...

This week the gavel fell on the deceptive practices of James Hardie directors. Photo: Harry Afentoglou

SO, IT has come to this. A decade, a state government inquiry, and litigation and appeals through every level of the legal system to conclude the bleeding obvious: that company directors are required to tell the truth.

Corporate governance experts have hailed Thursday's High Court judgment on James Hardie as a ''landmark decision'' that will alter the way in which directors should conduct themselves.

It is anything but that. Vitally important, yes. Landmark? No.

The judgment from the highest court in the land merely reaffirms the law. It does not overturn or challenge the existing legislation, but rather reinforces it.

Had the High Court found in favour of the Hardie Seven, it certainly would have been a landmark decision - and arguably a miscarriage of justice, for it would have been a bitter rebuke to asbestos victims and paved the way for company directors to absolve themselves of any responsibility for their decisions and actions.

The Australian Institute of Company Directors took a considered view of the judgment, declining to criticise the court, while noting ''the case has potentially wide implications for directors, company secretaries and general counsel, in the understanding of their duties and responsibilities''.

AICD chief executive John Colvin proffered that directors ''should apply their individual, considered judgment to matters that are highly significant to the company, especially issues with market sensitivity and that involve ASX disclosure."

As a motherhood statement, it ticks all the boxes. But in stating it, the clear inference is that some company directors have failed to grasp the fundamental principle that it is against the law to make false and misleading statements, regardless of whether they have been ill-advised by the company's management or anyone else.

"The case again puts the spotlight on the area of continuous disclosure and places additional emphasis on the need for boards to carefully consider whether statements made in their company's releases are appropriately qualified," Colvin said.

True to form, the AICD this week attempted to switch the focus of the debate.

''In an environment where regulation and red-tape is increasing, the role of a company director is becoming increasingly onerous and this is having a detrimental impact on board recruitment and retention,'' Colvin added.

The institute claimed about half of all directors who responded to a recent survey complained that legal judgments such as the James Hardie and Centro cases have negatively affected their willingness to accept new board appointments.

Perhaps that's a blessing, for it could be argued such candidates clearly would be entirely unsuited or ill-equipped for the role.

In June last year the entire board of Centro Properties was found guilty of breaching The Corporations Act and not fulfilling their duties as directors, after major errors in the company's accounts mortally wounded the company, torching billions of dollars in investors' funds.

In his 186-page judgment, Justice John Middleton systematically demolished all the arguments put forward as a defence to the lax behaviour of the errant directors, who clearly failed to read the company's accounts before signing them.

If they didn't know or understand that the accounts they were signing misrepresented the company's financial position, it was their duty to know, the judge declared.

Rather than accounts, the James Hardie case revolved around a press release, duly sent to the stock exchange, in February 2001 about the company's plan to shift its domicile to the Netherlands.

In that statement, the company emphatically stated that it had established a foundation that would have ''sufficient funds to meet all legitimate compensation claims''.

There was an element of haste involved. Although Hardie for years had been considering what it quaintly referred to as ''separation'' - cutting its asbestos liabilities adrift from the operating company - a soon-to-be introduced change to the accounting standards added a sense of urgency.

Keeping the asbestos liabilities within the corporate structure would have created a drag on earnings for at least two decades.

It is worth remembering how Hardie got itself into this predicament. For most of the last century it produced asbestos products that were employed in a vast array of uses.

As then Hardie chairman John Reid boasted in 1978: ''Every time you walk into an office building, a home, a factory; every time you put your foot on the brake, ride a train, see a bulldozer at work … every time you do or see any of these things the chances are that a product from the James Hardie group of companies has a part in it.''

James Hardie was Australia's largest asbestos manufacturer, with factories in each state, mines in South Africa and Canada and factories in Indonesia and Malaysia.

It also harboured a dark secret. It had been aware since 1935 that asbestos was a killer and had received its first compensation claim for asbestosis as far back as 1939.

Despite an escalation in the number of claims in following decades, a damning Victorian government report in the late 1950s and mounting evidence about the deadly effects of asbestos in the 1970s, it wasn't until 1979 that Hardie added a health warning to its products. And it continued manufacturing asbestos until 1987.

The company, along with the other major manufacturer CSR, made a fortune from asbestos. But the cost was enormous. It is estimated that by 2020, at least 55,000 Australians will have died from the ravaging effects of asbestosis and mesothelioma.

By 2001, with escalating compensation claims, the company decided to protect its shareholders, again at the expense of its victims. The foundation, established to compensate all future asbestos victims, was left with a pittance and duly ran out of cash within three years.

James Hardie left a meagre $293 million in the kitty for all future victims, at least $1.5 billion short of what was required.

The damning findings of the New South Wales government-inspired Jackson inquiry in 2004 - immediately after the compensation kitty was found bare - provided enough ammunition for the corporate regulator to take action.

Never to be accused of rushing things, it took the Australian Securities and Investments Commission three years to launch action, which it won overwhelmingly in the NSW Supreme Court before Justice Gzell.

The seven directors and the company secretary and legal counsel Peter Shafron appealed that decision, with the directors arguing that Shafron had not advised them of crucial information relating to the potential future cost of claims and that the draft statement was not approved at the February 2001 board meeting.

Shafron argued that the firm's legal advisers were to blame for not advising him that a crucial document should have been presented to the board and the stock exchange. He also maintained that, given he was not an actuary, he could not be blamed for the incorrect estimate about future liabilities.

Essentially, when it came to apportioning blame, all eight had their fingers pointing in every direction other than their own. In a shock decision, the Appeal Court found ASIC did not prove the seven directors had approved the draft statement at the meeting because the regulator failed to call a crucial witness.

But this week, the High Court overturned that ruling and dismissed all of Shafron's arguments, including the highly technical try-on that he was not a company ''officer'' and so therefore couldn't be accused of failing in his duty as such.

For the past 11 years, Meredith Hellicar, who was a director at the fateful meeting but was appointed chairman following the death of Alan MacGregor in 2004, has forcibly argued that the move to the Netherlands was to pursue a lower tax regime and had nothing to do with avoiding asbestos compensation.

That now has been proven to be the lie it always was. James Hardie paid more tax in the Netherlands than Australia. It since has shifted to Ireland.

The sly manner in which Hardie, discussed at the February 2001 board meeting, tried to massage public opinion was highlighted in this week's judgment as evidence the directors knew precisely the true purpose of the Netherlands shift.

In a damning indictment into Australian business journalism, Hardie decided to announce the offshore shift and asbestos separation with its financial results, because it knew it would receive soft treatment from business journalists.

Directors were told that management had ''sound relationships'' with seven senior business reporters and columnists from News Ltd and Fairfax who would be provided with ''deep background''. This newspaper was not on the list.

The strategy worked, for three years at least.

Now Meredith Hellicar, Michael Brown, Michael Gillfillan, Martin Koffel, Gregory Terry, Dan O'Brien, Peter Willcox and Peter Shafron face the agonising wait for their penalties.