Lombard fallout: 'No dishonest intent' - IoD

The Lombard guilty verdict has unleashed public wrath on the company's directors.

In a 100-comment stream, many readers saw deep problems with the failed finance company's corporate governance.

But the chief executive of the Institute of Directors, representing around 5000 members, is cautioning against over-reaction.

Jail time?
On Friday, Justice Robert Dobson indicated that he will consider community-based sentences and financial penalties rather than a custodial sentence.

But that hasn't stopped popular calls for the Lombard directors to be jailed. And it's not just the general public who've poured scorn on the behaviour of directors during the Lombard trial, and episodes such as the Nathans Finance case.

Last year, Sam Morgan - a director of Fairfax Media - went so far as to tweet "A few NZ directors need to be put in jail. Without that, we'll never tidy up our board behaviour."

(Two Nathans Finance directors were jailed in a case subsequent to Mr Morgan making his comment.)

"Sam's tweet was commenting directly on the acquisition of Hanover by Allied Farmers. Given it’s specificity it’s not appropriate for us to comment," Mr Chivers said.

"As always, it doesn’t pay to over react to one case, unless it sheds light on a wider problem that needs addressing."

"If there is an issue that requires a legislative response (and at this stage it’s an if) then we do have the Financial Markets Conduct Bill going through the House this year which provides a vehicle for any issues arising to be addressed." (Read NBR's analysis of the legisislation, which could have saved the Lombard directors from themselves, here).

No dishonest intent
The organisation was still digesting the judge's full verdict (online here), when the IoD boss made his comments to NBR on Sunday.

But Mr Chivers already had an initial take, "As a general observation, it would seem in this case that there was no dishonest intent, more that they made a mistake that regrettably resulted in investors being misled."

Don't understand? Don't sign it
"This is a further reminder about the very high standard of care and diligence expected of directors, especially in matters relating to the management of other people’s money. Senior directors are saying that nothing has really changed – the standard of care has always been very high and this is a clear reminder of the seriousness of those responsibilities," The IoD CEO added.

"As we said following the Nathan’s decision, if a director finds themselves in a position where they don’t have a sufficient understanding of their company’s financials, then they need to do something about that, because the consequences for themselves and investors in signing off something that is incorrect are potentially very significant."

Mr Chivers also told NBR that some talented directors could be turned off board work by the decision, and quoted statistics collected by his organisation that he said show many reputational and asset risk for little reward.