News Articles

Managerial Responsibility

Stock markets are in the doldrums and to a large extent this is due to public lack of confidence in the boards of public funded corporations.

Directors have a duty in law to promote the well being of their shareholders and also have a duty in law to deal honestly with the public.

Announcements of expected profits must be realistic and not based on dreams.  In particular, financial statements must disclose the true situation of a corporation's financial health and directors have an obligation to ensure they are truthful.

Worldcom and Enron for example have indicated how easy it is for dishonest corporate executives to manipulate the boards into approving their evil machinations at great loss to the public and damage to a system which operates largely on trust.

Directors owe a duty to shareholders who are members of the public akin to that of a fiduciary, which means they may be personally liable if they rubber-stamp the evil deeds of executives without properly exercising their supervisory duties.

They may be responsible in two ways.  Firstly, shareholders who have been harmed may sue them for damages for breach of their legal duties, namely breach of fiduciary duty or negligence.

Secondly, in a case where false financial statements are produced to deliberately and falsely increase share value or hid losses directors could be prosecuted for conspiracy to defraud.

In the past white collar crimes have been treated by the Courts with kid gloves, but one can hope that corporate greed which past events have demonstrated by loss to investments and public damage will result in prosecutors taking their duty seriously and judges to make the punishment fit the crime.

Heavy terms of imprisonment should prevail.  A suspended sentence or a short term of imprisonment will not deter businessmen with large offshore bank accounts.  Sentences must be long enough that time spent in prison would discourage such criminals and must not be a worth taking risk for money salted away.

By Herbert Fielding, Q.C.
July 24, 2002