It seems there is no end to the sorry saga of CPA Australia, with news recently emerging that a group of rebels within the accounting body is actively seeking to obtain crowdfunding to mount a legal case against the old board.
What I find particularly interesting is that their contention that the old board directors were in breach of their second most important obligation after fiduciary duty – and that’s the duty of care and diligence – appears to be more than just vexatious litigation.
Let’s look at the state of affairs which, on prima facie evidence, have a fair degree of merit…
When everything went topsy-turvy at CPA Australia in mid-2017, then CEO Alex Malley received a termination package of $4.9-million, which included a payment of three times his annual salary. The action failed the pub test, it was deemed excessive and obscene and many noted that CPA Australia had behaved like it was a big and powerful ASX company when in reality it is a not-for-profit professional association.
Assuming for a moment that it was a major player on the ASX, it would have been restricted to a maximum payout of one year’s base salary. Anything greater would require the board to approach the shareholders for approval to pay more.
Of course, CPA Australia is not a listed entity and therefore has no requirement to seek approval of its members when devising a package for Mr Malley. You could say it enjoyed the best of both worlds, strutting about like an ASX titan while being free of the encumbrance of a listed company.
So while no one is criticising the CPA Australia board for not seeking the approval of the members, what really irked was the revelation that a full nine months after all the issues, the CPA board quietly increased Mr Malley’s payment to three years – and that after an earlier review had found the two-year termination previously included in his contract was overly generous.
While we can postulate on why the board chose to pay out three years, it’s most likely that they wanted to avoid legal action against them, they sought and obtained legal advice and the advice was that paying a little more would be the sensible route. It would leave everyone happy.
However, even if this is what transpired, there are numerous cases where the courts have found that directors are not allowed to rely solely on expert advice when making decisions. They are expected to take it into account but they are also required to bring their own mind to whether the decision they ultimately take is the right one, for the entity and for its members.
Therein lies the crux – getting legal advice that told them they COULD make this payment does not in itself mean they SHOULD have done so.
As I said, on prima facie evidence, the rebels’ case has more than just a hint of merit and promises to make for compulsive viewing.
Until next time,