High Court Decision to have impact on corporate boards

Thursday, 3 May 2012  Media Alerts

Associate Professor Anil Hargovan is available for comment and can provide full background on the case. He says "the High Court's decision in the James Hardie litigation will send shockwaves through corporate boards and company officers throughout Australia. The James Hardie directors face banning orders for breach of 'duty of care and diligence'. They will also face financial penalties over their failure to pay attention to key aspects of corporate governance, including risk-management, due diligence and regulatory compliance."

The landmark High Court decision sends a strong message to all boards across Australia not to underestimate the importance of the minutes of meetings. He says "the decision sheds light on the value and importance of the proper recording of minutes. The board's approval and recording of a resolution, even by informal means, can have what is called 'probative force' in contentious disputes, such as those arising in James Hardie where the entire board failed to recollect the existence of minutes which were crucial to allegations that the directors and officers breached their duty of care and diligence."

"The James Hardie judgement is a lesson for passive or compliant boards which approve resolutions, without exercising the degree of care and diligence required. The decision signals that there is no place for a ceremonial board which merely serves to rubber-stamp management decisions. It shows the need for boards to be more vigilant and diligent in the conduct of its monitoring role, particularly in light of substantive developments in the company - such as the restructuring of James Hardie - which should be taken seriously by the board and vetted for accuracy."

Associate Professor Hargovan sums up the impact by saying "The James Hardie litigation, and High Court decision, shows the need for the board to take care to avoid risks. Company officers, such as the secretary who in this case was performing a dual role as general counsel, have also been put on notice - the court will judge and evaluate their performance when determining liability for breach of duty of care and diligence, with reference to the actual tasks that they exercise, rather than by the title they wear or the capacity in which they act."

For further comment please contact Anil Hargovan on 02 9385 3577 or a.hargovan@unsw.edu.au.

Anil Hargovan
02 9385 3577

Australian School of Business,
University of New South Wales