Legal
Issue No. 1 - July/August 2001
managing to save your skin
by Michael Hegarty
The recent collapse of HIH Insurance illustrates what can go wrong if a business isn't properly managed. Even the largest and most professional of organisations can get it wrong.
The HIH affair also raises the spectre of legal action, and the risk of personal liability which all business managers potentially face.
Back in the 1980s, issues of failure to properly manage an organisation were raised in the case of Commonwealth Bank of Australia v. Friedrich. In that matter, loans were made to the National Safety Council at a time when its liabilities exceeded its assets, although this was not reflected in the accounts. The discrepancy was due to the actions of an employee who had apparently ordered helicopters. When the shipping containers were opened they were found to be empty — the helicopters did not exist. Company officers had signed off on the statement of accounts, but the auditor’s report had been qualified.
The Board considered neither the accounts nor the auditor’s report. As a result of this lack of attention to detail the Chairman of the Board was found personally responsible for the Bank’s loss of $97 million.
How do you protect yourself from legal liability? You cannot guarantee that you will never be sued. You may be innocent of any wrongdoing. You may be miles away from ‘the scene of the crime’, but this will not prevent someone, rightly or wrongly, from commencing an action against your business or against you personally.
What you can do is to ensure that you have done all that you can to protect yourself, your business and all others for whom you are responsible. In short, you have to manage the legal risks.
It goes without saying that you can incur liability to a person by committing some physical act against them. Protecting yourself against that sort of legal action only requires self-control. Hold your temper and don’t hit them! Avoiding liability for indirect and acc...
