News yesterday that the liquidators of failed carpet maker Feltex are intending to sue it’s ex-directors for over $20mill relating to their actions regarding a potential takeover that didn’t eventuate in 2005 which, if it had occurred, could have seen creditors and shareholders receive their money back.

Given the recent press given to the insider trading case against Fay/Richwhite in relation to TranzRail, this latest development once agains puts corporate governance front and centre.

The worst thing that could come of this would be for the Government to put in place lots of regulation (a la the US Sarbanes-Oxley Act, what needs to happen is for a self regulated body to be put in place with the power to censure, bar and penalise directors. I’ve written previously about the risk of excess regulation.

We do have the Institute of Directors here in New Zealand but I’d have to say that it falls down on a couple of fronts;

  • Membership is voluntary
  • It has no real powers in relation to director wrong doings
  • It seems to be busy spending it’s time self justifying (in my experience anyway)
  • It perpetuates the old boys, sweep it under the carpet mentality

At the end of the day we need to clearly show to corporate directors that they have a moral, ethical and legal duty of care and that breaching that duty will harm them on many levels. Without commenting at all on the guilt or otherwise of the Feltex director – it is interesting to see that the ex-Chair still sits on a number of boards. I have to ask whether that same level of forgiveness or trust would occur within the businesses he governs.

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

  • It seems a double standard applies – pay independent directors peanuts, but sue them for millions when it goes wrong. Are shareholders prepared to pay independent non-executive directorsa fair recompense for taking on the responsibility? When they are, then a higher accountability is justified. Otherwise, the risk is not worth the reward. (That’s not to justify poor governance, by the way).

  • I guess Jim that in an ideal world the level of directors fees would be separate from the level of duty of care those directors hold. I’m also not sure that I’d agree that directors fees are peanuts – given that it possible to sit on a dozen or so board simultaneously – the aggregate value of directors fees is probably reasonable.

    At the end of the day if one can’t govern well, one shouldn’t be in the board room – and the status quo does nothing to up the level of performance in my mind

  • Rob Anderson |

    Does that mean that indepenent directors sign on to boards with all care and no responsibilty just for the monetary gain? Is there no legal responsibility for the boards actions?

  • No there s legal responsibility – but there should also be heightened moral and ethical standards as well IMHO

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