Surely company’s know that the truth will come out

Yesterday I was delivering training sessions with one of the topics covered, Product Recall Insurance.

Besides explaining the obvious need for this cover I went through the risk of a company not doing the right thing and quoted the forced recall of vehicles fitted with faulty Takata airbags (refer my post of February 28) and the brand damage it does to those car manufacturers that do not do the right thing and recall their vehicle.

Another topic covered in detail was the role and responsibilities of directors and officers under the Australian Corporations Act as a section of the course on Directors & Officers Liability Insurance.

I covered off on Section 232(2) of Corporations Act 2001 (Commonwealth) which refers to acting ‘bona fide’ in the interests of the company in the performance of the functions attaching to the office of director.  A breach of the obligation to act bona fide in the interests of the company involves a consciousness that what is being done is not in the interests of the company, and deliberate conduct in disregard of that knowledgeMarchesi v Barnes (1990) VR 435.

Short term profit is clearly NOT the sole test for acting in the best interests of the company.

Failure here can again lead to brand damage for the organisation but also the directors themselves. Again, it was stressed that not acting in good faith to all shareholders is not something that can be hushed up and that the truth will ultimately come out. This typically results in a worse outcome than if people acted honestly and did the right thing.

I also pointed out that Section 199B of the same Act states a corporation cannot insure for: willful breach of duty and or improperly using their position to gain an advantage for themselves or anyone else or causing detriment to the corporation. NRMA v Whitlam [2007] NSWCA 81

It was therefore disappointing to see on the news on my return home one of the lead articles was that Thermomix’s Australian distributors had allegedly failed to notify a fault in their product and had continued to sell and ship the product allegedly knowing that it was faulty and or could have caused injuries. How anyone could do this is beyond me.

In the interview of a senior representative of the company suggested that this was a mistake and that they will learn from it and they are sorry for it. I really struggle with this response.

It is similar to the cricket debate of late. To me bowling a bouncer when you meant to bowl a yorker is a mistake. To deliberately and consciously go out to cheat is not a mistake, certainly not a simple mistake.

I also question whether the guilty parties are sorry for their deception or the fact they were caught out.

All I can say to end is two things. Not only when you are a director, an executor of a will or dealing with insurance where you are required by law to act with utmost good faith, it is simply good practice to act honestly and treat others as you would like to be treated yourself.

Secondly, there are many good people out there and this combined with the ease and power of social media, the truth will come out in the end.

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