Who wasn’t appalled this morning to discover that company directors have to apply their minds to documents put before them? Who doesn’t fear the devastating consequence of, as their barrister threatened, the ruling causing boardooms to “empty overnight”?
Who would take on the responsibility of being a director of a corporation now? What possible incentive would they have, except the huge salaries and the fact that any other job would also require them to apply some kind of diligence to the task for which they’re being paid?
The trains right now, at lunchtime, must be full of directors who’ve handed in their resignation and are on their way home.
AND WE WILL MISS THEM.
ELSEWHERE: Corporations continue to resist moves to reveal the ratio between board salaries and those of their average employee. Because we’ll just use the figures to mock their absurd claims about how difficult they have it, I suppose.
This sounds oh too similar to the fearmongering cries post Gambotto… yet we didn’t see some sudden massive rise in Greenmail (despite the irony that Gambotto may have actually prevented Greenmail).
Agreed Jeremy. Many corporations would function better without the silver-spooned seat-warmers at the top. Nice to see ASIC calling the “give us what we want or we will threaten to hurt ourselves more than everyone else” wolf-criers on their nonsense for once.
The real problem is the skill-set of directors. These greedy capitalists are fixated on earning profits. In order to ensure society’s needs are met it should be mandatory for each company to include on its board the following:
One director who has been a member of Greenpeace for at least five years;
One director who has at least five years experience in advocating for members of designated victim groups;
One director who is currently employed by the Australian Taxation Office;
One director who has real world experience of advocating Marxist causes (Lee Rhiannon or Adam Bandt would be ideal); and
One director who is a supporter of BDS Movement, preferably a member of Hamas.
No person to be eligible to be a company director if they have worked in the private sector for more than six months, if they are a white male or if they have ever used the word “shrill”.
“These greedy capitalists are fixated on earning profits.”
The directors in the story were prosecuted for not paying enough attention to the books of a company that had “billions of dollars of short-term debt”. Profits didn’t seem to figure very highly in the list of things they were “fixated” on, except insofar that the books were being cooked to pretend there was profit. If only they did pay attention to profit they wouldn’t be in this mess.
SB, I assume you are taking the piss, but even still, it isn’t relevant. What we have is directors being paid a small fortune to ensure that the company does indeed make a profit. Instead, they aren’t doing their job and trying to rely on ‘so and so advised me of x’. Now, while there is good reason you should be able to rely on expert advice, the directors are paid not just as rubber stamps, but to put their minds to the task.
If you are seriously advocating the board shouldn’t take responsibility then what you advocate for is actually for companies to not profit, but instead, the board can do anything. Fuck the shareholders. Fuck the stakeholders (eg employees). Fuck the company. Oh, btw, shall we vote on a raise?
“include on its board the following:”
Non-greedy, talented people with integrity.
Narcotic I was just joining in with the tone of this thread so far. If you want a more considered view, here goes. What we have here is directors being held to account for their decisions. It is a good thing that directors understand that they will be so held to account .
I’m sure there will be debate on what this particular decision means. If it means that the directors have to read and understand the accounts, that seems reasonable. But what if a director has limited accounting knowledge, and is on the board because of her non-financial expertise? How is she expected to know whether or not an accounting standard has been breached? Does this mean that non-accountants cannot be appointed as directors?
Only a fool would use this case as an excuse to bash company directors as a group. It is, however, an opportunity to discuss the application of the rules on directors duties to the particular facts and how far they should extend.
Why don’t you tell me what a director should do to ensure that no amount in the accounts has been wrongly classified under the accounting standards? What if the director is not directly involved in the running of the business of the company, and is expert only in assessing the property market – what questions should they be asking and of whom. Assuming there is already an audit committee of the board, an auditor and internal and external accounting advisers to the firm and that processes have been put in place, what additional steps must a director take, given that the judge said that it was not enough to rely on these processes?
I don’t know enough of the facts of this case, but if the judge is saying this matter was so bleeding obvious that any reasonable person would have asked the relevant questions and the Centro directors failed to do that then that would be a fair outcome. On the other hand if the requirement now is that directors must know enough about accounts to cross-examine the CFO on accounting standards, the decision might limit the pool of available directors.
In this case, if the problem was the mis-classification of debt as long-term when in fact it was short-term, how was the director expected to question this. Assuming they did and the answer came back that the company had taken professional advice on this classification, would the director then ask to examine the ledgers and the loan contracts? And would the directors have to do this in relation to all other aspects of the accounts and all relevant accounting standards?
Bobby Boy looks like I should step up to a directorship or two. I’m not sure about your chances, though. 🙂
>>><M><M< Sorry WordPress hates me, kills all my usernames (this is my third – Thanks SB) and calls my first post a duplicate – wordpress SUCKS!!kfjygjregfhglgkugtlr<>>
” I’m not sure about your chances,”
Well, I guess i’m not particularly talented. The real trait I lack though is ambition, apart from the ambition for myself and family to be happy 🙂
Thank you SB for the more serious thoughts notwithstanding I generally appreciate your humour too 🙂
I suppose to have a completely generic answer would be reminding directors that they are paid quite handsome wages for a reason: responsibility for risk. They can’t just fob that off to the accountant. Even if you aren’t an accountant, you should still ask questions and not just accept everything you see/read. You should attempt to understand because when you sign something you are saying you agree to it. You should insist on understanding it at least in principle. There is also a lot to be said here about diversity on boards, so even if one person doesn’t get it, another will and ask questions or help explain. Lastly, I do personally think all directors (not just of boards) should have some basic management expertise and thus basic financial skills – not necessarily chartered accountant level, but they should understand a balance sheet. They should understand their requirements and ask the important question – does this comply? etc
The big problem isn’t with big company boards, but with small companies limited by guarantee. They too need to submit such records (the standard depending on the size of the organisation). It is much harder to recruit to these boards as there is less $ over all (they are often PBIs for example, which means the board cannot be remunerated in the way that a for profit board can). So the skills set are often lower – nevertheless, there should be some minimum expectations that the Corporations Act does point out and make clear.
There is also a lot to be said here about diversity on boards, so even if one person doesn’t get it, another will and ask questions or help explain.
But doesn’t this decision actively reduce the incentive for board diversity? If all board members must be skilled accountants then surely that narrows the pool of candidates.
I’m fairly sure Cate Blanchett sits on a few boards – are you really saying that she should be expected to review and scrutinise financial statements?
“If all board members must be skilled accountants then surely that narrows the pool of candidates.”
*snort* As though accountancy is hard. I did a 6 week TAFE course in small business accountancy many years ago, and my accountant was quite impressed by the results. Done by hand on paper! He never did find an error. Any fool can add up columns of figures and check that they match other columns.
What makes accountancy a highly-paid profession is the knowledge of details in the law that allow you to change the columns in regulatory-approved ways beyond simple “cash-in, cash-out” accounting (write-offs, R&D credits, equipment depreciation, and so on). All that requires from a “add up a column of figures” director is the guts to ask “explain to me which law allows you to fiddle this figure that magically jumped columns all of a sudden”.
“I’m fairly sure Cate Blanchett sits on a few boards – are you really saying that she should be expected to review and scrutinise financial statements?”
Yes. It’s part of the job description. If she can’t do it, then tough luck. You are of course assuming that she can’t, knowing nothing about her. Maybe she can? If scrutinizing finances is not part of a director’s job, then what do they actually *do* that justifies their inflated salaries?
I guess my friends who spend years at university doing accounting degrees were completely wasting their time, then.
If Cate Blanchet is on a board, then yes, before she approves something she should review it and ensure she understands it.
No the decision does not narrow the pool, it places teh responsiblity on directors to pay attention and review and ask questions. It says, you can’t just take that paycheck and then blame someone else. You have to actively apply your mind.
“I guess my friends who spend years at university doing accounting degrees were completely wasting their time, then.”
Thanks for completely missing the point of my *second* paragraph, which provided a basis for needing highly-paid accountants outside of column adding duties. But yes, if your friends found the column adding of double-entry book-keeping hard, then they were wasting their time. There are iPhone apps that can do that job.
Your second paragraph, uniquerhys, was just a caricature of how accountancy actually works.
It is a fudamental duty of directors not to allow a company to trade while insolvent.
The error in this case was that various debts were categorised so as not to look like present liabilities when they were. It is absolutely a director’s job to spot these things … it’s what management types like to call a “core responsibility”. If that role can be outsourced to an auditor, what value is the director adding? Picking which of the big 4 firms to outsource to? They get the big bucks precisely for such situations.
In order to ensure society’s needs are met it should be mandatory for each company to include on its board the following:
One director who has been a …(insert Glenn Becks and Sean Hannitys various failures to be funny here)… preferably a member of Hamas.
No – what we need to have is people whose entire exposure to the invisible hand of the free market is confined to an MBA* from a few of Wall Streets favourites, and a few rounds of golf with the CEO du jour (and evidence of having “looked at” the WSJ – not “read”, obviously). They need to be chosen from said school BEFORE they complete this short-course, lest they be exposed to the taint of insight into some actual field, and become less like the present lineup.
You see, people with expertise are strange, and scary. They have strange ideas. They dress strange. They have strange interests. They read. They don’t network. They lack important life-skills like knowing when to use the Driver, distinguishing single-breast from double-breast, tying a Full-Windsor. They don’t marry well.
Want me to go on?
*(A degree initially designed for people with technical expertise to prepare for management positions. Try to guess how many MBAs come from actual fields now)
But what if a director has limited accounting knowledge, and is on the board because of her non-financial expertise?
Like what? If you think any of them had expertise in ANY field (finance or otherwise) before doing their MBA, or that they’re chosen for anything so archaic as expertise, or that a board of any such composition could create and traffic in products that they don’t understand (ask one what a derivative or credit-default-swap is), then you need to get your hand off it forthwith.
Or get out more.