Trowbridge was engaged by Allens on behalf of JHD, to formulate a report for the cash outflows from the James Hardie Industries as a result of litigations lodged by the victims of asbestos related diseases. The report was presented by Minty and Marshall to the company’s incoming directors.
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Trowbridge is accused of having engaged in a misleading conduct that led the directors develop a foundation fund that was not in line with the company’s future claims (Castleman 2005). This paper will look at the conflict of interest between Minty and the incoming directors at JHD, and also discuss the effect of a code of conduct to the behavior of minty.
Conflicts of interest between Minty, Trowbridge and JHD
Based on the case, “James Hardie Industries and the problem of Asbestos” there are a number of instances that reveal conflict of interest between Minty, Trowbridge and JHD (Castleman 2005). This part will describe the instances of conflict of interest as pointed out in the case. The first sort of disagreement between the three parties is captured in Minty’s claim over the JHD deterioration.
The claims of James Hardie had been deteriorating as from March 2001, but Minty on his part had considered that the revised model would take care of the deterioration. One can make two conclusions from this case; that James Hardie chose not to reveal the deterioration facts to Trowbridge or Trowbridge did not make any follow up to request for data.
Minty was well aware that the incoming directors in Trowbridge would require the data contained in the report of February 2000, but deliberately failed to make the data available to the incoming directors.
This is an indication of mischief on the part of Minty, in the report; the incoming directors required that Minty includes the current data in the report and advice them on the “cost of diseases related to inhalation of asbestos” (Webster 2005). This was in view of the findings of Trowbridge consulting contained in the March 2000 report.
Trowbridge report was based on the cost of the Minty’s proposed “claims on the insurance industry in Australia” (Peacock 2011). Minty rejected any attempts to revise the claim assumption in which the current data had been ignored. They instead insisted that the James Hardie had failed to avail the current data to them and that this alone did not qualify the report to be misleading.
Trowbridge challenged Minty on presenting misleading information to the incoming directors in the February report (Peacock 2011). This challenge was valid in the sense that it would be assumed that the incoming directors would be provided with relevant information by the officers at the James Hardie.
The February report was simply meant for James Hardie and therefore Trowbridge should not have sought to delve into the report. They were supposed to carry out their own independent research without necessarily looking into the report of Minty (Webster 2005).
Trowbridge on their side did not also rely on the data provided by James Hardie in their assessment. The February report indicates that Trowbridge findings were based on the report of March and the “national and international trends posted in the findings of Watson and Hurst research” (Hinmann 2008).
During the restructuring process, the new directors had been warned that the scope of the February report was not sufficient to be relied on to develop the foundation funds for future claims. The new directors failed to question neither the report of February nor Minty’s presentation regarding the company’s historical estimates (Webster 2005).
There was an opportunity to raise these questions but the incoming directors instead kept numb about it. They also failed to refer to earlier reports posted in 1996 and 1998, based on Trowbridge submissions, the new directors were alerted that there would be claims lodged for more than 20 years.
They needed to rely on projections that would go up to 50 years to effectively asses the long-term effect of the claims on the company (Hinmann 2008). The James Hardie Industries were instead selective on the kind of material they considered imperative to the company.
It was established that Trowbridge was involved in misleading conduct as a result of Minty failing to inform the new directors of the significance of the current data. Minty justified the failure to reveal the significance of the current data in accordance with the recommendations of Shafron and Marshall that the current data did not have a significant impact on the claim’s projections.
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Trowbridge denied having engaged in misleading conduct as alleged by JHI on its part. Trowbridge was recruited to provide consulting services to James Hardie Industries by Allens (Webster 2005).
This meant that Trowbridge had to communicate their findings to James Hardie through Allens and not directly to the James Hardie Industries (Clarke 2007). Minty did not therefore have any mandate to directly contact the new directors to inform them of the new amendments in the report.
The evidence of Minty on the use of the February report is quite reliable as it was consistent with the facts provided by Marshall, which was ratified by MRCF. T
he evidence emphasizes that both Marshall and Minty were aware of; the proposed restructuring at the James Hardie, that the February report was vital in “determining the amount of funds required for the closed fund” (Webster 2005). Trowbridge therefore had only one mandate, to “stipulate and consent to the use of the document through a disclaimer” (Clarke 2007)
How Trowbridge Needed to Deal with the Issue
Opponents of the February report accuse Trowbridge of applying “the berry medium instead of berry high in regard to the Mesothelioma events” (Haigh 2008). In this regard, Trowbridge was engaged in misleading conduct. One of the independent actuaries; whitehead, also confirmed that the Berry medium curve was a better choice compared to the Berry high curve (Parker and Evans 2008).
Trowbridge needed to disclose to the commission that the choice of the Berry medium was not based on a personal level judgment. The choice although was criticized for delivering poor results for James Hardie Industries was equally supported by other professional actuarial service providers (Parker and Evans 2008).
The current data, which Trowbridge is accused of not providing to the incoming directors, was after all not important to the incoming directors (Haigh 2008).
The incoming directors needed information based on long-term projections, for them to make foundation funds. The long term projection of at least 50 years as had been provided for by Shafron would instead be more important than the February report (Hinmann 2008).
The Effect of the Code of Conduct on the Behaviour of Trowbridge and Minty
A professional code of conduct in any profession serves to guide the conduct of the stakeholders in the profession. The code stipulates what is the right conduct for the members of the profession and also states various penalties for those who contravene the provisions of the code.
The code alone however, does not guarantee that the members of the profession will adhere to its provisions. Effective enforcement of the provisions of the code is vital to ensure that every member in the profession does not go against what the codes of ethics describe as the norm (McCulloch and Tweedale 2008).
The penalties contained in the code play a main role in guarding the conduct of the players in the profession. The human behavior is known to be shaped in the right way either by reward or penalty. Penalty is an effective method where laws of conduct are drawn and provided for a particular group.
As a company involved in the provision of actuarial consulting services, Trowbridge was tasked to advice the incoming directors at the James Hardie Industries accordingly. Trowbridge had an obligation to ensure that the directors were properly guided in setting up a foundation for funding.
By failing to disclosing the information to the new directors at the James Hardie industries, set up an inadequate foundation fund. The investors in the company suffered losses because of the high claims resulting from asbestos related diseases. This could have been avoided if Trowbridge worked on the case in a professional way.
Trowbridge was engaged to formulate a report on the outflows from the James Hardie industries emanating from litigations lodged by those affected by asbestos (Fisse and BraitheWaite 1983). The report was to be based on the national and international disease trends, as well as the current data.
The report was presented to the board by Mr. Minty and Marshall, the report was used by the incoming directors to set up a foundation fund for making litigation payments. The report however, professionally failed to consider all parameters such as; the current data and the national and international claim trends (McCulloch and Tweedale 2008).
As a result, the report failed to provide an accurate basis for making future claims projections for James Hardie Industries. This oversight by a professional consulting company misled the company in making the future projections. With a code of conduct in place, such an oversight could be punishable; the perceived punishment would act as deterrence to the consulting firm.
However, it can also be detested, based on the case of James Hardie Industries and Asbestos problems, it is not possible that the code of conduct would change their behavior.
In regard of “section 52 of the trade practices acts” both the outgoing and incoming directors were not supposed to rely entirely on the February report (Degenhardt and Duignan 2010). The officers of James Hardie industries were supposed to be responsible for knowing that the report posted by Trowbridge was not meant to be used to create a foundation that would be funded.
The code of conduct also acts as a reference resource for professional practice. Minty and Marshall relied on the information of other professionals in the field in choosing the Berry medium curve. It clearly indicates that there was no approved resource on which to base important conclusions.
It is not possible for one to argue in court a decision that goes sour, if the decision was based on the advice of a third party. If a decision is based on a professional code of conduct, it is possible to defend the effects of the decision. Professional codes of conducts are based research findings.
This can well protect the decisions of the professional practitioners better than the decisions of fellow practitioners. This would also ensure that the decisions made on various professional solutions are harmonized.
Having omitted the data for nine months up to January 2001, Trowbridge was asked to explain the possible impact that inclusion of this data would have on the analyzed projections.
Rather than treat this as a unique case, Trowbridge relied on its experience to assure the client that the omission would not have a significant impact on the analysis. Trowbridge needed to have considered this as a unique case and carried out an analysis based on the omitted data before making conclusions.
Minty and Marshall deliberately presented James Hardie Industries with information that was inconsistent with the company statements. Minty and Marshall relied on the advice of an independent consultant that the current data would have no significance on the report. Minty failed to press for updated information from the company in order to use it to revise the June report.
Minty did not use the best information available as he alleged in his presentation. This type of professional negligence would be punishable in the provisions of the code. Being aware of this provision in the code and the penalty associated with it, Minty would have labored to get the relevant information from the company.
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