Is the promotion worth it?

Is that coveted appointment to a position of non-executive director, or a promotion to non-equity partner, worth it?  You need to be fully aware of the risks and benefits, and your continuing obligations.

The High Court, in a recent decision, held that James Hardies’ non-executive directors breached their statutory duty of care and diligence when they approved a misleading ASX announcement in 2001 on a corporate restructure.  Non-executive directors are directors who do not take part in the day to day running of the company.  The High Court held that the non-executive directors did not discharge their statutory duties with the degree of care and diligence that a reasonable person in their position would have.

What should a non-executive director or a non-equity partner do in their role to ensure that they fulfil their duty of care so that a finding is not made against them like in the Hardie decision?

Be proactive:

Read all papers, reports and minutes, ask questions if you are not sure and seek more information as required.  One must not ‘rubber stamp’ but rather independently judge and critically assess past and present information from management sources and external advisers.

Information must be sufficient:

The management papers, any presentations, reports, and other information including minutes, reports and data from past or current meetings must provide a reasonable basis for management decisions.

Management has to be reliable:

It is important to evaluate management’s decisions and opinions.  Non-executive directors or non-equity partners need to satisfy themselves that the documents produced by management are reliable.  They should also ensure that all appropriate personnel have been involved in the relevant decision making process.

Approve with caution:

Reporting documents and business announcements require careful review.  When approving such documents, one needs to be confident in the accuracy of the content.

Be alert on continuous disclosure/reporting/obligations:

Your duties and obligations are ongoing.  If you become aware of information that affects the company or that an announcement or disclosure is inaccurate, you need to take appropriate action.

Although a partnership does not have the same reporting requirements as an ASX listed company, partners do have continuing obligations that must be considered. For example, all partners including non-equity partners are liable for inaccurate reporting in tax returns; consequently they should satisfy themselves that the reporting is correct.

Appointment as a non-equity partner or non-executive director is often a significant stepping stone in a career path. However, along with the remuneration comes the added responsibility for ensuring proper management and reporting.  Unfortunately, naivety is not a defence to any breach in one’s statutory requirements.

For further information or to make an appointment please contact:

Matthew Bridger | e: mbridger@elringtons.com.au | p: 02 6206 1300 http://elringtons.com.au/wp-content/uploads/2011/07/Specialist-accreditaion.jpg