|
Jane is an independent non-executive director of a listed industrial chemicals company which was originally family owned and is still managed by family members. The CEO of the company has purchased luxury assets such as a yacht, a jet aircraft etc. ostensibly for entertaining company guests, customers and opinion makers and as a staff welfare measure for use of the staff.
Jane believes that the assets will be used by the CEO for his family and his own personal use but is sure that records will be created to reflect the usage and the assets will be so used for a relatively short time for the purported purpose. The auditors of the Company have sought a resolution from the Board that the assets are in fact for the purpose of the business of the Company.
How should Jane proceed?
This can be a difficult situation, especially as companies that were once family owned can still have majority family shareholdings and the directors operate under the belief that breaches of duty can simply be ratified by a shareholder vote.
Before Jane does anything I would remind her that suspicions, particularly of someone's future intentions, do not constitute evidence of wrong doing. Whilst her tenure is safe in that she cannot be removed by the other directors, levelling unsubstantiated accusations at other board members is not an effective way of performing her duties.
I would suggest to Jane that, in her role as an independent director, she remind the Board of their statutory duty not to misuse their position to gain an advantage or to cause detriment to the company, as set out in s. 182 of the Corporations Act which carries a maximum penalty of $1 million. When discussing the auditor's request for a resolution, she should again remind the Board of this duty and the fact that criminal sanctions are applicable if fraud or dishonesty accompanies the breach.
As an independent NED, Jane should be a member of the company's Audit Committee. As a member of that committee, Jane would be able to request that suitable internal controls be established for the use of these assets and identify to the auditors that this is a high risk area.
If evidence is found that confirms her suspicions, then she is able to take further action.
See how other practitioners addressed the problem... |
Case Studies