THE EXPENSIVE PURSUIT of Margaret May, ex-CIMA council member recently found guilty of misconduct, has highlighted the issue of indemnity and risk for institute office holders.
May claims she was eligible for indemnity under the institute's bylaws, which effectively insures officers against any loss incurred in the course of their duties.
However, this cover only applies when duties are "carried out in good faith", and when the loss is not due to individuals' "own wilful default".
Moreover, CIMA maintained the indemnity should never apply in disciplinary hearings, even if the council member was found not guilty.
All institute office holders are potentially affected by this spat. Should they be worried about prohibitive legal costs in the event of a conduct dispute with their professional body?
Members of other institutes cannot be sure whether they would receive the same treatment as CIMA doled out, but it is clearly an important question.
May was accused of misrepresenting the outcome of an executive committee meeting. In such cases, the issue of whether or not the misrepresentation was deliberate would be crucial in establishing whether the accused would qualify for indemnity.
If the misrepresentation was found to be deliberate, this would come under the heading of "wilful default" and leave the officer stranded without insurance.
Bringing a case against an officer means the institute believes him or her to be guilty, and by extension, that the individual has little hope of receiving indemnity unless the case is thrown out.
An institute would struggle to pursue an officer for wilful misconduct while granting them indemnity against itself, meaning any case would have to reach a full conclusion before the issue was resolved.
With CIMA arguing indemnity should never apply in officers' misconduct cases, May had to prove not only that she was not guilty, but also that CIMA's interpretation of the bylaws was incorrect if she was to qualify for cover.
The outcome was a professional conduct hearing lasting seven days - a potentially daunting prospect for any officer in a similar situation.
At the end of her tribunal, May was £41,000 out of pocket. The fact that she lost means without a successful appeal, she will never see that money again.
CIMA ordered May to pay costs of £55,000, pushing her total expenses close to £100,000 - and all for a fight over a few emails.
CIMA has never pursued a case against one of its own council members before.
Les Smith, director of strategy and governance at the ICAEW, said he has never seen a comparable action in 20 years.
This means the situation is without precedent and and there is no way to say for certain how indemnity functions when the guarantor is effectively providing insurance against its own actions.
Smith said the issue might need to be defined in court to establish the rights of each party. Again, this would entail the accused paying legal costs up front in the hope of eventually recovering them.
For other council members, this case highlights a worrying potential risk. If they are accused of misconduct and denied indemnity, they could be forced to agree to sanctions - effectively a guilty plea - or front the cost of clearing their name.
Some observers have argued this could affect the way officers discharge their duties and make challenging an institute too risky.
May said she was "disappointed" with the misconduct finding and confirmed she will pursue the case through appeal and judicial review if necessary.
Is it really worth being a member of an Institute? Once you've passed your exams all it really is is paying fees and doing what you would want to do anyway. And has any Institute ever found a member innocent once they've brought a disciplinary hearing? I can't see any.
Posted by: Frustrated, 06 Dec 2011 | 12:19
This is stupidity of the highest order. Discipling members for what any member of public can say on any day of the week is tantamount to violation of therr conscience, human rights and the right of free expression. From what I have read on this site there does not appear to be any sign of bad faith. I hope that Ms May will challenge this in a proper court of law where very different standards will apply. If CIMA loses will the officialdom pay or will they pass on the costs of their shortcomings to members?
Posted by: Prem Sikka, 06 Dec 2011 | 20:36
CIMA is membership-based organisation, governed by the members, based on rules made by the members. This case is like a CEO bringing up a case against one of the non-exec directors of a public company! It is not my intention to comment on the merits or demerits of the case, but surely it is setting a wrong precedent.
Posted by: Member, 10 Dec 2011 | 11:15
You may also like
If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.
In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.