Doubtful Justice CEO Report

  • Date:01 Aug 2005
  • Type:CompanyDirectorMagazine
Every graduate of the Company Directors’ Course knows that a director must act "in good faith and for a proper purpose". It’s the law, and only sensible, as directors often have access to privileged information. It means, among other things, that directors must not use knowledge they gain from their boards to trade in shares for their own profit.

Doubtful Justice

Every graduate of the Company Directors' Course knows that a director must act "in good faith and for a proper purpose". It's the law, and only sensible, as directors often have access to privileged information. It means, among other things, that directors must not use knowledge they gain from their boards to trade in shares for their own profit.

Everyone knows this, and a lawyer like Steve Vizard knows it better than most. AICD deplores the insider trading that he has admitted to while he was a director of Telstra. The consequence has been a civil penalty from ASIC and probably the end of his corporate career.

Many saw Vizard's penalty as light, especially by comparison with the jailing of the late Rene Rivkin for a much smaller offence of a similar kind. One can understand the complaint of Rivkin's lawyer. The reasons why criminal charges were not laid against Vizard were apparently a weakness in the evidence and the conservative approach of the DPP, avoiding prosecution if a conviction is not a near certainty.

For the regulators, this was a job completed. But for the directors of Australia, it is another disaster. Once again an isolated case has damaged the reputation of directors as a group. Thousands who act with principle and obey the law will suffer a detriment.

The brutal fact is: directors are not popular. A few bad apples give many good directors a bad name. The tall poppy syndrome is in full play. And while directors in general are not overpaid, they are mixed in the public mind with the small number of executives who earn vast sums or receive colossal payouts. These are understandably a very sensitive matter with the public, especially the large payouts that sometimes accompany failure.

Perhaps these factors lie behind a spate of new laws that give directors very rough justice.

The NSW Occupational Health and Safety Act 2000, amended this year, is an example. It makes directors and officers of companies liable automatically if a death occurs in a workplace, no matter what care has been taken to avoid accidents. They are guilty until they prove themselves innocent. The grounds allowed for defence are very limited, and there are few rights of appeal. This is rough justice, much more adverse than that faced by common thugs or murderers.

Xstrata is aggrieved for its conviction and that of the mine manager over four deaths that occurred in a very sad accident at the Gretley Coal Mine in the Hunter Valley. The company protests that it did everything it should have, but was convicted anyway. It says it is hard to find managers who will take on a job like managing a coal mine in the face of this unfair and punitive regime.

There are similar provisions in the Road Transport Act, making directors and officers not just of a transport operator liable if overloading or similar offences occur, but those of the firm that sent the goods being carried and of the one receiving them.

It is hard to fathom the logic behind these new laws. There is no sudden epidemic of accidents that suggests a need for drastic action - the statistics have been improving, not deteriorating. The idea is apparently afoot that directors will do nothing unless they are threatened with burning at the stake, or something like it.

Not only is the justice in these laws rough, but the idea of prosecuting directors and officers for offences of their companies should be questioned. It has become a fashion among legislators to pin liability on the person, not the company. This is not only in State laws but in the Commonwealth's CLERP 9, which allows for directors to be fined if their companies fail to honour the obligation of continuous disclosure to the Stock Exchange.

AICD has no problem with directors who fail in their duties being penalised severely, even sent to jail. But they deserve proper justice, like anyone else. And this practice of playing the man, not the ball, must have adverse effects for the free enterprise system that has provided prosperity for the whole country.

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