In Australia, Corporate Directors Fined, Banned for Misleading Asbestos Statements

Corporate Directors Fined, Banned for Misleading Asbestos Statements

Executives with Australia's James Hardie Corporation have been consistently making misleading statements regarding a compensation fund for victims of asbestos exposure, according to a ruling by the New South Wales Supreme Court. The company is known in Australia as a leader in the manufacture of building products such as siding and wallboards. Peter Macdonald, the company's former chief executive officer, received a fine of AU$350,000 (US$291,000) and has been prohibited from managing a company in that country for the next fifteen years, but will not serve any prison time.

Last April, Justice Ian Gzell ruled that Mr. Macdonald, along with two other executives and seven non-executive members of the company's board of directors, violated the country's Corporations Act. In the ruling, Judge Gzell stated that company officers made intentionally deceptive and untrue statements about how the firm could cover the funds needed for a fund intended to cover liabilities for asbestos exposure victims. The other defendants named in the complaint were also fined various amounts and prohibited from managing a firm for between five and seven years. After the ruling, all of the executives except for Mr. Macdonald requested that the charges be dismissed. Last week, Justice Gzell refused the request.

Some government officials expressed their opinions on the ruling. Tony D'Aloisio, chairman of the Australian Securities and Investments Commission (the Australian equivalent of the US Securities and Exchange Commission), said that corporate board members would do well to think about the effect that the court's ruling would have on how they make their decisions and how they pass on news to their shareholders and the market at large. He also said that the decision would help improve corporate oversight, which will, in turn, improve investor confidence in the markets.

One Australian senator felt that the justice's decision did not punish the executives sufficiently. Nick Xenophon has stated that he will call for new laws to go after companies that conduct "industrial manslaughter". He said that he wants stronger penalties, including prison terms, for company executives who put the lives of their workers at risk. The idea of imprisonment as punishment for such reckless behavior, he said, should serve to "sharpen the mind" of corporate directors.

According to a new book, the main reason that the firm was required to create an asbestos fund was due to their use of asbestos waste in cement commonly used in driveways, sidewalks and outdoor flooring during the 1960s and 1970s. Officials also allowed employees to take home bags of asbestos waste to use in their own home projects. Eventually, the fibers seeped into the local water and soil supplies, contaminating rivers, lakes and even athletic fields where children played. The book also alleges that the firm knew about the dangers posed by asbestos exposure. Instead of alerting their customers, however, they discontinued the practice of allowing employees to use the waste.

Tim Sheehy is the chief executive officer of Chartered Secretaries Australia, the organization that offers advice to company officials on how to comply with the Corporations Act. Mr. Sheehy said that the ruling will help companies pay more attention to the laws and lets corporate officers know that they must take responsibility for their decisions rather than attempting to place the blame on outside advisers.

Sources: Canberra Times. The Age

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