The Australian Government is currently considering amending the Corporations Act to extend corporate duties, and civil and criminal liabilities, below Board and Executive levels to encompass other managers. If the amendments under consideration are enacted, managers will need to know how to ask the hard questions.

In 2005 the Government’s Corporations and Markets Advisory Committee (www.camac.gov.au) called for submissions on possible amendments to the Corporations Act that were recommended by the HIH Royal Commission following the collapse of HIH Insurance, leaving $5 billion in debts.

Recently we’ve seen some of the former Directors and Executives of HIH being sentenced to terms of imprisonment. The HIH Royal Commissioner, Justice Neville Owen, noted that many of the undesirable practices in HIH were undertaken by middle managers, that in larger corporations many significant decisions are made by management without reference to the Board and that managers should be liable for dishonesty even where their actions resulted from pressure from higher corporate echelons.

The Committee is also considering whether the general duties of Directors (e.g. good faith, proper purpose, diligence, business judgment and taking reasonable steps to ensure the veracity of statements and information) ought to be extended to middle managers.

In the Workshop and book Powerful Questions That Highly Effective Business Leaders Ask I foreshadowed this move to greater accountability further down the organisation. It will come in the form of either legislation or judicial decisions. It may be a few years yet before it is reality, but when it does come, it will be imperative that managers at all levels understand how to ask the tough questions – for their own protection as well as for the benefit of their organisation.

Various professional organisations presented submissions to CAMAC, including several of Spandah’s clients – Australian Institute of Company Directors, Chartered Secretaries Australia and Institute of Chartered Accountants Australia - who generally supported the extension of liability down the line beyond Board and executive levels.

ASIC also supported an extended liability, stating:

ASIC strongly supports the adoption of a functional approach to determining which people should owe duties to the corporation. Those who take responsibility (and reap the rewards) for making decisions or taking actions on behalf of a corporation that will have significant effects upon it should owe duties to the corporation regardless of their title or employment status. It is also important that there should not be significant opportunities for executives to avoid such responsibility through the design and use of corporate group structures.

The relevant Discussion Paper is available at the CAMAC web site, www.camac.gov.au , along with another Discussion Paper on Personal Liability for Corporate Fault which deals with liability under other legislation such as environment protection, occupational health & safety, hazardous goods and fair trading laws, of which the Australian Capital Territory’s 2003 Industrial Manslaughter legislation and similar NSW legislation are recent additions.

By Christo Norden-Powers          Copyright 2006 Spandah Pty Ltd