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Mesothelioma: A Killer
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Greg Combet: Morality will prevail over profit
September 27, 2004
NOTHING in my working life has upset me as much as James Hardie's attempt to walk away from people who are suffering disease and death because of exposure to the company's asbestos products. It highlights a disconnection between commercial decisions and morality which is sickening.
The advice of investment analysts following the release of the damning report by the NSW Special Commission of Inquiry into James Hardie demonstrated just how fundamental this disconnection is. Record volumes of shares in the company were traded in response to analysts' advice urging investors to buy, buy, buy. The advice appears to be based on the belief that James Hardie has no legal obligation to pay compensation to victims of its deadly products.
These analysts must live in a cocoon.
The inquiry by David Jackson QC, handed down last week, found that the James Hardie restructure and move to the Netherlands three years ago has left the compensation fund for asbestos victims by the company at least $1.5 billion short. This means that thousands of Australians who are suffering or will suffer an asbestos-related disease, including those condemned to a painful death by mesothelioma, may be left without compensation.
Jackson also concluded that the company and its senior executives engaged in misleading and deceptive conduct for which criminal charges may be laid. Jackson also found that the NSW Supreme Court was misled. Corporate regulator the Australian Securities and Investments Commission immediately launched its own investigation.
On top of this, NSW Premier Bob Carr and other state leaders have dashed the company's last hope for a new government-run scheme that would limit compensation for victims. Carr has also commissioned the ACTU to conduct any negotiations with James Hardie.
The company's claim for a new statutory compensation scheme represents a belated and highly conditional recognition that it will have to pay up. But it also represents a demand for a stunning windfall reward for its disgusting corporate behaviour, at the expense of victims.
The company must not be rewarded in this way.
The Jackson report identifies many problems with the company's proposal for a statutory scheme, including the inherent inequity of a company-specific approach. Hardie victims could follow a different process and receive inferior compensation compared to asbestos victims of other companies such as CSR, which are meeting their obligations.
The Hardie scheme would also see victims lose in real terms as medical and other costs are expected to rise at a rate faster than the proposed level of Hardie compensation payouts.
In any event the James Hardie proposal is dead. Who could trust anything the company put forward?
The starting point for any resolution of the disgraceful mess involves an acceptance by James Hardie that it will compensate all victims of its products.
Beyond that it will be necessary to examine ways in which the existing asbestos compensation systems can be improved. There is scope for improving the efficiency and cost of the court-based processes.
Investment analysts must recognise that the long-term value of the company will only be realised if James Hardie meets its obligation to pay compensation. And that is because a full-scale industrial, legal and legislative assault on the company can be expected if no settlement is reached. And it won't stop at James Hardie.
There will also be a focus on the role and conduct of Hardie's legal and actuarial advisers in the under-funding of the Medical Research and Compensation Foundation.
The ACTU does not want to go down the path of further conflict if it is avoidable. The best outcome for the company and the victims lies in a settlement which delivers long-term profitability for James Hardie. Profitability will be the source of funding for compensation.
This is also the best outcome for investors. As Carr has warned, if James Hardie fails to settle, its share price will fall "until you won't notice it on any stock exchange in the world".
Investors and their analysts would do well to understand that morality will ultimately have a large bearing on the value of James Hardie. If I were an investment analyst I'd be saying the sooner the company pays up, the better.
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