25/06/2009 - 00:00

Budge calls for greater protection

25/06/2009 - 00:00


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COMPANY directors will remember the economic downturn as a time of trepidation - and it has nothing to do with falling share prices.

COMPANY directors will remember the economic downturn as a time of trepidation - and it has nothing to do with falling share prices.

A market sell-down created a stream of public companies that suffered sharp profit downgrades, bad debts and refinancing woes, leading to questions over their disclosure to the market.

Class actions have become a viable means of recovering shareholder money, threatening years of headaches for directors - regardless of the end result - who preside over a company's continuous disclosure requirements.

Terry Budge, the former head of BankWest, said many directors questioned whether their jobs were worth the responsibility that came with it.

"Nobody wants to support directors who do things illegally or who do things that are not in the interest of the company and shareholders of the company," Mr Budge told WA Business News.

"Professionalism in directorship should be supported and those who don't obey the laws of the land should be punished.

"But I don't think directors should be penalised for making poor decisions, in hindsight. I'd like to see directors get the right amount of protection around that."

Mr Budge holds directorships at property company Aspen Group and Westoz Investment Company, among other high-profile roles including that of Murdoch University chancellor.

Directors have long called for the extension of the business judgement rule, which would protect informed office-holders who act in a bona fide way.

Steven Cole, WA president of the Australian Institute of Company Directors, said he did not want judges with the benefit of "20-20 hindsight vision" holding directors responsible for decisions taken in good faith.

Mr Cole holds board positions on several companies and not-for-profit organisations, including solar energy provider Solco, Brightwater Care Group and Great Southern Managers.

There have been calls for separate protections for directors of not-for-profits - which have lots of responsibility and no remuneration - or simply greater protection for all directors. The main worry for not-for-profit directors is whether the organisation is trading insolvent.

Recent actions against directors and executives in high-profile matters such as James Hardie, Sons of Gwalia and Bell Group have refocused attention on director responsibilities.

Commercial law firm Mallesons Stephen Jaques noted there were major lessons in the landmark James Hardie decision earlier this year - relating to the company's bid to shelter assets by transferring its asbestos producing subsidiaries to a "fully funded" asbestos compensation fund and moving to the Netherlands - that should sound warning bells to all directors and executives.

One lesson was that each member of the board was found to have responsibility for important strategic matters and could not effectively delegate that responsibility to co-directors, internal legal departments or actuaries or other external experts, according to Mallesons Stephen Jaques.

"This duty applies to executive and non executive directors and officers whether full time or part time, and experienced in the company's industry or not," the law firm wrote.

Mr Budge said there were a number of factors he weighed up before joining a board.

He said the company had to be interesting; he had to be able to get along with other officeholders; he had to have sufficient time; he had to be able to add value; and the business couldn't be too risky. And independence was paramount to the job.

"You should always be able to walk away from a board and not be committed financially," Mr Budge said.

"It's an argument against higher levels of remuneration. You have to be able to walk away. You have to be independent."



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