from Crikey …..

James Hardie is just the tip of the iceberg

Adam Schwab writes:

A former derivatives trader and long-time sharemarket investor told this writer yesterday that he didn't bother with fundamental analysis anymore because he simply couldn't trust was companies said. Instead, the investor said he now preferred to predominantly rely on technical analysis (or trends) to determine his trades, especially with regard to "short selling".

A few hours later, it was reported that NSW Supreme Court Justice, Ian Gzell, ruled that seven James Hardie non-executive directors and three executives had committed misleading and deceptive conduct in relation to a February 2001 press release. The release had claimed that a fund setup to meet potential asbestos liabilities was "fully funded" (it ended up being $1.3 billion short).

While the actions of former chairperson, Meredith Hellicar, and the remaining directors are without excuse (Hellicar, a former CEO of law firm Corrs Chambers Westgarth, was dubbed an "inaccurate" and "most unsatisfactory" witness), their conduct has not occurred in a corporate vacuum. There are numerous other former high flying corporate directors who presided over corporate collapses in which shareholders were fed constant misinformation but who have so far escaped any sanction whatsoever.

The former executives and directors of ABC Learning Centres have so far, avoided any charge for their actions at the insolvent company. Over the past five years, ABC's financial reports, upon which equity investors and lenders have based their financial decisions, were highly misleading (the company had been reporting profits when in actual fact, it had been making losses of hundreds of millions of dollars, with a large number of its centres losing money).

Under the watchful eye of auditors Pitcher Partners, ABC had been booking up-front cash payments as "development revenue" in an Enron-esque accounting slight of hand. In a remarkable coincidence, the Pitcher Partners auditor who formerly signed off on ABC's accounts was a gentleman by the name of Russell Brown. Brown also happened to audit the books of ABC founder Eddy Groves’ private company. No charges have been laid against Eddy Groves, or any other ABC executive. Further, the man who chaired ABC’s audit committee for five years, David Ryan, was last year re-elected Chairman of toll-road company Transurban and a director of Lend Lease -- that was after ABC’s was forced to re-state its earnings and slide into insolvency.

Then there is the sad case of MFS -- the Gold Coast-based fund manager run by former lawyers, Michael King and Phil Adams. MFS' business plan appeared to revolve around paying too much for cyclical assets (generally in the tourism sector) and flipping those assets into satellites. Those satellites would also invest in each other in what resembled a demented Macquarie Bank.

MFS was able to stay afloat for as long as it did because gullible investors were willing to place their savings into MFS' satellites or managed funds. Many did so on the basis of advice from their financial planners. Two former MFS directors, Michael Hiscock and Paul Manka, also happened to be financial planners at Avenue Capital Management. Avenue clients were among the largest investors in MFS funds, including the maligned Premium Investment Fund.

Then there is a sordid tale of Allco Finance Group, which paid $330 million to acquire property and fund manager Rubicon in December 2007. Allco directors Gordon Fell and David Coe collected tens of millions in cash for the deal, which was approved by independent Allco directors Rod Eddington, Barbara Ward and Bob Mansfield. Those independent directors also approved of Allco lending $50 million to a trust which was controlled by Allco’s founder, Coe, and which invested in the Allco headstock and satellite funds. Allco was placed in administration less than a year later, while Rubicon chief Fell used the proceeds from the related party Rubicon transaction to acquire a $28 million Sydney harbourside property.

The corporate careers of former James Hardie directors, especially that of Meredith Hellicar, are now over. Hellicar resigned from the board of AMP shortly after the damning judgment was delivered. It is expected that she will also resign from the board of Amalgamated Holdings shortly. Other leading director, Peter Wilcox, is expected to resign from the Telstra board.

While justice appears to have belatedly been done at James Hardie, it appears to be very much the exception to the rule.

Fortunately for journalists and readers alike, it's been a week of wall-to-wall outrage, starting with the courts, where this state's socialist judiciary once again demonstrated how hopelessly out of touch they are with public sentiment.

Former directors of the leading philanthropy and corporate ethics consultancy, James Hardie Industries, appeared in the NSW Supreme Court on Monday, protesting against ASIC's plans to punish them for breaches of director duties, including the fact they had knowingly short-changed their asbestos compensation fund by $1.9 billion.

Tom Bathurst, QC, representing four of the seven directors, claimed his clients had suffered enough due to adverse publicity over the matter and that any more sanctions from the corporate watchdog would be inappropriate.

Quite right. For too long now, the terrible suffering of James Hardie's directors has been overlooked. Have Hardie ex-employees taken time out from their terminal illnesses to consider the plight of their former chief executive and small plane enthusiast Peter MacDonald? Have any dragged themselves away from their oxygen tanks to imagine just how difficult it must have been for Macdonald to spend the $77,000 a month consultancy fee that Hardie paid him in the mid-2000s? Of course not. That's what sucks about people with terminal illnesses: it's all about them.

And besides, everyone knows that before she was so rudely interrupted by ASIC, former Hardie chairwoman Meredith Hellicar was, like, just about to stump up that extra $1.9 billion. I bet she was in her car, on her way to the ATM when she got the call from Mr Negative himself, Justice Ian Gzell, who then had the temerity to describe Hellicar as "a most unsatisfactory witness".

http://www.smh.com.au/opinion/hey-hardie-spare-us-a-dime-20090731-e4gg.html?page=-1

Elite directors form conga line to defend their pals at Hardie

Adam Schwab writes:

A little more than two weeks ago, seven non-executive directors of former asbestos producer James Hardie received five-year bans from acting as company directors and substantial fines of $30,000.

The vanquished members of the James Hardie boardroom included high-level fellows of the Australian directors club, including former Corrs Chambers Westgarth CEO Meredith Hellicar, and ex-Telstra non-executive director Peter Willcox. Several former Hardie executives, including former CEO Peter MacDonald, received far lengthier bans of between 5-15 years. In handing down the sentences, Justice Ian Gzell provided little leniency, agreeing almost entirely with the penalty requests demanded by the Australian Securities and Investment Commission.

The civil action pertained to a press release approved by the James Hardie board in February 2001, which wrongfully claimed that an asbestos trust set up to compensate victims was "fully funded" and "provided certainty for both claimants and shareholders". It was later determined that the trust established by Hardie was under-funded by $1.8 billion.

By implication, Gzell paid scant attention to the plethora of character references from Australia's business elite, requesting leniency for the Hardie directors. Anglo-Australian courts pay, in some cases, significant attention to character evidence in determining sentencing. In lower forums, such as the Magistrates Court, a sitting juror may decide to hand down a suspended-sentence without conviction for an offence perhaps worthy of a custodial term simply due to strong character evidence from friends or associates of the accused.

The James Hardie directors received glowing character references from Australia's business elite. Elisabeth Sexton in The Age noted that "the NSW Supreme Court yesterday released evidence from directors and executives Catherine Livingstone, Andrew Mohl, Michael Deeley, David Higgins, Graham Bradley, John Palmer, Nora Scheinkestel, Dick Warburton, Rob Ferguson, Rod McGeoch, Stephen Porges and Stephen McClintock." The list of character referees read like a veritable Who's Who of the Australian directors club.

Catherine Livingstone is the cleanskin chairperson of Telstra, having previously served as CEO of Cochlear, and chairman of the CSIRO as well as a non-executive director of Macquarie Bank and WorleyParsons. Dick Warburton was selected by RiskMetrics earlier this year as Australia's most successful director, based on a series of benchmarks, while Andrew Mohl had a successful stint as CEO of AMP before being appointed a non-executive director of Commonwealth Bank. Somewhat perversely, former BT investment banker Rob Ferguson, now chairman of litigation funder IMF, also provided a character reference, despite him heading a company that profits from funding legal action against companies who wrong shareholders.

The decision by the various business figures to vouch for the accused directors was all the more unusual given the scathing judgment of Ian Gzell, in which he was especially critical of Hellicar's testimony, noting that the former public relations executive was a "most unsatisfactory witness" who displayed "a dogmatism in her testimony" that was not accepted.

While the willingness of the various doyens of Australian boardrooms to publicly defend their brethren is, in one sense, admirable (it should be remembered that the actions of the Hardie directors, however heartless or negligent, had little detrimental effect on Hardie shareholders), it also represents an alleged failure to understand their wider duties to society.

The privileged few who serve on Australian boardrooms (and it is a very small few, according to an ISS study, 45% of ASX100 boardroom roles are occupied by only 123 business people) should be expected to act with utmost integrity, taking into account not only shareholders, but also the community.

That almost 59 respected figures would stake their reputation to defend the Hardie directors who were found guilty of a clear breach of their directors' duties perhaps shows a lack of understanding that their responsibility lies not merely to their own shareholders.