Hardie immoral & illegal

When James Hardie decided to trade blue collar for blue chip 
it knew "spoilers" would try to wreck its party. It even 
nominated the Australian Manufacturing Workers' Union (AMWU) and 
its NSW secretary, Paul Bastian, but was confident they would be 
seen off by an A-List cast of lawyers and spin doctors.

Hardie CEO and Californian resident, Peter Macdonald, had good 
reason to reassess that position as he flew out of Sydney this 
month after five gruelling days before the Jackson Inquiry into 
the company skipping out of the country to avoid compensation 
claims.

The inquiry, launched by NSW Premier Bob Carr, was the result of 
constant lobbying and badgering by unionists incensed that Hardie 
appeared to have dudded thousands of lung disease sufferers, 
courtesy of, what Paul Bastian called "an act of corporate 
bastardry".

They demanded to know how Hardie, a major producer of asbestos 
products for half a century, had relocated to the Netherlands and 
told Australian sufferers that, when it came to compensation, 
they could "go Dutch" as well.

The AMWU highlighted the restructure that left all Hardie's 
liabilities with a grossly under- funded corporate creation, the 
Medical Research and Compensation Foundation (MRCF). Mr Bastian 
told key Carr government ministers MRCF would come up $800 
million short of compensation requirements, minimum.

But it wasn't until two things became clear that Carr stunned the 
business community by announcing a formal inquiry. Mr Bastian's 
figures appeared, if anything, conservative while Macdonald 
remained adamant the parent company had "no moral or legal 
obligations" to Australians dying from asbestos-related diseases.

Irrespective of what Jackson reports when he due back in 
September, demands for corporate law reform will surely follow 
testimony that ripped the veil off how the big end of town 
operates.

The Inquiry learned that:

* in the late 1990s, James Hardie directors considered a number 
of options that would allow them to separate the operating entity 
from obligations to compensate suffers of asbestos-related 
diseases;

* much legal advice warned of the dangers to Hardie of any 
strategy requiring court approval;

* the Hardie board, in 2001, opted to set up a trust to house 
AMABA and AMACA, the entities representing its asbestos 
manufacturing operations;

* when Hardie decided, months later, to become James Hardie 
Industries NV of the Netherlands for tax and legal purposes, the 
move required Supreme Court approval;

* the company assured the Court the creation of a new Dutch 
entity would not disadvantage anyone owed money by the Australian 
operation;

* Hardie backed this by saying asbestos victims would have the 
right to call on partly-paid shares with a 2001 value of $1.9 
billion;

* in March, 2003, directors cancelled those shares at a "private" 
board meeting. Shareholders were not told and nor were asbestos 
victims, unions, the general public or the NSW Supreme Court;

* the company's own lawyer warned, in a draft opinion, that this 
cancellation might mean the Supreme Court had been misled;

* a former Hardie's legal adviser, Wayne Attrill, testified that 
senior executives knew a press release saying MRCF would be 
adequately funded was dodgy but authorised it anyway. Attrill 
said the worry was based on actuarial advice in James Hardie's 
possession;

* Macdonald "hit the roof", according to Attrill, when he learned 
the company's "retained experts", Trowbridge Deloittes, had 
posted "gory numbers" about asbestos disease rates on its own 
website;

* the restructure was preceded by a major public relations 
offensive that used former ALP power broker, Stephen Loosley, 
amongst others, to try and quiet political and public concerns;

* James Hardie tried to limit restructure information to the 
business press where advisers felt "moral" issues would not carry 
as much weight;

* MRCF will fall either $800 million or $1.1 billion, short of 
being able to compensate Australian asbestos victims and their 
families, according to separate actuarial figures supplied by 
Trowbridge Deloittes and KPMG.

Counsel assisting, John Sheahan, this week flagged the 
possibility of corporate law reform that could make corporate 
groups responsible for the liabilities of their subsidiaries.

Sheahan has also suggested James Hardie will have to answer a 
number of allegations about the legality of its actions, arising 
from the evidence.

The shortfall being investigated by the Jackson Inquiry relates 
to product liability rather than workers' compensation that James 
Hardie was insured against.