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GRC Professional : GRC Autumn 2012
32 GRC Professional • Autumn 2012 in THe oFFice Back to the drawing Board Are new expectations of directors changing the boardroom dynamic? By AlexAndrA CAin The TYpical sTereoTYpe For a director has long been a fat-cat member of the old boys’ club who turned up to the odd board meeting, before retiring for a lavish lunch. Times have changed. recent court findings have shone a spotlight on directors’ duties and it’s no longer considered acceptable if they don’t meet their responsibilities. at the same time, community expectations of directors have become more strict. But have things gone too far? requirements of directors can’t be so onerous people are no longer prepared to take up the role. nevertheless, there need to be checks and balances to ensure directors are meeting expectations. governance and risk professionals can play a role in helping to ensure directors are meeting their obligations. The centro case When the Federal court handed down penalties against seven former directors of centro properties group and centro retail group in august 2011, shudders were felt in boardrooms across the country. The directors were found to have breached their duties when they signed off on financial reports that did not disclose $1.5 billion in short-term liabilities by classifying them as non-current liabilities and failing to disclose guarantees of short-term liabilities of an associated company of about Us$1.75 billion given after the balance date. in addition, centro retail group’s 2007 annual reports failed to disclose don’t go to the board with a list of 400 different things that need to be ticked off. you need a risk-weighted commercial approach to the way you engage. $600 million of short-term liabilities that had been classified as non-current. although the directors did not face penalties – except former ceo andrew scott was fined $30,000 and former cFo romano nenna was banned from managing corporations for two years – in a statement, asic chairman greg Medcraft said asic believed the directors’ and officers’ behaviour did not meet the expectations of the law. The implications of the ruling for directors are serious and are shaping discussions about what best practice looks like in terms of director conduct (see page 24 for centro’s perspective on the case). application of the law paul Quinn, the head of allens arthur robinson’s corporate practice, says although corporation law relating to director conduct has not changed – for instance, directors are still required to act with the care and diligence that a reasonable person would exercise in that position – the way these laws are being applied is shifting. “courts are saying these duties have to be assessed based on the expectations of the community and shareholders of what a reasonable person in that position would be expected to do. Those expectations have increased over time.” according to Quinn, the centro case showed that directors are required to have sufficient financial experience to understand basic financial concepts. “it
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