The general commentary on the recent James Hardie verdict is that it sets a new bar for non-executive directors. I’m not sure I agree.

A more obvious interpretation is that James Hardie’s directors acted with extraordinary disregard for their duties and deliberately set out to deceive their stakeholders. The question that remains in my mind is why they would do this? It is not as if it is a unique case. The tobacco companies have repeatedly been accused of hiding their knowledge of the health effects of smoking. I could understand the owners of a company trying to cover up their actions. But the directors are not the owners. They are generally supposed to act in the interest of the owners.

In this case, how could James Hardie’s directors have thought they were acting in the interests of their owners (shareholders). Surely they were going to be found out. The evidence seems that they knew (or seriously suspected) that the compensation fund the company set up was not fully funded. At some point this was going to become public knowledge.

Perhaps it could be argued that it would be in the interests of shareholders to have relocated the company to the Netherlands so that it was immune to any future liability for asbestos related effects of their products. There was a possibility they would have been able to protect this position in court, but it would surely destroy the company in the market. Who would buy anything from a company with such a tarnished reputation – a company that had simply walked away from its moral responsibility and left many of its employees and customers to die a horrible death with completely inadequate compensation?

I ask again. How could this possibly be in the interests of shareholders? One possible answer is that it was not and the directors acted not only with complete disregard to their moral responsibility but also with complete disregard for the interests of their owners.

If, for the moment, we accept this argument, the more fundamental question is “Why did they do it?”

To suggest an answer to this question I am going to delve into the world of psychology and more particularly, one of its sub disciplines – psychodynamics. I suspect that the directors became caught up in a subconscious fantasy that they could get away with it and they would be seen as heroes. This fantasy in turn was possibly triggered by the awful facts they were presented with and the more difficult option that faced them. The only alternative was to face the music. To be the board that stood up and declared the king had no clothes — James Hardie had been involved in systematic deception and cover up for decades. They would have to ‘out’ their predecessors as having acted both illegally and immorally.  This would be an unforgiveable sin in the directors club. I would guess that you could go through the minutes of Hardie’s board meetings during this time and not find one hint that this thought had even been remotely hinted at. It’s probable that no suggestion of this possibility even passed the lips of any of the directors involved – either in the board meetings themselves or in private conversations. No one had to say what the alternative was. They all knew it.

It would have taken incredible courage to take this alternative route. A courage that the James Hardie board seemed incapable of finding. In the end, this seriously eroded the value of Hardie’s owners’ investment in the company.

If you accept this interpretation of events, you are left facing one more piece of evidence that “shareholder value” is not only a vacuous concept, but also an often used excuse for acting directly against the interests of shareholders. If we are really serious about maintaining shareholder value, we would demand that our directors and executives act with absolute moral rectitude.

Easier said than done to be sure. A better goal than “maintaining shareholder value?” I personally think it is.