A Duty to Act

"The governance of a public company should be about stewardship," Justice Owen wrote in his report. "Those in control have a duty to act in the best interests of the company. They must use the company's resources productively. They must understand that those resources are not personal property. The last years of HIH were marked by poor leadership and inept management. Indeed, an attitude of apparent indifference to, or deliberate disregard of, the company's underlying problems pervades the affairs of the group.

"Those responsible for the stewardship of HIH ignored the warning signs at their own, the group's and the public's peril. The culture of apparent indifference or deliberate disregard on the part of those responsible for the wellbeing of the company set in train a series of events that culminated in a calamity of monumental proportions."

HIH had a corporate governance model, Justice Owen said. The directors said so in the annual reports. But he found little sign the board periodically assessed the company's corporate governance practices to ensure they were suitable and up to date. The board clearly failed to understand long-term strategy.

Indeed HIH's governance structures were extremely dysfunctional, with the board and senior management both all too willing to allow themselves to be dominated by chief executive officer Ray Williams. And Justice Owen found chairman Geoff Cohen was "ineffective" and a "grave impediment" to the company's operations.

"There was blind faith in a leadership that was ill-equipped for the task," Justice Owen stated. "There was insufficient ability and independence of mind in and associated with the organisation to see what had to be done and what had to be stopped or avoided. Risks were not properly identified and managed. Unpleasant information was hidden, filtered or sanitised. And there was a lack of sceptical questioning and analysis when and where it mattered."

Not only did senior management not appear to have "any clearly defined statement of duties or limits on authority", Justice Owen chastised the board for having little clear understanding of conflicts of interest, nor how to resolve them.

The lessons for CIOs facing similar domineering boards are profound, according to Deloitte Touche Tohmatsu forensics expert Tim Phillipps. Justice Owen's findings highlight how important it will be for CIOs in future to ensure boards have the best possible information available, and when they do not, to be prepared to beard the board lion in its den, as it were, in the interests of providing that information.

In Phillipps's mind, good information management systems and good corporate governance are intertwined. And he warns CIOs must increasingly take their courage into their own hands and challenge boards - even those with very strong directors - to allow them the room to provide good information systems. "If you have very dominant personalities, and you don't have strong information management systems enabling the board in particular and other senior executives in the organisation to understand fully what's going on and comprehend the true position of the company, then you're left at the mercy of the dominance at the top," he says.

Phillipps acknowledges that it can be career threatening to confront the board, but he warns unless CIOs are prepared to take a strong stance they risk finding themselves "career threatened for a different reason at some point", such as the collapse of the organisation or when someone like a Royal Commissioner points a finger in their direction, demanding to know why they did not make good information available. While the idea of challenging the board for your right to provide effective information systems may seem daunting, Phillipps says, you will be better off if you can hold your courage in both hands. The reason is that as directors have been held more responsible for the operations of the business, there has been a significant blurring of the distinctions between governance and management extending right down to the IT activity.