On 12 November, 2012, the New South Wales Court of Appeal handed down its decision on penalties for the non-executive directors and company secretary/general counsel of James Hardie Industries Ltd (JHIL) in the latest decision in this long running litigation.
What does the decision mean for directors and senior executives?
The penalties imposed against all of the non-executive directors were reduced, but each of them was still subject to a pecuniary penalty and a period of disqualification, showing that the courts will take any breach of duty relating to misleading ASX announcements very seriously.
There are a number of key messages for directors and officers of companies (listed or unlisted), from this and the previous decisions on the JHIL officers.
- There needs to be a clear decision made by the Board. While achieving consensus can be important to maintaining a harmonious boardroom, the board should consciously consider any decision which it is being asked to approve.
- The minutes need to reflect the decision, including those directors who abstained or voted against a resolution.
- Bring an enquiring mind to key announcements, to ensure they are not misleading. Question management about any such announcements to ensure the board has all necessary information to decide whether to approve a proposed announcement.
- Urgency to make a decision, particularly if self-imposed, will not provide a defence to a breach of duty. A board needs to be vigilant about ensuring it has the information needed and the necessary time to make a considered decision.
- Consider the practicalities of distributing documents to directors attending meetings by telephone or video conference. While this is certainly easier now than in 2001 when the JHIL events occurred, given the prevalence of tablets and other mobile devices, boards need to ensure all members can fully participate by having access to all relevant information, and directors need to ensure they can fully participate when giving consent to holding meetings by telephone or video conference.
- Review board minutes carefully and raise any concerns about their accuracy promptly as they will be a record of what occurred at a meeting if approved.
For a more detailed analysis of the latest decision relating to JHIL’s officers, click here.