ASIC boss Tony D’Aloisio implied to the Australian Institute of Company Directors yesterday that Australia’s corporate regulator may take a softer line on director liability, noting that “there has been a concern expressed that personal liability may have gone too far.”

D’Aloisio later claimed:

We recognise…that it may be time for a stocktake in this are of personal liability to assess this balance between ensuring our boards takes risks (so that our economy keeps growing) with protection of shareholders and creditors and consumers where individual liability may be appropriate.

D’Aloisio’s comments, as head of ASIC, should be deeply concerning to anyone who has the faintest belief in corporate governance. If anything, it is arguable that director liability should be strengthened, rather than eased.

Notwithstanding claims spouted by the Australian Institute of Company Directors, it is rare for the corporate regulator to ever take action against non-executive directors even in the most egregious of corporate failures.

Despite HIH falling into bankruptcy and destroying $5 billion of shareholders funds, the only non-executive to face charges was former chairman Geoffrey Cohen. Cohen has been committed to stand trial for giving misleading information to HIH shareholders at an AGM in 2000. (Rodney Adler and Charles Abbott were charged with dishonesty offences not directly pertaining to their role as directors). 

Similarly, at One.Tel, the only non-exec to be charged was Chairman John Greaves. Greaves settled with ASIC in 2004 (all others charged were executives).

If directors’ submission that the legal responsibility of non-executive directors should be ever further weakened, the question arises – what exactly do they do and why have them at all?

D’Aloisio’s speech yesterday was delivered to an AIDC function and was spurred by a recent AIDC submission which claimed that:

The question many recently retired senior executives ask themselves is why they would accept a risky position, such as a director of a high-profile company, which could replace their hard-earned reputations and their retirement benefits at risk.

The AIDC’s submission is deeply flawed. Firstly, it is difficult to overlook the presumption that the primary reason one accepts a directorship is due to recognition and money. Chairpersons of public company can earn upwards of $500,000, more than twelve times the average wage, for what is a part-time role. The doyen of company directors, former KPMG chairman, David Crawford, earned around $1.3 million from his non-executive roles last year (not including his advisory role at Allen Arthur Robs). That will increase to more than $1.6 million next year after Crawford assumes the Foster’s chair. That is more than many CEOs earn and around 35 times the average annual wage.

Non-executive directors will earn upwards of $100,000 for a minimal time commitment. The fact that CEOs such as Geoff Dixon (non-exec at PBL) and John Fletcher (non-exec of Telstra) are able to combine non-executive directorships with a full-time executive role at two of Australia’s largest and most high profile companies casts serious doubt on the claims that non-exec directors are overburdened with large workloads.

Second, to claim that “directors’ retirements are at risk” is a furphy. The AIDC would be well aware that virtually all directors in Australia have indemnity insurance paid for by the company. (By contrast, Berkshire Hathaway does not carry director’s insurance. Warren Buffett once noted that “if something really catastrophic happens on our directors’ watch, they are exposed to losses that will far exceed yours.”)

Finally, it is only in the most extreme of cases that directors’ reputations are adversely affected. It takes a corporate collapse or serious incident (like NAB’s foreign exchange scandal) for directors to resign or be sacked. Years of underperformance are tolerated.

The large size of public company boards and sheer number of directors mean that if anything, directors are far too unaccountable for their actions. For Australia’s top corporate cop (who was formerly a CEO and partner at a corporate law firm) to be suggesting otherwise is deeply concerning.