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BETTER BOARDS 2012 CEO’S & BOARDS WHITHER & WHETHER THE DIFFERENCE?

BETTER BOARDS 2012 CEO’S & BOARDS WHITHER & WHETHER THE DIFFERENCE?. Brian Herd Carne Reidy Herd Lawyers Level 10, 193 North Quay Brisbane Qld 4000 P: 07 3236 2900 E: bherd@crhlaw.com.au. The Regulation Landscape. In 1860 Qld Parliament first met passed 17 Acts In 2012 - over 600!

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BETTER BOARDS 2012 CEO’S & BOARDS WHITHER & WHETHER THE DIFFERENCE?

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  1. BETTER BOARDS 2012CEO’S & BOARDSWHITHER & WHETHER THE DIFFERENCE? Brian Herd Carne Reidy Herd Lawyers Level 10, 193 North Quay Brisbane Qld 4000 P: 07 3236 2900 E: bherd@crhlaw.com.au

  2. The Regulation Landscape In 1860 Qld Parliament first met passed 17 Acts In 2012 - over 600! Same story in every State Increasing regulation driven by the imperative of politics, excesses of ‘market self regulation’ and media mania Busy time for law and a good time for lawyers! 20% increase per year in legislation

  3. The Liability Landscape 19th Century Companies first incorporated To protect individuals from personal liability 20th Century Return of directors’ personal liability 21st Century Moves to reduce directors’ personal liability

  4. Personal Liability Choreography • The Corporate Veil • The Dance of the Seven Veils • The Limbo • Age of Aquarius

  5. For Profit –v-Not for Profit No difference in directors personal liability Some exceptions (see below) Forget about the ‘them & us’ Saints v sinners Horns v halos Martyrs v miscreants Profit v surplus Big v small Goodies v baddies

  6. Who are we talking about? Personal liability Not just ‘Directors’ on Boards or Committees of Management Extends to ‘Officers’ Consequence Both playing on the same personal liability playing field What are the implications?

  7. Law of Directors Liability • Where do we find it? • Your Constitution or Rules • Common law • Criminal law • Legislation

  8. Example – Corporations Act • Imposes duties on “directors or other officers” • “Officer” • Makes or participates in making decisions affecting the whole or substantial part of the business; or • Has the capacity to affect significantly the business’ financial standing

  9. Other Legislation • Over 700 pieces of legislation (Cwth & State) makes “officers” liable • Includes people who manage the business i.e., employees • Doesn’t matter what you call them • EO • CEO • COO • CFO

  10. Types of Personal Liability Officers must ensure business complies with the law Specific named roles must ensure business complies with the law Officers knowingly authorise or permit breach of the law Deemed personally liable Some defences available Took reasonable steps (due diligence) Unable to influence

  11. What Does it All Mean? Board Management

  12. What Does it All Mean?

  13. Implications • Governance – from inside the organisation • “Boards govern/managers manage” • “Buck stops with the Board” • “Managers responsible to the Board” • The Law – from outside the organisation • No respector of governance mantras • Boards and managers equally liable • Where is this going?

  14. Implications (cont’d) Legal Morass • Volunteer board members • Can be indemnified by organisation • Special protection from some civil liability • Civil Liability Act (equiv in all states) • Work Health & Safety Act • Paid officers (eg CEO) • No such protection • Except vicarious liability

  15. Implications (cont’d) Board/Employee Tensions • Employees more legally exposed than Board members • But employees paid for the risk aren’t they? • Should we put CEO on the Board to protect them as a Director • But which hat are they wearing? • Employment agreements • What do they say about the CEO’s risks? • Is there any reference in CEO’s agreement to insurance?

  16. Implications (cont’d) Insurance • Crucial issue for the organisation • How far does it protect board members and “officers” • Types • D&O Insurance • Statutory Liability Insurance • Employment Practices Insurance • Management Liability Insurance

  17. Good News Roll back of personal liability • NSW • “Miscellaneous Acts Amendment (Directors Liability) Act 2011” • Removes some personal liability in 35 pieces of legislation • Applies from May this year • South Australia – similar legislation • No other States yet • Cwth – “Personal Liability for Corporate Fault Reform Bill 2012”

  18. Free Advice • Good corporate governance never been more important • Assess what law applies • Understand the obligations • Who has the obligation • Systems to ensure compliance • Make legal compliance a budget line item • CEO‘s (& other senior managers) • check employment agreements • Is your insurance adequate? • Who does it cover and for what and for how long • As Board members: • Do the risks require some reward? • to pay or not to pay

  19. The End(is it?) Brian Herd Carne Reidy Herd Lawyers Level 10, 193 North Quay Brisbane Qld 4000 P: 07 3236 2900 E: bherd@crhlaw.com.au

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