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James Hardie, One Tel Board selection, risk and governance ACS State conference 29 april 2010

Not for profits what are they? What is a company?Boards as governing mind'Role of directors Role of directors for not for profitsCase studies One tel, James HardierLessons on selection, governance, risk management. overview. Usually are companies limited by guaranteesAre public companies' under Corporations ActMay be PBI, DGR, ITECRegulated under Corporations Act and general lawMay be incorporated associations other laws apply but principles similar.

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James Hardie, One Tel Board selection, risk and governance ACS State conference 29 april 2010

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    1. James Hardie, One Tel Board selection, risk and governance ACS State conference 29 april 2010 arthur koumoukelis gadens lawyers, sydney

    2. Not for profits – what are they? What is a company? Boards as ‘governing mind’ Role of directors Role of directors for not for profits Case studies – One tel, James Hardier Lessons on selection, governance, risk management overview

    3. Usually are companies limited by guarantees Are ‘public companies’ under Corporations Act May be PBI, DGR, ITEC Regulated under Corporations Act and general law May be incorporated associations – other laws apply but principles similar Not for profits

    4. What is a company Legal person Separate and perpetual existence Able to contract – powers are as for natural Gives limited liability to members Exists through registration Structure established by its constitution, rules, ‘shareholder’ or ‘member’ agreements

    5. What is a company Constitution is contract between members, company and directors Members/shareholder ultimately ‘own’ the company For Not for profit – company is formed for a purpose or a mission or an object

    6. Board as governing mind Business of the company is to be managed by or under the direction of the directors – s 198A(1) The directors may exercise all the powers of the company except any powers...that the constitution requires the company to exercise in general meetings – s198A(2)

    7. Board as governing mind Structure by which company operates to achieve mission Recruits and oversees CEO and management Monitors performance and compliance roles Are we meeting Aged Care Act obligations? v Are we running solvent from our aged care operations? v Are we achieving our mission?

    8. Role of directors Collectively make up the board and act as part of a board Not there to manage operations (may in circumstances when need arises) Elected/appointed by members Held responsible for: Managing risk Setting strategic direction ‘setting the tone’ of the organisation

    9. Role of directors Duty to: Exercise powers and discharge duties with degree of care and diligence that a reasonable person would exercise – s 180(1) Act in good faith in the best interests of the organisation and proper purpose– s 181 Avoid and disclose conflict of interests Not misuse position Not misuse information Prevent insolvent trading

    10. Role of officers Has same duty to: Exercise powers and discharge duties with degree of care and diligence that a reasonable person would exercise – s 180(1) Act in good faith in the best interests of the organisation and proper purpose– s 181 Definition of ‘officer’ – person who makes or participates in making decisions that affect whole or substantial part of business

    11. Role of directors in NFPs No different Directors of not for profits held to same standard. If anything, higher standard. Listed company maximises profits, NFP maximises reputation.

    12. Case studies James Hardie Public company funding future liabilities for asbestos related claims Board met to consider ASX and other general statements saying fund was fully funded and would have sufficient funds to meet claims. Statements prepared by management Formed part of board papers

    13. Case studies Held: Release was wrong Directors knew or ought to have known if they exercised reasonable caution it was wrong Directors including non exec directors breached duty under s 180 (1) – failure to exercise due care and skill Duty extends to ‘officers’

    14. Points that came out Practice of the board not to put formal resolutions Practice was chairman summarised and directors indicated position External directors ie phoning in, did not have same material but did not voice concerns Some degree of ‘going along’ Decision currently on appeal. Arguments heard last week.

    15. Case study One Tel Jodee Rich joint CEO and director, Mark Sibermann finance director of One.Tel Ltd Other non executive directors including James Packer who was substantially involved in the day to day affairs of the company. Allegation that Rich & ors, did not disclose true financial position of company to board (that they knew or should have known) and was a breach of duty in not disclosing for period January – April 2001

    16. Case studies Held: ASIC failed to prove there had been a breach of duty s. 180 requires balancing foreseeable risk of harm against potential benefit that may accrue Must look at particular circumstances

    17. Lessons for selection, risk, governance Selection Choose directors prepared to work ie read minutes, be involved etc Find mix of skills important as they see things you may not Avoid ‘group think’ or people who group think Find people who understand mission of organisation

    18. Lessons for selection, risk, governance Risk Directors must understand they are responsible ‘officers’ can be held responsible to company Keep board informed Board must ask questions If there is dissent on proposals, explore and note dissent Chair must promote discussion

    19. Lessons for selection, risk, governance Governance Constitution can limit board’s powers Can also control incumbents (eg maximum terms) Process of taking board minutes important Board resolutions do matter, make sure they are correct Make sure Chair works well with CEO

    20. Lessons for selection, risk, governance Governance Have mechanism that promotes rejuvenation of board Use committees to take burden off whole board, define their roles

    21. Questions to ask yourself as director Do you have information to make decision? Is there a conflict? Is decision in the best interests of company? Is decision transparent to stakeholders? Is it consistent with our mission/purpose? Am I protecting the assets of the company? (not just financial) Would the company be embarrassed by the action we take? (front page news)

    22. Ideas Review constitution to control power of board Limit tenure of board members to encourage fresh blood Look at minutes and resolution processes Create and use committees to help board: nomination, audit, policy Have power in constitution to create committees

    23. contact Arthur Koumoukelis p 9931 4873 m 0419 791 197 akoumoukelis@nsw.gadens.com.au

    24. the end

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