Executive management needs to take special care – the combined penalties for the management team in the long-running James Hardie litigation were greater than the combined penalties imposed on the directors.
The 3 officers of the company (being the Chief Executive Officer, Chief Financial Officer and the Joint Company Secretary and General Counsel) had total fines of $445,000 and a cumulative disqualification period of 24 years. However, by comparison, the 7 directors only had total fines of $170,000 and a cumulative disqualification period of 12 years and 10 months.
Business managers need to be careful in the way that they make day to day decisions in the administration of the companies that employ them. They also need to be mindful of the information that they make available to the Board of Directors and the influence that their opinions will have on the decisions within a company. This includes decisions made at Board Meetings. One of the major criticisms of the CEO was that he failed to advise the Board about "overly emphatic" language in a press release and that the reports that underpinned a decision had been prepared on a limited basis.
The real problem is that executive managers are more closely involved in the day-to-day operation of a company. They will have significant involvement in the formulation of decisions and the setting of strategy and agenda items. Also, they will have a deeper knowledge of the source documents upon which business decisions are based. Among other things, executive managers are responsible for ensuring that the communications to the Board of Directors are appropriate, especially where the information is to be used for evaluating critical decisions.
On 12 November 2012, the Court of Appeal of New South Wales delivered its judgment on the penalties and disqualification periods for the directors and officers in the James Hardie litigation (details below). The penalties for each non-executive director were disqualification for between 1 year and 11 months to 2 years and 3 months along with fines of $20,000 to $30,000. On the other hand:
- The Chief Executive Officer had not appealed the initial decision of the New South Wales Supreme Court and his fine remained at $350,000 with a disqualification period of 15 years;
- The penalty for the Joint General Counsel and Company Secretary was reinstated at a fine of $75,000 with a disqualification period of 7 years; and
- The penalty for the Chief Financial Officer was a fine of $20,000 and a disqualification period of 2 years.
The James Hardie litigation related to the restructure of the James Hardie Group with the establishment of a Foundation to fund claims for illnesses related to asbestos. The Court held that an ASX announcement made by the Company was misleading and that the officers involved in preparing and approving the announcement at a Board meeting had breached their duty of good faith which arose under section 180(1) of the Corporations Act 2001 (Cth).
Set out below is a summary of the orders pertaining to fines and disqualifications that were made by the various Courts.
| Name/Title | Corp. Act breach | NSW Supreme Court (1) | NSW Court of Appeal (2) | NSW Court of Appeal (3) following High Court decision (4)(5) | |||
| Fine ($) | Disqual. period |
Fine ($) | Disqual. period |
Fine ($) | Disqual. period |
||
| Peter Macdonald, CEO, executive director | 180(1) | 350,000 | 15 years | Did not appeal | Did not appeal | Did not appeal | Did not appeal |
| Peter Shafron, General Counsel / Company Secretary | 180(1) | 75,000 | 7 years | 50,000 | 7 years | 75,000 | 7 years |
| Chris Morley, CFO | 180(1) | 35,000 | 5 years | 20,000 | 2 years | Did not appeal | Did not appeal |
| Meredith Hellicar, non-executive director (NED) | 180(1) | 30,000 | 5 years | N/A | N/A | 25,000 | 2 years, 3 months |
| Michael Brown, NED | 180(1) | 30,000 | 5 years | N/A | N/A | 25,000 | 2 years, 3 months |
| Gregory Terry,NED | 180(1) | 30,000 | 5 years | N/A | N/A | 25,000 | 2 years, 3 months |
| Geoffrey O'Brien, NED | 180(1) | 30,000 | 5 years | N/A | N/A | 25,000 | 2 years, 3 months |
| Martin Koffell, NED | 180(1) | 30,000 | 5 years | N/A | N/A | 20,000 | 1 year, 11 months |
| Michael Griffillan, NED | 180(1) | 30,000 | 5 years | N/A | N/A | 20,000 | 1 year, 11 months |
| Peter Willcox, NED | 180(1) | 30,000 | 5 years | Did not appeal | Did not appeal | Did not appeal | Did not appeal |
Footnotes
1 Australian Securities and Investments Commission v Macdonald (No 11) (2009) 256 ALR 199; 71 ACSR 368; 27 ACLC 522; [2009]NSWSC 287
2 Morley v Australian Securities and Investments Commission (2010) 274 ALR 205; (2010) 81 ACSR 285; 28 ACLC 1229; [2010] NSWCA 331; Morley v Australian Securities and Investments Commission (No 2) (2011) 83 ACSR 620; 29 ACLC 529; [2011] NSWCA 110
3 Gillfillan & Ors v Australian Securities & Investments Commission [2012] NSWCA 370
4 Australian Securities and Investments Commission v Hellicar (2012) 286 ALR 501; [2012] HCA 17
5 Shafron v Australian Securities and Investments Commission (2012) 286 ALR 612; [2012] HCA 18
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.