Over 220 senior executives and non-executive directors were given a seat at the table as the hypothetical board reviewed the information at hand and discussed next steps.
Companies are more likely to be subject to a class action in Australia than in any other country except the US. With both consumers and shareholders becoming more litigious, boards must be vigilant when it comes to managing their risk of a class action. How a board deals with a potential claim at the outset can affect what it costs the organisation – both financially and reputationally.
The Resolution’s third Board Hypothetical involved a financial services company facing a claim that one of its products was misleading and deceptive. The panel included:
Paula Dwyer – Chairman of Healthscope, Tabcorp and Director of ANZ Bank
Charles Macek – Chairman of Vivid Technology and former Director of Telstra, Wesfarmers and Vicinity Centres
Liz Hourigan – Company Secretary for Campus Living Villages and former Company Secretary for Centro and Federation Centres
Don Farrands – Commercial Barrister at Law with extensive experience in class actions, including representing SP AusNet in the largest class action in Australian history
Leigh Jasper – Founder and CEO of Aconex
Damian Grave – Partner and Head of Global Class Actions for Herbert Smith Freehills
Alan Mitchell – Partner at Herbert Smith Freehills specialising in commercial litigation and dispute resolution
Over 220 senior executives and non-executive directors were given a seat at the table as the hypothetical board reviewed the information at hand and discussed next steps. Over the course of an hour, the panel grappled with a wide range of questions including:
How should they respond to the claim?
Was there any validity to the claim?
What would it cost to defend?
What was the potential revenue impact for the company?
Would PI or D&O insurance cover the claim?
Should they continue to sell the product?
Why were they not aware of this potential customer issue earlier?
Was the product compliant with financial disclosure regulations?
Were the company’s internal risk and audit processes sufficient?
Were the company’s sales commission and remuneration structures driving the right behaviours?
Did they need to disclose the potential claim to the ASX?
Were they obliged to report the potential claim to ASIC and/or APRA?
What did they need to do to ensure Legal Professional Privilege was maintained?
How should they manage their accounting obligations in light of the end of financial year?
What stakeholders needed to be made aware of the potential claim?
Should they try and mediate or fight the action?
Each answer raised a multitude of new issues to deal with.
In an engaging way, this Board Hypothetical demonstrated the complexity and breadth of issues that a board must address quickly to manage a potential class action. The event was designed to empower senior executives and non-executive directors by learning through a life-like scenario. It also gave them an opportunity to connect with their peers and build relationships in an informal environment.
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Steve Pell / About Author
Steve Pell is Managing Director at BoardOutlook, a software platform that delivers a standardised and rigorous platform for board evaluations and professional development.
Steve is a trusted advisor to boards and non-executive directors on governance matters, with specific focus on issues at the intersection between board and management. He has substantial expertise in the development and implementation of frameworks to build effective partnership between board and management on organisational strategy. He is a regular writer for the Australian Financial Review on leadership, governance and board effectiveness.