AGM season has come to a conclusion with the Financial Review reporting that angry shareholders have “turned up the heat on directors”. Poor shareholder returns have led to an unprecedented spate of protest votes against non-binding remuneration reports, most notably at Wesfarmers, Boral and Valad (with close calls at Qantas and Toll Holdings). However, while shareholders been willing to vote against remuneration, non-executive directors have escaped unscathed.

David Ryan has been the chairman of ABC Learning’s audit committee since 2003. ABC’s Annual Report notes that the responsibility of the audit committee is to review “the audited annual and half-yearly financial statements and any reports which accompany published financial statements before submission to the board and recommends their approval.” It has come to light that ABC’s financial statements were incorrect, with among other errors, the company’s former auditor, Pitcher Partners, allowing ABC to book up-front ten-year cash payments as revenue. While ABC’s financial statements indicated that the company reported profits of $43.5 million in 2005, $81.1 million in 2006 and $143.1 million in 2007 — those profits were non-existent. In actual fact, almost half of the company’s centers are losing money (before its collapse, ABC announced a $437 million loss for the 2008 financial year). ABC’s audit committee failed its shareholders and bankers — David Ryan was chairman of ABC’s audit committee.

Last month, David Ryan was re-appointed as the chairman of Transurban. More than 64% of shareholders chose to ignore his performance at ABC Learning Centres. Shortly after, Ryan was re-appointed as a director of Lend Lease, with more than 72% of shareholders supporting him.

Barbara Ward, who was one of three independent directors who approved Allco’s disastrous acquisition of Rubicon, was elected to the Qantas board last week by 58% of shareholders. Less than a year ago, Ward was one of three directors involved in the approval of a transaction which cost minority Allco shareholders hundreds of millions of dollars, then resigned a few weeks later.

Despite the complete lack of accountability, some members of the director’s club appear concerned at the specter of shareholders taking any sort of action against non-executives. A leading non-executive director, Charles Macek, told the Financial Review that: “I think we are likely to see shareholders being more assertive about boards, and I think that poses some very significant challenges…how does an outsider determine which individual director or directors are not performing?”

Macek then noted that: “It would be a dangerous principle to just automatically say, if you’ve been associated with a failed company, for example, you’re going to be blacklisted.”

Macek’s views nicely surmise the notion of unaccountability which pervades the director’s club (ironically, Macek himself is no stranger to shareholder fury. Macek is on the boards of Telstra and Wesfarmers, both of whom have seen remuneration reports rejected by shareholders). Further, no one has suggested than all directors associated with a failed company should be ‘blacklisted’. Critics have targeted David Ryan by virtue of his role as head of ABC Learning’s audit committee. Similarly, Barbara Ward was part of a three-person committee who approved of a disastrous acquisition. In those instances, blame could be quite easily attributed yet, a majority of shareholders still felt that Ward and Ryan were appropriate non-executive directors at Qantas, Lend Lease and Transurban.

While shareholders have shown a begrudging willingness to vote against non-binding remuneration reports, it remains easier to escape from jail than be voted out of the directors’ club.