Directors worry about baggage that comes with the role

SHOULD a director have to worry about the travel arrangements of staff?

In days gone by, a long-haul flight to Amsterdam followed by a rental car trip into the European heartland might have been seen as a junket for which an employee ought to thank their lucky stars, even if they were flying economy.

Not these days, according to Diane Smith-Gander, one of the most recent Perth-based directors to arrive on the national scene.

At a recent WA Business News forum on boardroom governance issues for WA directors, Ms Smith-Gander raised the issue of safety as her biggest current concern, using the travel story to highlight this.

“I think we have seen safety come out of the boardroom and the executive suite and become more important to Joe Punter,” she said.

“It is through things like what happened in Chile and what happened with the Pike River tragedy; people are becoming more attuned to the fact that their employer owes them a duty of care around safety.”

While this may not be news to those directly involved in the resources sector and heavy industry, the concern is clearly spreading to industries that have traditionally been untouched by common workplace hazards.

As an example she highlighted the travel arrangements referred to above.

“Someone was telling me the other day they were going to fly to Dubai and then Amsterdam, and then drive four hours somewhere and the company was sending him at the back of the bus (economy) and they were driving themselves in a hire car, and they are driving on the other side of the road,” Ms Smith-Gander said.

“How can a company let this happen?

“Then I think back and that was normal, so I think we’ll see a lot of those things change.”

Safety, though, was just one of a raft of concerns raised by leading directors that were broadly about the rising responsibility for board members amid a growing culture of blame.

Apart from Ms Smith-Gander, who is on the board of Wesfarmers, Transfield Services and NBN Co, five other leading WA-based directors attended the WA Business News forum.

Some, like Tony Howarth, Neil Hamilton and Michael Smith, have held directorships on national companies for years. Others, such as Ms Smith-Gander and Gene Tilbrook, have more recently arrived on the non-executive director scene at national level after stellar executive careers.

Steven Cole is not a director of a national company but his background as a corporate lawyer and current membership of the Australian Institute of Company Directors board, as well as some local ASX companies, gives him rare insight into the issues faced at the pinnacle of corporate governance.

The tables accompanying this article give more detail on each of these panellists’ accomplishments, but from a national perspective it is worth noting their major roles.

Mr Howarth is currently on the boards of two nationally focused private sector players that are based in Perth – being Wesfarmers and St John of God Health Care. He was formerly on the boards of AWB, Bank of Queensland and Alinta.

Mr Hamilton chairs both Oz Minerals and Miclyn Express and is a director of Metcash. He was previously on the board of IRESS Market Technology.

A former finance director of Wesfarmers, Mr Tilbrook sits on the boards of Fletcher Building, NBN Co, QR National, GPT Group and chairs Transpacific Industries Group.

Mr Smith has been a long-term director of 7-Eleven Australia and chairs iiNet, a Perth-based ISP that operates across Australasia and is the nation’s third biggest player in the sector after Telstra and Optus.

For Mr Smith, the biggest concern facing directors is personal liability due to a host of laws increasingly putting individual board members at risk.

According to the AICD, there are more than 700 state and territory laws imposing personal liability on individual directors for corporate misconduct.

Under these laws, directors are liable simply because they are a board member, even where they may not have had any personal involvement in a breach.

In some states and under some legislation, the onus of proof is reversed, removing the presumption of innocence, and there are very narrow legal defences and limited rights of appeal. A case in point is the occupational health and safety regime in NSW, which was mooted as the model for a uniform approach.

Mr Smith did not identify specific laws that concerned him, just the growing burden of responsibility, which he felt outweighed the rewards of being a director.

“I think a lot of penalties that are associated with things that good people do with good intentions are out of all proportion,” Mr Smith said.

“That is the biggest single issue that concerns me: I could lose my house by trying hard.”

He said the wider issue was that the best people might not be prepared to take the risk involved in being a director, especially any company that might have obvious problems requiring attention.

“There is a distortion that happens when really good directors are not available to the companies that need them the most,” Mr Smith said.

“Unless I see this aircraft is completely safe I am not getting on it,” he said, offering another travel analogy.

“Sometimes you get people who think it is safe and think it is fine because they are less experienced and less aware and think ‘we’ll have a crack’ and you get precisely the wrong set of directors for the time available.”

Mr Cole reiterated this concern about growing director liability, reflecting on the concerns of an AICD lecturer who had stated that, “people are looking for a soul to damn and a body to kick”.

“Directors are that,” he said.

“Over recent years there have been six to eight significant government reports suggesting liability for directors is totally off the wall and out of kilter with natural justice and would not be tolerated in normal society.

“Nothing is being done about that and we still have a regime in Australia which has the most pernicious rules for liability of directors and we don’t have an effective business judgement rule.

“Liability for insolvent trading is the most pernicious in the world.

“That does have consequences.”

Mr Cole said Australia’s laws made it less attractive to be a director.

Ms Smith-Gander suggested there was some irony in Australian view that US liability was out of control with litigation risks driving up major costs such as healthcare.

“But we have just as many things going on in this country,” she said.

Mr Howarth saw one of the key drivers of this increased burden for directors being the way legislation and the courts were diluting the once sacrosanct structure of corporate entities.

“It is the continued attack on the limited liability company and the limited liability structure,” he said.

“One of the most valuable things we have in our free enterprise system is people go broke and make a loss.

“That is what makes us better.”

Mr Hamilton did try to balance the argument by noting there were few examples of legitimate directors being held to account on this basis.

“I can’t think of probably more than two or three cases where directors have incurred significant liability in this country,” he said.

While there was some agreement with the question of whether regulators had a weak track record in prosecuting the rogues for whom such tough laws were truly intended, Mr Howarth suggested there was an unseen cost in many situations where, ultimately, directors were not penalised.

“While there have not been a lot of judgements, quite a lot of people have had their lives put on hold for quite some time,” he said.

While most of the directors on the panel were invited because of their roles on the boards of nationally focused companies, many have experience with smaller companies.

There seemed to be no doubt in any of their minds that being on the board of a large company was more straight forward.

“I think they have different challenges,” Mr Hamilton told the forum.

“As a general rule it is easier to be a director of a big business than a small business.

“You have better information, better management support and you really are there to the thinking and not the doing.

“The issue with small business is if they get into grief, you have to do the doing without those resources.”

In an era of director liability, this message is onerous.

Mr Smith also saw the potential for problems.

“The issue is that when you are working in the organisation you have to be working for the chief executive, so that is where it comes undone in my mind,” he said.

“When I am a director I am giving advice or strategic direction to the chief executive, but when I am under the bonnet, working in the business I am actually working for the chief executive, otherwise it is a hopeless compromise.

“I think there are some golden rules and the obligation has to be thought through very clearly.”

Perhaps Mr Tilbrook’s thoughts on juggling the various roles and issues that arise as a director best summarises the views put forward by others.

“There is no right answer,” he said.

“That is where I get bemused by some of the corporate governance debates, where people think there is a particular answer.”