The Boardroom Heatwave: Recent developments, implications and changes following court decisions

This paper seeks to explore a number of corporate cases and their impact on the law applicable to, and therefore the practice of, directorship in boardrooms across Australia. This paper does not seek to explore any one of the pertinent cases in detail but to set the scene, asking the question ‘to what extent do recent cases, and legislative responses to them, represent a natural extension of the law or radical changes to it?’

Anyone practising in the field will, hopefully, not be surprised to hear the starting proposition for this paper that legal cases over recent years do not in any way represent a radical departure from the laws applicable to the fiduciary and statutory duties and liabilities of company directors. It may in fact be more surprising to hear that in spite of the steadily growing body of law relating to the expectations and potential liabilities of directors, more people than ever are seeking board appointments.

As a consequence the membership of groups like the Australian Institute of Company Directors (AICD) and the Governance Institute of Australia (GIA) are growing strongly. AICD claims a membership of 33,000, being people sitting on boards across Australia. GIA claims a membership of some 7,000 ‘governance professionals’ and is an organisation which has evolved over recent years, including changing its name in 2013 from Chartered Secretaries Australia, to recognise the increasingly professionalised practice that corporate governance has become.

  • This evolution owes much to developments in Australian case law. It reflects changes in community standards and expectations of directors, particularly since the late 1980s and early 1990s, in cases such as:
  • the ‘AWA Case’ dealing with directors duties and the application of rules of negligence in the listed public company context;
    the famous ‘National Safety Council Case’ that put the last nail in the coffin of the previously common, albeit grossly mistaken, belief that unpaid company directors of not-for-profits formed as companies limited by guarantee did not have the same statutory duties as paid directors of for-profit companies;
  • the string of cases that surrounded the infamous $5.3B collapse of the Australian listed insurance giant, HIH, in 2001 and, in the same year the collapse of One-Tel.

In more recent years, there have been significant calls to reduce the breathtaking number of legislative provisions in Australia that impose direct and strict liability on directors and officers of companies whenever the company itself is found to be liable for its actions towards employees, customers or other third parties. Indeed a separate presentation at this forum is dedicated to the latest breakthrough in this campaign in Queensland, namely the ground-breaking Directors’ Liability Reform Act 2012, which passed in to law in late 2013.

Against that backdrop, this paper considers how the practice of directorship looks today as a result of legal decisions over recent years, and how boards are operating in response to developments in the legal environment.

Albeit they are now part of a menu of corporate legal cases that have been dissected in multiple forums over recent years, the modern classic cases bearing most on changed behaviour and practice in the boardroom are without doubt the James Hardie and Centro cases.

For full access to the paper, please request a copy from Bryton Chin at
b.chin@boardmatters.com.au.

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