A little more than two weeks ago, seven non-executive directors of former asbestos producer James Hardie received five-year bans from acting as company directors and substantial fines of $30,000.
The vanquished members of the James Hardie boardroom included high-level fellows of the Australian directors club, including former Corrs Chambers Westgarth CEO Meredith Hellicar, and ex-Telstra non-executive director Peter Willcox. Several former Hardie executives, including former CEO Peter MacDonald, received far lengthier bans of between 5-15 years. In handing down the sentences, Justice Ian Gzell provided little leniency, agreeing almost entirely with the penalty requests demanded by the Australian Securities and Investment Commission.
The civil action pertained to a press release approved by the James Hardie board in February 2001, which wrongfully claimed that an asbestos trust set up to compensate victims was “fully funded” and “provided certainty for both claimants and shareholders”. It was later determined that the trust established by Hardie was under-funded by $1.8 billion.
By implication, Gzell paid scant attention to the plethora of character references from Australia’s business elite, requesting leniency for the Hardie directors. Anglo-Australian courts pay, in some cases, significant attention to character evidence in determining sentencing. In lower forums, such as the Magistrates Court, a sitting juror may decide to hand down a suspended-sentence without conviction for an offence perhaps worthy of a custodial term simply due to strong character evidence from friends or associates of the accused.
The James Hardie directors received glowing character references from Australia’s business elite. Elisabeth Sexton in The Age noted that “the NSW Supreme Court yesterday released evidence from directors and executives Catherine Livingstone, Andrew Mohl, Michael Deeley, David Higgins, Graham Bradley, John Palmer, Nora Scheinkestel, Dick Warburton, Rob Ferguson, Rod McGeoch, Stephen Porges and Stephen McClintock.” The list of character referees read like a veritable Who’s Who of the Australian directors club.
Catherine Livingstone is the cleanskin chairperson of Telstra, having previously served as CEO of Cochlear, and chairman of the CSIRO as well as a non-executive director of Macquarie Bank and WorleyParsons. Dick Warburton was selected by RiskMetrics earlier this year as Australia’s most successful director, based on a series of benchmarks, while Andrew Mohl had a successful stint as CEO of AMP before being appointed a non-executive director of Commonwealth Bank. Somewhat perversely, former BT investment banker Rob Ferguson, now chairman of litigation funder IMF, also provided a character reference, despite him heading a company that profits from funding legal action against companies who wrong shareholders.
The decision by the various business figures to vouch for the accused directors was all the more unusual given the scathing judgment of Ian Gzell, in which he was especially critical of Hellicar’s testimony, noting that the former public relations executive was a “most unsatisfactory witness” who displayed “a dogmatism in her testimony” that was not accepted.
While the willingness of the various doyens of Australian boardrooms to publicly defend their brethren is, in one sense, admirable (it should be remembered that the actions of the Hardie directors, however heartless or negligent, had little detrimental effect on Hardie shareholders), it also represents an alleged failure to understand their wider duties to society.
The privileged few who serve on Australian boardrooms (and it is a very small few, according to an ISS study, 45% of ASX100 boardroom roles are occupied by only 123 business people) should be expected to act with utmost integrity, taking into account not only shareholders, but also the community.
That almost 59 respected figures would stake their reputation to defend the Hardie directors who were found guilty of a clear breach of their directors’ duties perhaps shows a lack of understanding that their responsibility lies not merely to their own shareholders.