The Personal Liability of Director & Employees – Has it turned Governance on its head?

The Personal Liability of Director & Employees

The law of directors’ personal liability for the acts of their corporation has changed its choreography over the years.

Directors used to be like wallflowers and the law wasn’t much interested in asking them to dance. In the latter part of the 20th century, however, spurred by corporate excesses, there was a concerted legal attack on this corporate veil – the legal device that directors could hide behind to avoid personal liability when their corporation did something wrong.

This attack was a bit like the Dance of the Seven Veils in which lawmakers attempted to strip away the anonymity and sanctity of directors and expose them to the naked reality of personal liability.

The 21st century has seen the attack extend to highly paid senior executives such as CEOs and CFOs. Now, for example, in the newly minted, mostly ‘harmonised’ Work Health and Safety Act (just one of many examples), lawmakers are extending this personal liability to lower echelons of employees of corporations such as managers and other middle management. As the tentacles are reaching down further into the bowels of corporations, it is fair to ask if the dance has changed to The Limbo.

At the Better Boards Conference in Melbourne in July 2012, Brian Herd examined these developments and asked a fundamental question, “Is the mantra: ‘Boards Govern, Managers Manage’ being diluted by the law to such an extent that it is now meaningless?”

Brian’s conference presentation also considered the implications of these developments such as:

  • What is the current state of play of personal liability for Boards and employees and where is the law going?
  • In this context, what effect does this new personal liability on employees have on their employment agreements?
  • What is the place of vicarious liability of corporations for the acts of their employees now that employees are personally liable?
  • If Corporations can indemnify their Directors can they, or should they, also indemnify their employees?
  • What is the place of Directors and Officeholders Insurance in protecting employees faced with personal liability?
  • How will it change the traditional relationship between Boards and CEOs and other employees?
  • Where does the personal civil liability immunity for voluntary Board members fit?

The presentation challenged attendees to both appreciate the tsunami like growth of personal liability (with over 700 pieces of legislation imposing it) and how they need to reconsider the relationships between boards and senior management.

Avatar About Brian Herd

Brian is a partner with the Brisbane law firm Carne Reidy Herd.

He is also a part time member of the Queensland Law Reform Commission and chair of the Queensland Law Society’s Elder Law Section.

He spends a significant amount of his time and expertise in advising the not for profit and community sector on governance, restructuring and constitutional review, mergers and acquisitions, legal compliance and risk management. He has presented at many conferences on the changing legal dynamics and needs of the sector and what he calls their 3M’s – melding their mission, with margin and management.

He says working in the area gives him the unparalleled opportunity to mix his passion for the community sector with the love of his profession.

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