Penalties for Centro directors under fire

A LEADING adviser on corporate governance has criticised the light penalties applied to the Centro directors and warned that they will be closely watched if they try to take on any other corporate roles.

By InvestSMART · 1 Sep 2011

By InvestSMART ·
1 Sep 2011

Comments

The head of the Australian Council of Superannuation Investors, Ann Byrne, said the financial penalty imposed on former Centro chief executive Andrew Scott was "much less than what he would have got in director's fees for one year" and she believed the non-executive directors deserved "something greater than bad publicity as a penalty".

"I think it sends a message to investors that in times when there clearly has been a lack of oversight the only people who must suffer a financial penalty are in fact the investors."

Ms Byrne, whose organisation provides corporate governance advice to superannuation funds that together control more than $300 billion, said the Centro board had failed to look after shareholders' interests.

"Therefore, as a representative of our funds, we have to question whether or not these particular directors will do that on any other company where they are in fact a member of the board," she said.

Centro said yesterday that Jim Hall and Paul Cooper, two of the directors who the Federal Court yesterday declared had breached the Corporations Act when approving company accounts in September 2007, would remain on its board.

Mr Hall is also a director of ASX-listed PaperlinX, Alesco and ConnectEast.

The other Centro directors declared to have breached the Corporations Act chairman Brian Healey, Mr Scott, Sam Kavourakis, Graham Goldie and Peter Wilkinson are no longer with the company.

Mr Scott has been ordered to pay a civil penalty of $30,000.

Australian Shareholders Association chief executive Vas Kolesnikoff said the Federal Court had "let down the entire community by imposing no penalty".

"Where the people see highly paid executives and directors found guilty of breaking the law, but no penalty is imposed, then it is no wonder that the legal community is seen to be out of touch," he said.

The Australian Institute of Company Directors said the decision raised important issues about how much directors could rely on the advice of management and external advisers.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What penalties were imposed on Centro directors after the Federal Court ruling?

The Federal Court declared several Centro directors had breached the Corporations Act for approving company accounts in September 2007. Former chief executive Andrew Scott was ordered to pay a civil penalty of $30,000. Commentators criticised the overall penalties as light, and some investor groups said the court effectively imposed no meaningful penalty on other directors.

Why have corporate governance experts criticised the penalties for Centro directors?

Corporate governance advisers said the penalties were too light. Ann Byrne of the Australian Council of Superannuation Investors noted Andrew Scott’s $30,000 fine was less than a year’s typical director fees and said non‑executive directors deserved more than bad publicity. The Australian Shareholders Association also said the court decision let down the community by imposing no significant penalty.

What did the Federal Court find the Centro directors had done wrong?

The Federal Court found that several Centro directors breached the Corporations Act when they approved the company’s accounts in September 2007.

Which Centro directors will remain on the board and do they hold other directorships?

Centro said Jim Hall and Paul Cooper would remain on its board. Jim Hall is also a director of ASX‑listed PaperlinX, Alesco and ConnectEast, according to the article.

Which Centro directors are no longer with the company following the ruling?

The article says the directors declared to have breached the Corporations Act who are no longer with Centro include chairman Brian Healey, Andrew Scott, Sam Kavourakis, Graham Goldie and Peter Wilkinson.

How did investor groups say this decision affects shareholders and investor protection?

Investor representatives warned the decision sends a worrying message to shareholders. Ann Byrne said the Centro board failed to look after shareholders’ interests and that investors appear to bear the financial cost when there’s a lack of oversight. The Australian Shareholders Association said imposing no meaningful penalty undermines confidence in accountability.

What wider governance issues did the ruling raise, according to industry groups?

The Australian Institute of Company Directors said the decision raised important questions about how much directors can rely on advice from management and external advisers, highlighting challenges around director responsibility and oversight.

Will Centro directors be able to take on other corporate roles after the ruling?

The article notes critics will be watching. Ann Byrne said directors found to have failed in oversight would be closely monitored if they try to take on other corporate roles, and investor groups indicated they would question whether those directors will protect shareholders’ interests on other boards.