"The Case for Professional Project Corporate Governance and Project Controls Or How to Stop Project Failures" by Raphael M. Düa, FAICD, FAPE, MACS, PCP, CP, Grad DISC CEO
Introduction
Projects regardless of their type, industry and nature have failed for as long as humans have been trying to deliver projects on time. Until the current changes in Corporate Law, failure whilst not exactly tolerated did not cause too much concern at board level in past years. Now failures must be accounted for and the accounts need to show just what impact to either the bottom line or the shareholders funds that such project failure causes. The shareholders of major corporate who fail to deliver a forecasted profit are on the warpath.
Basically failures are no longer easy to hide, and the legal profession will wax fat upon the litigation that surely and indeed is already occurring. However it is not the board of directors who are issuing the writs, it is the shareholders, who are now starting to hold the board liable for the failure.
The statutory provision mandating continuous disclosure by listed companies was introduced on 5 September 1994 to support Australian Stock Exchange (ASX) listing rule 3.1. Statutory enforcement of this provision by the Australian Securities and Investments Commission (ASIC) remained dormant for many years with only limited application of the sanctions that followed the introduction of the Corporations Act 2001 (Cth) and further amended legislation in 2004. However, heightened activity by ASIC in 2006 was hoped as evidence that the regulator and the Courts would enforce the full range of penalties and remedies, from criminal proceedings to civil liability. Since then several cases were before the Courts as a result of legal action by the regulator and also by discontented company shareholders.
This paper notes recent enforcement activity and the increasing litigation by shareholders against a listed company for a failure of relevant disclosure may provide an alternative to enforcement of continuous disclosure by ASIC and that the protection afforded to the Board and Directors is to have a proper understanding of Project Governance and Project Controls.
Currently (July 2014) there five major multi-million dollar class actions before the courts as a direct result of Boards not having obeyed the Corporate Law of “Continuous Financial Disclosure” The current statutory requirement for disclosure is defined in Section 674 of the Corporations Act 2001 ( an extract of this section is shown in Appendix 1). In many cases these companies believe that they have control systems in place or as often the case ignore what the Project Cost Controls systems are telling them (Given that they have Project Control systems in place) and thus imperil the board in being fined for such failures or even worse suffer a jail term.
Failure to implement a professional Project Controls system is an additional disaster of good Corporate Governance.