James Hardie's asbestos liability legacy in Australia: Disclosure, corporate social responsibility and the power of persuasion

James Hardie, once Australia s main asbestos miner and asbestos products manufacturer, is a company that for most of the latter half of the twentieth century became synonymous with poor corporate social responsibility, particularly in the manner it dealt with the long tailed liabilities of the thousands of people harmed by exposure to the company s asbestos products. James Hardie eventually agreed to contribute a significant part of its annual free cash flow to a compensation fund, but the downturn in the group s profitability in the last few years has meant there has been no free cash flow available for distribution. Consequently, the New South Wales state government has stepped in to top up the fund, effectively socialising the compensation costs. The James Hardie saga reveals a number of deficiencies in the legal system in its dealing with corporations. Because strict legal principles could operate to allow a corporation to avoid liabilities through restructure and relocation, the importance of public persuasion to assure that a corporation acts responsibly can also be seen from the James Hardie experience. This highlights the role of proper disclosure to assure that both internal and external mechanisms and enforcement measures can be used to facilitate a cultural shift in favour of responsible behaviour. James Hardie also presents more difficult social questions about fundamental issues upon which corporate law has historically been based. James Hardie thus provides the opportunity to consider whether limited liability either within corporate groups more broadly, continues to provide value to society. James Hardie also presents an example where fault based liability does not adequately assure compensation for tort victims.The compensation for such victims in the extraordinary circumstances of James Hardie has been effectively socialised by one off government action. Whether this would provide a model for the future might also be questioned.