It has been a challenging period throughout the COVID lockdown and the associated socio-economic upheaval in Australia and around the globe. However, as the scientists work towards a vaccine, more worrying for our long-term recovery are the frightening events occurring under the Cloak of COVID.

There are amazing stories of corporate cooperation and compassion. Let’s hope that these stories achieve greater notice as the crisis eases. They are the exemplar for courage and good leadership – where Chairs, directors, management and employees have come together, stepped up, innovated and adapted to the changed conditions to produce extraordinary results. These leaders, using their power of influence for common good rather than individual benefit, demonstrating the core benefit and reason for companies engaging independent directors.

Today however we must discuss ‘the other leaders’, those who use their power and influence for self-interest or self-aggrandisement. How we recognise these corporate psychopaths and bullies, how we can counter their actions and protect ourselves against them.

Directors are required to exercise influence, and the ability to influence derives from two sources:

  • Achieved Influencers – who derive their power to influence from their life and character demonstrating innate or acquired traits and achievements of life such as depth of experience, relevant skills, talent, intelligence, education, principles and empathy; and
  • Derived Influencers – who are perceived as powerful due to external factors such as substantial wealth, large shareholding, prominent family or public profile and connections i.e. ‘being part of the right crowd or a power circle’.

Through their own achievements, Achieved Influencers acquire respect and, the best of them, also acquire some of the external indicia of Derived Influence. However Derived Influencers have not earned ‘the respect they demand’ particularly where they refuse to gain Achieved Influencer indicia. Derived Influencers often do not take quality and principled decisions or actions as they lack the foundation of experience, knowledge or necessary personal traits and the self-awareness of their deficiencies in those areas. These Derived Influencers then wield their power to influence through intimidation aimed largely to retain or increase their own power, to protect their own, largely unearned, reputations and to quash or silence dissenters.

At the other end of the of corporate cooperation spectrum stories are emerging from both listed and unlisted companies of the most alarming actions by Derived Influencers, the corporate psychopaths and bullies coming out to play:

  • significant shareholder & executive director bullying independent non-executive directors to pass related party transactions favouring him and his companies;
  • founder & executive director bullying and issuing threats to executive management team members via calls, emails and Zoom conferences;
  • founder & executive director bullying independent non-executive directors to sanction or ignore past and current personal transgressions;
  • significant shareholder & executive director refusing to provide Board and Committee members with information or access to management for that information;
  • significant shareholder & executive director disseminating false information;
  • independent non-executive directors being threatened with reputational ruin by prominent directors– despite being aware of the sanctity of Board confidentiality.
  • executive director refusing to ‘engage’ with an independent director as the executive’s demands had been questioned and were eventually not agreed by the independent non-executive director and demanding their resignation;
  • independent non-executive directors being pressured to vote with the majority and against ASX listing rules, the Corporations law, company policies and basic elements of decent human interaction; and
  • independent non-executive directors being threatened with the spurious rumours, deliberately false fabrications under the guise of (specious) legal threats when they requested simple compliance with the Corporations law or company policies.
All these examples have occurred under the Cloak of COVID and in front of other directors passively watching these events from the (Zoom) Board table. Lockdown has not been all bad news for some – there are several stories of staff and even board members, bullied and harassed before COVID, who have been able to shelter behind the Zoom conferences and their ‘working from home’ status to avoid some of the constant harassment and gain much needed breathing space.

And on the positive for companies and directors, the Government has recognised the uncertain trading conditions and responded by instituting sensible regulatory exemptions from the current governance regime, for example, director’s relief from personal liability for insolvent trading and continuous disclosure changes. However, these exemptions are temporary.

There has been no suspension of the normal director’s duties, their obligations or available defences, the Corporations or common law, the requirement of compliance with company policies or the raft of other legislation which continues to impose personal liability upon directors.

Despite the ongoing and unchanged obligation to act properly, under cover of COVID, the corporate psychopaths and bullies have come out to play. They believe that the Cloak of COVID is some form of Harry Potter Invisibility Cloak* so that none of their transgressions will see the light of day.

Similarly, they believe that any additional power they can gain at this time will be their source of power into the future and so it’s ‘worth the risk’ and that they can act with impunity – that no one is watching or that no one cares about their actions. Just as the Marauder’s Map* shows Hogwarts castle, its grounds, the secret passages and the presence of all those wandering the halls, under lockdown the psychopaths and bullies are using their insider knowledge to wrest advantage for themselves at the expense of other shareholders.

Emerging from these stories are two distinct categories of Board members:

A. the silent majority – passive, disinterested or status-orientated directors complying with the psychopath’s directions either to retain their board positions or believing in Chamberlain’s failed appeasement pact announced on 30 September 1938 ‘for peace in our time’; OR

B. the engaged minority – courageous, independent non-executive directors who are opposing the self-interested actions of the corporate psychopaths and bullies by standing up for the rule of law, principle and good governance.

The Cloak of COVID is a cold and lonely place. These strong independent voices – standing up for good governance practice and compliance with the law – risk being marginalised, victimised or forced to resign rather than risk their reputations by condoning improper behaviour.

What can and should we do?

Anyone interested in the benefits of good governance, including shareholders, commentators, company analysts and debt funders, should examine the list of independent non-executive directors who are resigning now from these boards. They should ask questions at briefings and AGMs for the reason for the departures, read the company announcements and results packs with a higher degree of scepticism than normal and ask specific questions on the actual rather than general state of adherence to the ASX principles of good corporate governance including closely examining any related party transactions. The Regulators will most certainly be asking these questions in due course.

Anyone investing or interested in investing in companies and others within the governance and investor community will be asking questions about what happened under the Cloak of COVID. If we don’t, then all the governance benefits that we have gained over the last 35 years including the advances that allowed Australia to survive and thrive during and post the GFC, the last global downturn, will be lost.

For the psychopaths and bullies who think they will “get away with it” – your actions will catch up with you. We know Regulators’ investigations and Royal Commissions grind slowly but they do grind forward. There will be a reckoning as surely as class action lawyers file suits against companies and their directors.
The tenets of a good governance will not stand for these flagrant breaches once revealed – for revealed they will be.

What can, and should, independent non-executives do?

To those directors in the first category – a timely reminder of the words in 1867 of John Stuart Mill:

“Bad men need nothing more to compass their ends, than that good men should look on and do nothing.” 

More recognisable is the same warning commonly attributed to Edmund Burke by John Fitzgerald Kennedy:

“The only thing necessary for the triumph of evil is for good men to do nothing.” 

A warning to all Board members – standing by and condoning the behaviours makes you complicit in those behaviours.

So, what can or should all directors, even the passive directors, do?

  1. Remember that you continue to owe your duties as directors and obligations to the company and your stakeholders as a whole – not to appease one powerful influencer;
  2. Use your access rights under your director’s deeds, the Board Code of Conduct and the Corporations law to uphold the ASX principles by seeking necessary information;
  3. Make your voice heard in the boardroom by continuing to ask respectful questions – do not be fobbed off by belligerent reactions or excuses – until you get the information you require;
  4. Carefully examine and challenge any information including related party transactions or requests and reject them if not in the Company’s best interests;
  5. Get support by seeking impartial internal assistance and, if that is not available, external independent advice once again under your external assistance (once again under your Director’s Deeds or the Board Code of Conduct);
  6. Provide support to others by allowing all voices (executive and non-executive) to be heard in the boardroom and ‘take up united space for good governance’ so that the psychopaths and bullies have fewer places to hide;
  7. Support an external board or board and management review or a governance review to have an external, independent voice providing support for your governance objectives particularly if you are feeling under siege;
  8. At the first hint of a claim or circumstances likely to give rise to a claim, notify your D&O insurer sooner rather than (hoping someone does) later; and
  9. There are the ‘nuclear options’ if all else fails – including applying for whistle-blower protection under the Corporations law to make a qualified disclosure or publicly outing the behaviour of the psychopaths and bullies through the AGM or EGM process.

Psychopaths and bullies thrive in the shadows, dividing and conquering, so use the light cast by board meetings, thereafter Regulators’ investigations and transparent communication to shareholders through the Members’ meeting process.

Realistically none of these options are ideal however, doing nothing to stop these behaviours is not a viable option, as ‘doing nothing’ provides no protection to a director. When living in extraordinary times we are sometimes called upon to demonstrate extraordinary courage. By standing together for good practice you will protect the company, your staff and ultimately your own reputations.

One director cannot turn the tide, however it is the duty of all directors to try to raise the alarm. Ultimately if we cannot convince the other board members then it is appropriate to protect yourself through resignation.

To all those directors who have, and continue to ‘stand a post for good governance’ even if you have been forced into resignation, we thank and commend you for your efforts.

To those Chairs, directors, managers and employees who have worked so hard to innovate and adapt – thank you.

all these groups, we thank you for being the example of great leadership

“to influence others to gain their willing consent in ethical pursuit of mission” #

Influence is a neutral power – it can be wielded for good or evil. It’s our choice to do something to make a positive difference that matters.



Fiona C Shand FAICD
Principal TWG Governance
Principal Shand & Associates

(*with acknowledgment and apology to JK Rowling and Harry Potter; and # thanks to the Australian Defence Department for their leadership definition)

In “4 in 1 an Obvious Theory of Directorship”, Andrew Donovan explores why in our age of “Google Governance”, improved Board performance still seems so far away.

Directors are trapped by answers to familiar little questions. What is the right role for the Board? What is the right structure and composition? What are the right processes? What is the right balance between long and short term? And more recently, what personalities make better Directors?

The last remaining question for Corporate Governance is why there has been devastatingly little progress, despite the surplus of answers and the conscientious efforts of regulators, exchanges, experts and Directors to improve Board performance.


To access this document, please fill out the Resource Access Form on the page below:


 This issue highlights the fact that often important elements of corporate governance, in this case, the need to bring independent judgement to board deliberations to ensure that decisions are made in the best interests of the company and not distorted by other agendas, get reduced to to simplistic rules that miss the essence of  what was intended, and with damaging consequences!

The tendency to reduce issues to ‘black and white’ is part of broader tendency that we see of seeking the comfort of certainty in an area which is often very grey and where personal judgement is an essential element. Judgement calls are inherently subjective and therefore seen to be risky, especially in our culture which is heavily legally based and regulated.

The need to use judgement is, however, unavoidable in the elevated arenas of  executive and board decision making; it is a skill that needs to be consciously grown both in ourselves as individuals, and the people we are employing. It is always very telling when companies recruit their leaders externally rather than having future leaders that they have developed from within. Have they been developing their people well or at all?

Good judgement implies an ability to think well: to identify the core issues, get the right information, weigh it up to see what is really important and what is not, imagine consequences whether they be business, legal or ethical, personal or corporate, or the effects they might have on important stakeholders.

The problem is that the more rules you have the less people have the opportunity to exercise their judgement ‘muscle’, and the less chance they will have of making good judgements when they have to. A resilient, dynamic and adaptable business or organisation will be thinking about these things and consciously growing thinking skills – everywhere including in the board.

You could be forgiven for being a bit shocked about what happened recently in the Centro case ( ASIC v Healy [2011] FCA 717) when not only the board of Centro but all of the financial staff, the CFO, Managing Director and the PWC Audit team missed the fact that about $2 billion dollars of short term debt had been misclassified as long term debt. As most people would have heard by now, the Court found that the directors had breached their duties in failing to pick up a mistake, which according to Middleton J, has come to be known as the “Blind Freddy” proposition (par.251).  There has been a lot of comment about what this means for directors – especially in the context of large, complex companies, who should surely be able to rely on the experts advising them – however, the use of the expression “Blind Freddy” probably puts the result of this case in context.

There are a number of problems emerging in our traditional approach to the role and responsibilities of directors in Australia, a major one being what can realistically be expected of them as companies get larger and larger and more complex. The corporate model that we use and our legal imperatives were, of course, set down in a much simpler corporate environment of the 19 and 20th centuries. Clearly things have changed: not only in the size and complexity of companies and the business environment, but also the level of public participation in the share market and the gap between those ‘owners’ and the people who control the company. Government and regulators thus have a political motivation to demand a level of oversight that it is increasingly doubtful that a board, especially a board of part time directors, can  provide even with the best will in the world.

ASIC v Healy appears to be one of those cases: honest, intelligent, highly ethical directors, who were trying to do the right thing, who appeared to have all of the right systems and processes, and to ask all of the right questions, still got it wrong. It seems to be a tough decision. As the defence said, if the experts in the company get it wrong what hope has the board?!

The line in the judgement that sends a chill through my bones is in paragraph 333 where evidence was given of a discussion at the Board Audit Committee meeting about whether there was sufficient time for review of the financial statements, and the practical consequences if final amendments to the Annual Report did not get finalised that day. At this point, Mr Cougle of PwC, said that “he could give comfort that the auditors had signed off on the full accounts.” The question that every one of us as a director must think about is: how would we respond to that assurance, or more particularly, how would we have responded before this case?

As would be expected, a lot of the case centred around the issue of reliance under section 189 of the Corporations Law (2001). One side argued that directors must, in all reality, be able to rely on the information that came from the experts both in management and the external auditors, while the other saying that this is so, but that there are limits to this power. As is often the case, media and commentators have reviewed the decision in terms of ‘all or nothing’. That is,  there is either a total power to rely on others, or there is none. This would mean, following the case of Centro, that directors everywhere will be forced to trawl through the minutiae of the accounts to second guess the so called experts. However, like life, the answer is much greyer than that! ASIC never suggested that directors were responsible for all errors, only those which were so obvious that ‘blind Freddy’ could have seen them. Or in ASIC’s words:

“We will submit that the court can draw the conclusion [ as to the breach of standards of care and diligence] from the obviousness of the error to any reader of the accounts who had the requisite financial literacy and the knowledge that these directors had of the affairs of the companies, specifically their debts.” (Para 251.)

Middleton J ultimately agreed with this submission, but again and again throughout the judgement, he emphasized that this does not mean that directors should be experts or delve into the minutiae of operations. But that directors do have a real role – “they are not an ornament but an essential component of corporate governance.” (Para 19).

He said:

“All directors must carefully read and understand financial statements before they form the opinions which are to be expressed in the declaration required by Section 295(4). Such a reading and understanding would require the director to consider whether the financial statements were consistent with his or her own knowledge of the company’s financial position. This accumulated knowledge arises out of a number of responsibilities a director has in carrying out the role and function of a director.” (Para 17)

In summary, I think the judgement draws out some very important issues for directors, a number of which we have been promoting for some time:

  • Where directors are specifically required to sign off on an area of company reporting , such as under Section 295(4) of the Corporations Act ( that there are reasonable grounds to believe that a company would be able to pay its debts as and when they become due, that the accounts comply with the requisite accounting standards, and that the accounts present a true and fair view of the company’s financial circumstances) they cannot merely rely or delegate this to others, but must satisfy themselves that this declaration is correct;
  • The Reliance Provision in Section 189 cannot be used where a director’s personal opinion or individual certification is sought. He or she must apply their own minds and cannot delegate that assessment to somebody else;
  • A director’s role is to bring their ‘accumulated knowledge’ of the business as a whole to the task before them. This is a different perspective from other people in the organisation; it is a directorial perspective which requires the board to stand back and view the whole business, from a strategic or helicopter level;
  • The judgement upheld ASIC’s view that had the directors taken a whole view, they should have noticed the error. Middleton J said:

“A reading of the financial statements by the directors is not merely undertaken for the purposes of correcting typographical or grammatical errors or even immaterial errors of arithmetic. The reading of the financial statements by a director is for a higher and more important purpose: to ensure that the information included therein is accurate. The scrutiny by the directors …involves understanding their content…These are the minimal steps a person in the position of any director would and should take before participating in the approval or adoption of the financial statements and their own director’s reports.”( Para.22)

  • The ‘line in the sand’ on what directors should have seen is the ‘Blind Freddy” proposition. That is something large and obvious that it should have been visible to those “at the top of the governance apex’ because it impacted the whole business, in this case $2 billion of misstated current debt as well as $1.75 billion in guarantees of an associated company;
  • Even with the need for diversity within boards, there is a skill all directors must have which is a level of financial acumen to enable them, personally, to sign off on a provision such as Section 295(4) Corporations Act 2001;
  • Indeed, if a business is becoming too large and complex for the board to truly understand what is going on, then that too is an issue for the board. Is ‘big’ necessarily better? If continued growth is what your business needs, it then is for the board to consider what governance structure is necessary to ensure that the business is still coherent enough to enable the board to fulfil its role and duties?

One of the traps of collective decision making, is how easy it is to sit back and rely on others, especially if they appear to have skills and experience that one doesn’t have. This is a basic human tendency that we see occur even amongst people who have highly developed skills. It serves to show that everything is relative!

We now have the results of the sentencing hearing where Middleton J maintained his path in defining further the fine line between a director’s role and that of his or her advisors within management and beyond. The directors have been found guilty of breaching their duties but no further penalty was considered necessary in the circumstances of this case. This, we believe, is the right outcome. Some might ask (and have) whether it is enough to change behaviours? However, the impact of this case on the individuals involved, and the consequences for their reputations cannot be overstated. As for the rest, the judgement in this case serves as a valuable restatement of the issues and the fault lines that are appearing in our corporate model. More importantly it emphasises the need for all of us, as directors, to understand the business of the company to which we owe our duty of care, and to bring our independent judgement to the issues before us taking into account the ‘Blind Freddy’ proposition before we rely too heavily on others!

For the full case details, open the PDF document.

There is always much to learn when things go wrong! No doubt we will continue to gain insights into the global financial crisis and its effects, which companies were vulnerable and those which fared better, and why, for many years. Not that we would want to repeat the experience but it is has provided invaluable insights into accepted corporate governance ideas such as independence of directors.

The UK Walker Review noted that ‘independence’ has been pursued by many  at the expense of getting directors from within the industry who therefore bring solid industry knowledge and that this was one of the elements lacking in the banks that failed versus those that did not.

Independence and strong industry knowledge are not an either/or on a good board. All directors need to bring independence of thought to their roles on behalf of the company. Some people are better at it than others. Some people will always need to be part of the group or aligned with the ‘top dog’.

A good board needs members who are sufficiently mature, of sufficient strength of character, to think for themselves, and it needs the sort of knowledge and experience that only comes from a life time of doing something! Look for both for your board.