The first case the AICD referred to involved a New Zealand based CEO (and director) who was held liable for an explosion which killed a worker in New South Wales. While holding a director who isn’t in the country liable for an explosion seems harsh, the case revolved around an executive director and CEO (rather than a non-executive director). The penalty imposed was the relatively meagre sum of $22,500. Further, directors’ indemnity insurance is able to specifically cover OHS liabilities, so it is likely that the CEO in question wouldn’t have been personally liable for the fine in any case.

The second case relied upon by the AICD involved the prosecution of a trucking company director after the death of an employee truck driver. Evidence presented in the case before the NSW Industrial Relations Commission noted that the defendant’s company “pressured” truck drivers to deliver loads which “prevented … urgently needed sleep”, failed to monitor driver fatigue or keep adequate records and failed to educate drivers of the dangers of using amphetamines while driving.

The Commissioner noted that an analysis of the company’s systems for controlling fatigue revealed “manifest failures”, that the company “failed to ensure that driving rosters were prepared which properly or adequately took into account the effect of fatigue and sleep deprivation” and that “the Company pressured its drivers to meet delivery deadlines”. After being found guilty, the director was fined $42,000.

Given the court’s findings, and the resulting death of an employee, it seems somewhat strange that this was the best example the AICD could come up with to prove the point that directors are being treated unfairly.

It is interesting to note the contradiction between Australia’s directors club pushing to weaken laws holding directors liable for failure and the views of former GE CEO, Jack Welch.

Writing in Business Week, Welch lashed out at poorly performing directors, claiming that:

Boards frequently tolerate troublesome performance from one or two of their own. It’s simply too time-consuming or impolitic to eradicate. And that is why too many boards, in both the public and private sectors, don’t make the contribution they should.

It seems a sad state of affairs when the man dubbed the “CEO of the Century” criticises the performance of directors at the same time as Australia’s directors’ club is lobbying to have director’s responsibilities under the law watered down.

Peter Fray

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