Company directors must heed the lessons of the Hardie case: Gottliebsen

One of Australia’s corporate heroes, Peter Willcox, has had his business life cut short by his James Hardie conviction. However, as I will describe below, what happened to the Hardie people is also a warning to all of those in public life – and it goes way beyond the need to prevent damaging press releases.

As head of BHP’s oil and gas division in the 1980s and 1990s Peter Willcox spearheaded BHP’s dramatic oil exploration expansion into the Gulf of Mexico which is now an important source of BHP profits.

There would be no listed AMP in Australia, as we now know it, but for the work of Peter Willcox as AMP chairman between 2003 and 2005. Willcox found himself chairman of an AMP company that was technically insolvent (though policy holder’s funds were not in jeopardy). He appointed Andrew Mohl chief executive and together they undertook one of the most remarkable rescue efforts Australia has ever seen. The Australian business community will always be in his debt.

More recently, Willcox joined the Telstra board in 2006 after the reign of Sol Trujillo had started. He would have played a major role in the recent changes of chairman and CEO.

Willcox was a director of James Hardie from 1992 until October 2001 – that was a long time, too long. The infamous press release saying the asbestos fund (The Medical Research and Compensation Foundation) was properly funded was issued in February 2001.

I find it hard to convict directors simply on a press release. However, in the case of Hardie, when former Westpac director Sir Lew Edwards left the Hardie board (he had been there 11 years) to become chairman of The Medical Research and Compensation Foundation, it did not take him long to work out that there was not enough money there.

Lew made his views known to anyone who would listen, and that’s when the Hardie board’s alarm bells had to ring. Of course, in director land, if you are not happy with a situation you don’t make a public fuss – you simply leave. I don’t know whether Peter Willcox was unhappy or not, but when there was a Hardie corporate re-organisation in October 2001 he saw the chance to jump the Hardie ship. However, it did not save him and it won’t save others in public life. The Hardie case not only tells directors to watch press releases, but also not to think later resignation is any defence.

In my view, leaving aside the asbestos activities, from a corporate point of view the greatest sin of the Hardie directors was the 2003 cancellation of partly paid shares which, through their uncalled liability, effectively kept in Australia the value of assets transferred overseas. In taking that action Hardie directors were thinking of shareholders and not the wider community.

In public life, when you are asked to do something you consult lawyers to see if it is permissible. James Hardie got the legal tick every time. But all too often their actions did not smell right. The smell test is vital. It would have saved Peter Willcox at Hardie but, ironically, it might have destroyed the AMP listed company. Enjoy your retirement Peter and don’t waste your personal money on appeals. The damage is done.