Dr Kath Hall, an Associate Professor at ANU, is an expert on the obligations directors owe to shareholders and has rightly pointed out that "ASIC is the body responsible for investigating breaches of directors' duties under the Corporations Act." Unfortunately, investors cannot assume that directors are fulfilling their duties to shareholders, nor can you expect ASIC to be the first to investigate potential wrongdoing.
This is clearly demonstrated by the huge amount of time it took for ASIC to investigate Leighton Holdings (ASX: LEI) for paying bribes in Iraq. Only now, two years after the relevant allegations surfaced, has ASIC seconded an officer to the AFP. In my opinion ASIC should have had a whole team on this years ago.
Directors face civil liability if they fail to act with care and diligence in the exercise of their powers, or if they fail to act in the best interests of the company. In the case about the AWB payments to Saddam Hussein's regime, the Supreme Court of Victoria found that directors must monitor and ask questions in relation to transactions and business activities in high-risk jurisdictions that are known for corruption. The findings in the AWB case clearly indicate that ASIC has good reasons to investigate the directors of Leighton Holdings.
ASIC has a poor record when it comes to investigating powerful companies. For example, ASIC has decided not to investigate the directors of Securency, despite officials from that company being charged with bribery offences. As Dr Hall writes: "Why ASIC didn't follow through with investigating these cases, given the apparent strength of the evidence and the importance of the case to Australia's international reputation, is unclear."
Foolish takeaway
ASIC was very fast to investigate Jonathan Moylan, an activist opposing the Maules Creek coal mine proposed by Whitehaven Coal (ASX: WHC). The open-cut mine will destroy an increasingly rare ecosystem that is the habitat for a number of endangered species. The only victims of Moylan's stunt were the highly imprudent shareholders who sold shares without checking the veracity of the fake press release. The contrast between ASIC's enthusiasm for pursuing Jonathan Moylan, and its hesitance to investigate well-paid directors, is cause for despair.
