Liability of disclosure

car-wheelsTony knows something. He glanced down at the floor just before he sat in the passenger seat of his mate Joe’s car. Under the wheel was a rusty nail.

If Joe drives off there is a good chance the nail will puncture the tyre.

“Wait a sec,” Tony says jumping out of the car and removing the nail. “OK, good to go”.

Joe looks across bewildered and drives off barely registering another eccentricity of his old mate. And oblivious to the inconvenience averted.

Tony had no reason to disclose his knowledge of the nail to Joe and as Joe didn’t ask, the incident passed without consequence.

What if Tony noticed the nail but failed to act?

Suppose he sat in the seat unmoved as Joe drove the car over the nail and was forced to spend the next twenty minutes changing to the spare and cussing at the dirt advancing toward his Armani suit.

Joe puts it down to bad luck. These things happen. It didn’t even cross his mind that Tony might have seen the nail and was in a position to prevent the damage and inconvenience.

Tony gets away with what some would consider negligence. If Tony knows that harm will happen if he does nothing then he is obliged to act. Indeed he has a liability if he doesn’t.

Should his mate Joe find out that Tony knew about the nail and didn’t get off his butt to remove it, Joe is annoyed at least and more likely will clock his mate on the nose. No more free lifts for Tony.

More important than the event is the loss of trust from failing to disclose. Joe will always have a nagging doubt about Tony’s integrity.

This is a classic moral dilemma that philosophers have pondered for generations. The problem with knowing is when and what to disclose, to whom, and with what repercussions. The legal profession has dined out at the best restaurants on answers they give to the bewildered.

There are murmurs that the risks to business from a changing climate are a nail under a tyre that everyone knows is there. Directors and trustees cannot be a negligent and not act on what they know. They are liable for this knowledge and required to disclose.

Sarah Barker has written an excellent article explaining what it all means for the champions of business — directors duties in the anthropocene — that won a Sustainalytics Awards for Excellence from the PRI in 2014.

Meantime I wonder if Tony knows what failure to act might bring beyond the loss of a mate.

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