Getting it Right: Directors’ assessment of information
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]
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
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.