Archive for July, 2011

Catastrophes can happen, and sometimes do

I thought it might put my last post into perspective, if I shared the story which first got me fired up about this directors’  liability stuff.

When I was a young lawyer, I saw a hard lesson learned, and learned one myself. I didn’t understand the full import of either of those lessons until some years later.

We were all paying for the sins of the eighties one way or another.  I had been part of the Commonwealth Bank of Australia legal team that bought the State Bank of Victoria from the State Government.  SBV had for many reasons, including some very imprudent lending, fallen into a state where its future looked grim. The sale was inevitable, and essential to the interests of its customers; nevertheless it was traumatic for many Victorians, in many different ways.

After the completion of the sale, I became part of the clean-up team.  We dealt with the matters that CBA had inherited as the successor to SBV.  One of these was a lawsuit which became known as “CBA v. Friedrich”:  It had arisen out of the operations of an organisation which most people who came across it would have described as a “not-for-profit”.

In a judgement which at times verges on lyrical, Mr Justice Tadgell opened with the following comments:

“This proceeding stems from the ruin by fraud of a company called the National Safety Council of Australia Victorian Division … The plaintiff’s claim is unusual not least because of its immense size – nearly $97 million having been claimed against each defendant individually – but also because it was made against directors each of whom served in an honorary and part-time capacity.”

I settled the case with all of the defendants except the chairman of the board of directors, Mr Eise.  When the case eventually ran against him, a very sorry tale emerged.

The National Safety Council had gone through an extraordinary period of growth in a relatively short time, under the leadership of its chief executive John Friedrich.  Friedrich had by the time of hearing died.  Mr Justice Tadgell described Friedrich and his activities like this:

“… Friedrich gave the board the general impression of being an ideal chief executive of exceptional industry and ability to which the company’s remarkable expansion since his appointment had largely been due.  He did, it seems, drive the board along with
an almost euphoric sense of high achievement, a sensation which the board greatly appreciated and enjoyed.  Friedrich was awarded the Medal of the Order of Australia in the Australia Day Honours List in January 1988 …

 “Notwithstanding those qualities Friedrich was, I should judge, manipulative and deceitful; and he made himself extremely plausible by dint of being an accomplished liar.”

Through what seems, with hindsight, an astoundingly inept performance by the board, the company’s true financial position (which was increasingly parlous) did not become apparent either to the board, or to SBV who in 1988 had lent it nearly $100 million.  At the time of the loan, the company was insolvent; conversely, the financial statements provided to the bank, which had
been signed by two directors including Mr Eise on behalf of the board, showed it  to be in a sound financial position.

Friedrich used many ruses to achieve the deception.  Here is one.  At an annual general meeting of the company, a director enquired whether the financial statements had been audited.  They had been, and the auditors had raised a number of fundamental concerns about the company’s position which Friedrich was seeking to hide.

In response to the question, Friedrich waved a document and proclaimed that the “audit report” was available for inspection.  “Apparently,” records Mr Justice Tadgell, “no person present sought to inspect the document, and it was not read out.”

Mr Justice Tadgell concluded:

“It is true enough that the directors, including Mr Eise, did not know or suspect in May 1988 what the company’s financial position was.  For that they blame Friedrich’s fraudulent conduct.  Mr Eise said more than once in his evidence that the matter of the company’s financial difficulty never crossed his mind before December 1988 and even after that.  He merely assumed that all was well and had never had occasion to think otherwise.

 “It is to be steadily remembered, however, that the Board was the controlling body of the company and that the directors, including Mr Eise, did not take reasonable steps that were open to them, and should have been taken, to obtain proper financial information.”

Mr Justice Tadgell finally awarded CBA a verdict against Mr Eise of $96,704,998, a staggering amount against a part-time, unpaid, non-executive director of a not-for-profit organisation.  He obviously felt some personal qualms in doing so, and gave this almost-apology:

“If the result of the judgement seems severe, the severity will probably be perceived for three reasons.  The first lies in the size of the award to the plaintiff, but that is no more than a reflection of the size of the debt actually incurred by the company.  The second is that Mr Eise was a victim of Friedrich’s fraud.   That is a matter which arouses sympathy.  But, if the fraud was extensive so was the directors’ failure to monitor the company’s financial position …

“The third reason is that there are or may be grounds to think that the State Bank of Victoria was imprudent in making he advances that it did.  The fact remains that the company had the benefit of the advances and it thus incurred the debts.  [The legislation] does not draw a distinction between a wise and a foolish lender to whom the company incurs a debt in the circumstances it describes.”

A hard lesson in director’s duties indeed for Mr Eise.  A memorable lesson for me: to take particular and demonstrable steps as a director, to ask hard questions and to follow proper processes in relation to a company’s financial position.  I know that more than one CFO has thought me pedantic, over-cautious and possibly doubting of their personal integrity.  But I will never forget Mr Eise.


So, reading board papers means actually reading them. Who knew?

I was chuffed to have an opinion piece published in the Australian Financial Review today (check it out, p.63). It was a project cooked up between me and my PR guru/daughter. The Fin is funny about giving you online access to its articles though, so here is the text of it.

The forgotten results of the Centro decision

The recent Centro decision has wide ramifications for a large group of public company directors who do not fall within Justice John Middleton’s description of being well paid, but who face just the same burdens which he found the Centro directors carried.

Justice Middleton noted in his judgement that: “Directors are generally well remunerated and hold positions of prestige, and the office of director will continue to attract competent and diligent people.”

There are over 10,000 charities and other not-for-profits organisations which are structured as “companies limited by guarantee”, a category which brings with it the duties and responsibilities which to all public company directors are subject.

Often no other suitable structure is available under corporate law to support an organisation’s operations.

While regulatory reform of the not-for-profit sector has recently been kicked off by the federal government, directors of incorporated will be subject to the high level of responsibilities set out by Justice Middleton for some time to come.

Directors of NFPs are generally not remunerated at all, and join boards for reasons quite different from those of their corporate counterparts.

However, they still face heavy liabilities.  In the National Safety Council case in the early nineties, the chairman was personally found liable for damages of nearly $100 million, despite having been misled by a fraudulent chief executive.

Against this background, it is crucial for unpaid NFP board directors to take stock of their roles and responsibilities.

One of the most important steps a director can take is to be diligent about reading the board papers.  The Centro chairman Brian Healey admitted while giving evidence that he only “selectively” read board papers, and had only read a “concise version” of the statutory accounts.

While the annual accounts of a public company may look daunting, every director should take the time to read the full accounts, even if they do not have an accounting background.

The annual accounts have invariably been pored over many times by management and auditors who become very close to the content and may struggle to maintain the necessary objectivity.

A cold-eye review from even financially unqualified directors, not involved in the preparation process, will usually locate errors or inconsistencies, sometimes significant ones.

The board should also insist that the auditors are present at the meeting at which directors are being asked to approve the annual accounts.

Preparing financial statements often requires line-ball judgement calls about how to classify income, expenses or debts.

Management and the auditors should explicitly be asked whether any such judgements were made in arriving at the results recorded in the annual accounts, and if so, how the judgement call was arrived at.

Directors should never feel embarrassed to ask about things they don’t understand, or consider a question to be “dumb”.  The art of asking the intelligently naive question is a vital part of any director’s armoury, no matter what their level of professional experience.


On another note, I have just landed here on WordPress (after migrating from Blogger). Now it’s easy to sign up for my posts (top right!) or share links. So go ahead!

The student as the teacher – two lessons from a friend

I spent many hours in the nineties, without my consent, listening  to a band called Pearl Jam, who played with many other grungy bands on the  soundtrack of my parenting-teenagers gig.  One of their signature tunes, to which I was subjected over and over,  was called “Rearview Mirror”.  I thought  about that chorus after I caught up with my friend Emily recently.

It is always a pleasure to see Emily’s insouciant blonde bob bounce into the cafe.  I haven’t seen her  for a few months, and she seemed to bring a certain lightness with her this  time, which was a bit different to the tone of some of our previous  catch-ups.

We have had an occasional mentoring relationship over the  past 3 years.  As I have frequently  advocated, and as I confirmed again to myself looking in my rearview mirror, I  get at least as much out of those connections as I may impart as mentor.

Here are two things of the many things I have to thank Emily  for.

  •   Yet another validation of the value of resilience

Emily is the CEO of a national organisation, and the first successor to the long-serving founding CEO.  A solid phalanx of the old brigade remained on the organisation’s board after her appointment, and mounted a concerted rear-guard action against the transition to a new and progressive CEO.

Personal attacks in board meetings, behind-the-scenes plotting, rumour-mongering and the spreading of misinformation were the most vicious of the tools used, abetted by the complaints of some of the senior staff unable or unwilling to cope with the change in tempo.

Throughout that process, Emily managed to cling to a sense of self-worth, a desire to see the transformation of the organisation to a conclusion, and a conviction that “this too shall pass”.  We had a number of harrowing discussions during that time, each time concluding with Emily’s resolve to keep the mission going.

The old guard has now quit the field, to take up their pipes and slippers elsewhere; the organisation has been fully unshackled and is flying.  Emily’s resistance to slipping into a downward spiral, or just to giving up and walking out, has kept an important operation alive and able to move forward with renewed focus.

  • “The Spill”

Emily and I developed, in an organic way, a technique in our mentoring sessions which I have termed “The Spill”.  She would start by just letting everything on her mind tumble out, whether in any logical order or not, and we could then pull things out of that for investigation, discussion or observation.

I have found The Spill to be an invaluable tool when mentoring people who are under significant pressure – particularly CEOs, who are otherwise expected to be measured and dispassionate.  But you have to be prepared, as mentor, to sit quietly, listen intently and resist the temptation to intervene until the flow has become a trickle.  Only then should you start the unpacking together – as mentor try and use your scalpel rather than your cleaver in that process. Then build the plan to deal with the issues uncovered.

Thank you Emily.  As ever, you teach me more than you know.

>The bad things I have done


“Stories are pointillistic paintings in text, not slabs of paint slapped on vast, plain walls.” I just read that in the intro to a book about using a clever piece of software for writers, but it clicked with something else that has been banging around in my head the last 24 hours or so.

Memories, the things that create your own story of your life, are like those bits of pointillism as well. (I guess you have to call them “pixels” now, don’t you?) But if you just focus on the little dots, you don’t get to see the whole picture.

Thoughts drive feelings, and vice-versa. I’ve struggled with multiple minor health niggles recently, which when aggregated have knocked around my usual aim of equanimity. The lack of well-being somehow triggered a string of memories, about a collection of bad things I have done in my life.

Believe me, it wasn’t hard to find a bunch of them. That process has a fair chance of either starting or exacerbating a downward spiral, where you end up getting really down on yourself and in all probability further lowering your physical well-being too.

The only way I managed to dodge that next slide into the spiral was to retreat into what was going on right now. I was walking to the station to go and see the unveiling in concert of the Australian Chamber Orchestra’s new Stradivarius – how could you feel bad about that?

It was a bit of a diving catch, but enough to escape a further descent into negativity. One of my gurus, Tara Brach, says we are Velcro for bad and negative thoughts about ourselves, and Teflon for good and positive ones.

While there is no doubt that I have done plenty of bad things, they do not have to define who I can be now. I am pretty sure there are other pixels which would hopefully join up to show a picture of countervailing good things I have done, and which help to adjust the karmic balance.

So if you get assaulted by the bad vibes of your past, or even your present, maybe you can stand back, unhook the Velcro, and look at the whole picture. You are bound to look a lot better on the big screen than in that little slice of negativity you have been watching.

>When inspiration fails – Where can I pull some ideas from?


My aim has been to post something on my blog each week. Often it has been more than that. But it is now two weeks since I posted.

I have some stuff in the pipeline, 7/8ths ready to go. Nearly all of it, though, is more than a month old. Inspiration for new material to post has been hard to come by recently. I have been pondering why.

There are a couple of possibilities:

  • I’m doing too much of the same thing

You may know from earlier posts that I have been doing home renovations. In the earlier stages I was quite engaged in the actual activities of the building process. I was learning new skills, and achieving progress which gave a personal sense of satisfaction.

Inspiration for writing never seemed to be a problem.

In the last few weeks, while renovation has still been all-consuming, the process has mostly been marshalling different gangs of tradesmen, and then cleaning up or fixing up after them.

It’s all been so much of the same; too much admin and not much hands-on. Inspiration has been a scarce commodity.

In The Artist’s Way, Julia Cameron counsels people seeking creative renewal to take a weekly “artist’s date” with yourself – go and do something of your own choosing, by yourself, out of your usual rituals.

Those sorts of activities can help top up your creative well, so you can pull inspiration out of it when you need to. Different experiences beyond the quotidian usually help trigger things for me.

Travelling is also, for me, another time when bits of writing seem constantly to beg being put onto the page.

  • I’m not doing enough of the same thing

The current renovation regimen, with the associated fact of not living in my own house in the process, has drawn me away from my usual practice of daily writing. Or possibly, given me a tangible excuse for not writing daily.

Keeping a journal has so often, for me, brought with it unexpected insights and ideas. It has brought out things which would not have emerged if I hadn’t been in front of a page needing to be filled, one way or the other with something, anything, before I could declare the day’s journaling complete.

So it may also be that I simply haven’t noticed things which might otherwise have brought inspiration, because I have not dedicated time to reflect or allow incubation of ideas.

As Belinda Thomson has noted in her recent blog post on Getting Past PR, there are times when you have to: “Just write”. (“The day I lost my voice”)

In that vein, I am doing something different – posting 2 articles at once. The second one (The girl in the white Corolla) is one of the few bits of random inspiration that has struck me recently.

In the meantime, I had better take my own advice – do something different, and do something the same.

>The girl in the white Corolla – finding random inspiration


A pretty girl in a plain white Corolla looked across at me, as we were stopped at a red light, and lip-synched “Love your car.” And something else I couldn’t quite make out: “I have one too”, or “You’re sexy too”. The latter is admittedly unlikely. I mouthed back “Thank you” and then got all shy, hoping the lights would change. A 1999 MGF VVC, with the rare rear spoiler, has apparently still got it.

It’s interesting to see what one little incident throw up, if you take a moment to notice that things are being triggered. Three things came up for me, in the next few moments.

Random inspiration

I’m not sure what made the incident stand out (beyond vanity), except that a few moments earlier I had heard a song on the radio, from an Aussie troubadour whose name I wish I could remember, called “Mario Milano’s Monaro”. I was perhaps just struck by the simple narrative of the song and the unexpected pleasure of the girl in the Corolla encounter.

Sentences started lining themselves up in my head, like some kind of prose poem. I can’t recapture that poetry now, or perhaps I just thought it was poetic at the time. Something I hadn’t appreciated, but can see now, is that inspiration can be an enjoyable experience in itself, rather than just the precursor to some sort of concrete output.


There’s something re-assuring to me about the look of well-worn leather, or the dull gloss of a frequently used though aging spanner. I flatter such things as having “patina”, although there is another way of looking at it, to which my wife subscribes, called “shabby”.

I was mildly peeved by the comment from the guy who recently serviced the MGF, that it was “a nice tidy daily driver”. Hang on – I know there are a few very minor dints and scratches. The alloy gear knob is mildly pitted and the convertible top is scuffed.

But every time I climb in and drive it, it just seems to fit; envelops me in an aura of comfort and familiarity in a world of throw-aways and rapid obsolescence. I love genuine patina, and even a bit of genuine shabby.


A bloke who was in the midst of an affair with a mid-sixties VW kombi (the one with the long sunroof and the flip-up split windscreens) once told me, possibly in self-defence, that there was a concept called simpatico: the reciprocal bond that can exist between a man and an inanimate object.

I’m pretty sure that he restricted the definition to men, although I wouldn’t want to preclude the possibility of there being a female version of simpatico.

The MGF is a colour called Nightfire Red, no doubt some inspiration of the marketing department. I’ve always called it, and by extension the car, “Frankly Scarlett”. I reckon I am entitled to misquote Mr Gable for lyrical effect.

Scarlett makes me smile each time I hear the snick-snick of the gearbox when I change from 3rd to 4th. I hardly ever notice the symphony of rattles and shakes.

I caught myself saying out loud: “Hey, I missed you” when I picked it up from the Park’n’Fly a few weeks ago.

We both love that long drive home from the airport, with the daggy 60’s playlist on the iPod that goes for hours. Scarlett never complains about my rendition of 24 Hours from Tulsa, and it actually sounds in tune to both of us at 3,100 revs. That’s part of the reciprocal nature of simpatico.

If ever I’m going to be seriously challenged by the central notion of impermanence, of all things rising and passing away, it will be when I can no longer half-slide, half-fall into that patina-covered leather bucket.

But anyway, I wonder what the Corolla girl actually said as I pulled away from the traffic lights blushing.

PS – If you haven’t heard of Mario Milano, or his famous wrestler’s finishing move the “Atomic Drop”, then either you are under 50 or your dad has never bored you by recounting Mario’s battles with Killer Kowalski and Skull Murphy. You could start here:

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