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Getting it Right: Directors’ assessment of information

Citation

O'Donnell, K and Hicks, B and Streeter, J and Shantapriyan, P, Getting it Right: Directors' assessment of information, Managerial Auditing Journal, 30, (2) pp. 117-131. ISSN 0268-6902 (2015) [Refereed Article]

Copyright Statement

Copyright 2015 Emerald Group Publishing

DOI: doi:10.1108/MAJ-08-2014-1077

Abstract

Purpose – The purpose of this paper is to explore the increasing expectation against two concepts, information and process scepticism. In light of the Centro case judgement, directors’ decisions are held to increasing standards of due care and diligence. Design/methodology/approach – This is a conceptual paper, drawing upon archival material, including statute law, case law, regulatory guidance material and media releases in Australasia. The authors review the statutory duty of care, skill and diligence expected of non-executive directors. Findings – Whether a director has exercised an appropriate level of reasonable care and skill and/or due diligence has been a matter for the courts to decide. Such retrospective analysis leaves directors vulnerable to the uncertainty of whether their individual interpretation of diligence matches up to that of the presiding judge. The authors provide directors with a framework to apply scepticism to information and processes provided by those on whom the directors may rely. Research limitations/implications – Two concepts are identified: reasonable reliance on others and the business judgement rule. The authors present arguments that challenge us to understand reasonable reliance, judgement and actions of directors in light of processing and information scepticism. Practical implications – Directors do have a different role to that of auditors; incorporating scepticism can enable directors to fulfil their responsibility towards shareholders. By applying information and process scepticism, directors of companies can reduce the likelihood and magnitude of litigation costs and out-of-court settlements. Originality/value – This paper provides a framework to apply scepticism to information and processes provided by people on whom the directors may rely.

Item Details

Item Type:Refereed Article
Keywords:Decision, Corporate accountability, Directors’ duties, Non-delegable duties, Scepticism
Research Division:Economics
Research Group:Other Economics
Research Field:Economics not elsewhere classified
Objective Division:Economic Framework
Objective Group:Other Economic Framework
Objective Field:Economic Framework not elsewhere classified
Author:O'Donnell, K (Dr Kerri O'Donnell)
Author:Hicks, B (Mr Barry Hicks)
Author:Streeter, J (Mr John Streeter)
Author:Shantapriyan, P (Dr Paul Shantapriyan)
ID Code:94257
Year Published:2015
Deposited By:Tasmanian School of Business and Economics
Deposited On:2014-09-04
Last Modified:2016-02-18
Downloads:0

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