Update: The Difficulties of Managing Contingent Liabilities – Now James Hardie Is Hit with the
The Australian version of the WSJ has an interesting article by a McKinnsey consultant writing about corporate reputation risk, with the article somewhat tied back to James Hardie. An interesting read.
Contingent liabilities are not easy to manage, as exmplified by this month’s events for James Hardie. To begin with, its business is down due to the housing slump. Them its directors this month lost their trial on securities law violations regarding disclosures related to its asbestos trust, and its asbestos trust announced it is underfunded at present. Now comes the word that former subsidiaries of the the company lost a $ 14 million antitrust verdict in Chile, and that Hardie has idemnification obligations for the verdict due to terms of prior m & a transactions. According to the same article, the company has set May 20 to release numbers for its fiscal year end, which was as of March 30.
All of the above is tough enough. Now consider various other implications. One wonders, for example, whether some or all of these events have caused defaults on loan covenants for corporate financing. Even if there are no present defaults, one must wonder what its lenders will be thinking when the company next seeks access to capital or loan markets. Consider also that it will at some point probably need insurance renewals, including d & o coverage. Overall, the point is that contingent liabilities are tough to manage, and the success (or not) of risk managers may be critical to the future of a company.