Former cabinet ministers Sir Douglas Graham and Bill Jeffries, and two other former Lombard Finance directors, have been found guilty of four charges of making false statements.
The verdicts, delivered in the High Court at Wellington this morning, also included one set of not guilty verdicts for Graham, Jeffries, Lawrence Bryant and Michael Reeves. They were allowed bail without conditions.
Sir Douglas was visibly shaken and some members of the men’s family were in tears after the hearing. …
Lombard Finance was put into receivership in April 2008, owing $125 million to 4400 investors. Secured creditors were expected to be repaid less than 24 cents in the dollar.
I know several family members of the directors, and less well a couple of the directors. Regardless of what the actual penalty is, the actual conviction itself will be what is hardest to live with. They are all people whose reputations are very important to them.
I don’t think any of them ever set out to do wrong, but it is a reminder that the obligations and liabilities on directors are significant. I’ve been a company director of a couple of companies. Not ones listed on the NZX or in financial services, so the complexity and risk is much less. Despite that though, I take the legal obligations as a director incredibly seriously and probably to the occasional annoyance of management will read financial documents very carefully, and even do my own series of checks on them, ranging from does everything add up to does the variation in realised revenue from a product match the variation from budget for total number of that produce.
A lot of people think it is easy being a director. If everything goes well, it can be a very good role to have. But if things go badly, you never want to be relaying on the line “That was the responsibility of management”. You can’t interfere in operational issues, but you can make sure you have asked the right questions, and be prepared to refuse to sign something until you are satisfied you have done everything that could reasonably be expected of you.
I don’t know the specifics of what went wrong at Lombard. I suspect that its situation was little different to most finance companies. However as some investors have said, having high profile persons on the board does attract investors, and makes people think a company might be safer than it is. I can quite understand the views of investors – they are the victims who lost money in Lombard.
I think calls for Sir Douglas Graham to lose his knighthood are uncharitable. He did not get it for services to finance companies. He got it for his contribution to Parliament, Government and Maori. But again, I can understand the views of the investors who lost their money.
The lessons for the future might be that investors should not rely on the presence of high profile board members in deciding whether to invest, and high profile persons should think very carefully before accepting directorships, as they will be in the gun if things go wrong, and they haven’t done everything they could.