Corporate Governance and Thomas Cook: A Take Home Case Study

This assignment analyzes the collapse of Thomas Cook, a travel business, due to financial difficulties and declining customer confidence. The analysis examines the role of corporate governance, agency theory, and stakeholder theory in the company's failure. It discusses the issues of high debt, shareholder concerns, and the government's response, including the refusal to provide financial aid. The study evaluates the corporate governance system in the UK and Australia, highlighting issues such as board diversity, timely information flow, risk management, and performance evaluation. It also reflects on various corporate governance theories, including stakeholder theory, and their relevance to the case. The recommendations propose improvements to corporate governance policies, including increasing diversity, appointing competent board members, ensuring timely information flow, prioritizing risk management, and evaluating board performance. The assignment uses media articles and a company profile to support its analysis and recommendations.

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TITLE OF THE PAPER CENTERED AND IN CAPS LOCK
by Student’s Name
Code + Course Name
Professor’s Name
University Name
City, State
Date
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Table of Contents
1. Analysis.......................................................................................................................................2
2. Evaluation of a corporate governance system.............................................................................4
3. Reflection.....................................................................................................................................5
References........................................................................................................................................7
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1. Analysis
Summary
Thomas Cook is a travel business that collapses because of customers increasing concerns
regarding traveling. City group declared that it was on a risk of a vicious cycle. Customer’s wants
might be unsettled after the tax loss reported by Thomas Cook. After the losses, Thomas Cook
was suffering from high debt and also has concerns regarding the demands of traditional holiday
packages. This debt is discouraging shareholders and investors were looking to sell stakes of
Thomas Cook to avoid losses by falling shares (Ateljevic and Page, 2017). Government declared
a fast track analysis and inquiry to find out the reason behind the collapse which cost the closing
of 178-year-old holiday business.
Potential concerns associated with this collapse includes exceptional item. A balance sheet of
company affected the results annually. It also results in decreasing profits. Two of the biggest
firms of accountancy used to handle audit for Thomas Cook. This tour operator experiences
multiple changes in financial chiefs for past two years. The secretary of business defended the
government's refusal to help the company out as it may cost a waste of money provided by
taxpayers (Shogren et al., 2017). It was also stated that the company was not provided with back
support as it’s not Corley based on UK. By government site those 2 hundred million dollars that
is demanded in not enough for the company to survive. The transport spokesperson said that he
does not recognise the proposed solution beneficial as it lacks details. It was reported that the
fallout of Thomas Cook is a result of weak governance theories. The provided articles reflect that
Thomas Cook can be saved at that instance if governmental aid is provided.
Corporate governance issues
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Corporate governance is a high profile theme in the UK as government is taking interest in its
future development. Initiative and changes are driven at different levels to continue apace EU
referendum provided by advisory results in UK was found to favors organisations. Government
launched different industrial and energy strategy committees to inquire about corporate
governance with reference to public consultation (Bendickson et al., 2016). Different issues in
corporate governance are discussed in the provided articles along with their relevance with
corporate governance procedures practiced in Australia are discussed below.
All companies are required to explain the way through which the directors compel with the
existing requirements of companies. It is the duty associated with director that he must promote
company's success to benefit its members. While doing so all the necessary factors including
employees and stakeholders must be taken care of. Major similarity between corporate
governance issues in UK and corporate governance practices in Australia includes the disclosure
of arrangements made for corporate governance in the director's reports and websites (Panda and
Leepsa, 2017). These reports must follow a formal code. These requirements are necessary for
companies unless it is subjected to reporting requirements of corporate governance.
Government responds in case of Thomas Cook reflects the side-effects of poor
government policy but allows a 178 years old organisation to collapse rather than providing
financial aid. The code of corporate governance is published by FRC in UK. This published code
applies to the organisation having premium listing associated with equity shares in stock
exchange market in London (Chu et al., 2016). However, the corporate governance in Australia
is a bit different from that of the UK as it provides financial aids to the corporate who are facing
terrible problems in their businesses.
Agency theory
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Agency theory highlights the solution and problem associated with task delegation from
principal. Its agent’s works in the context of solving conflicts of interest among different parties.
It starts with a fair assumption about informational contracting and rational conditions. This
theory addresses the problems associated with hidden characteristics and it also provides
information asymmetry as it initiates hidden action. Conditions were examined under different
kinds of monitoring arrangements and incentive instruments that can minimise the loss (Collins
et al., 2019). Its broader applicability and clear prediction allow enjoyment to agency theory.
However, it also attracts and faces considerable criticism.
Agency theory can assist in the case of Thomas Cook as it mediates to manage and maintain
relationships. Basic ideas provided by agency theory that can help Thomas Cook are as follows.
 Agency theory establishes relationships between managers and owners and derives a way
to motivate all subjects of interest.
 It discusses the efficiency of capital markets and labors along with monitoring of their
role and manager's behavior.
 In most cases, agency theory reduces the opportunism of management.
Agency theory can solve the problem between government and Thomas Cook by reducing
difficulty in attitude and monitoring the core problem. It might happen that agency theory saves
the 178 years old organisation.
Corporate governance theories
The stakeholder's theory can help us in understanding the theories of corporate governance
discussed in this article. This theory is centered across the concerning issues of stakeholders in
institutions. It reflects that any corporate can seek invariability to assist a balance among interest
of stakeholders (Esty et al., 2016). This can ensure constituency interest satisfaction. There is a
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prejudice regarding narrowness of stakeholder theory. This is because of its interest
identification procedure associated with shareholders in any corporate entity. Shareholders'
theory is one of the most recognised theories in business law in different countries as it supports
companies and their owners. The depicted model of Thomas Cook requires conversion of
employees investors and suppliers into inputs so that it can be profitable and assists its
shareholders (Steger, 2015). The work of stakeholder’s theory is also based on this scenario. The
reason behind the prominence of stakeholders' theory is its recognition of corporate entity
(Formentini and Taticchi, 2016). Stakeholder’s theories are one of the associated corporate
governance theories that can help in understanding the issues covered by these articles.
2. Evaluation of a corporate governance system
Critical evaluation
Corporate governance issues are very wide, vital and significance. Some of these issues were
discussed above in the context of Thomas Cook. These issues are generally interdependent and
are involved bilaterally. Because of this, it is difficult to point them out from corporate entity and
structure. Few definitions associated with corporate governance attempts to define these issues,
however, each definition relies on another (Kaymak and Bektas, 2017). All these issues are
connected with corporate governance but have different prioritise in context of different
corporate.
Value-based corporate culture is basic and also regarded as the foundation of corporate as it
discusses the different practices and means of corporate governance. Value-based culture of
corporate depicts the manner that is involved in an interaction with external environment. It is
hard to pass precise opinion regarding these issues as it is differentiated based on business ethics
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and personal ethics. In a society full of competition with pressure and divergent values it is
difficult to choose what is on the borderline and what is ethical. Basic principle of ethical is the
task which can be performed publicly and openly without facing embarrassment (Niño et al.,
2016). Ethics codes are statements of principles of values that define companies’ purpose. This
code clarifies corporation ethics and defines the duties and rights associated with respective
stakeholders and employees of the company. This code explains the standing principle of the
company.
While formation of any code of conduct different companies use different terms to make
it relatable and it can be used to establish relations towards corporate governance (Laszlo and
Cescau, 2017). Vision is the most appropriate concept behind organisations. In this case, vision
is nothing but the dream of the future that holds and binds the company. It describes where this
company is going to be in coming years. Existence of organisations makes it a part of society.
There are certain functions that are necessary to keep the organisation interact to achieving its
predicted vision. Mission plays the role of a guideline. It brings synergy between activities and
the needs of an organisation along with the needs and the activities of society (Wondem and
Batra, 2019). Mission statement consists of an external orientation. The desire of an organisation
to achieve something with the corporative vision is defined as purpose.
Corporate governance system if UK is responsible for the decline incorporates
businesses. It is not subtle and hence, does not support or assist organisations in their hard time
(Lebedeva et al., 2016). The issues mentioned above can be solved in the Thomas Cook
organisation if UK has proper governance policy.
Present recommendation
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Corporate governance policies and systems of UK and Australia can be improved by increasing
diversity, appointing board members who are competent, ensuring flow of timely Information of
prioritising management of risk and evaluation of the performance of the board.
The corporate board usually suffers because it lacks diversity. They must introduce diversity in
their functional units to modify its performance (Lewis-Pryde and Evans, 2016). Diversity is a
basic issue but can emphasise performance. Timely information must be ensured in board senior
management must take responsibility to provide proper information, directions, and supervision.
Risk management must be taken care of as it protects organisations with different kinds of
threats. Lastly, evaluation of board performance is also necessary as it helps in highlighting the
weaknesses and goals of board (Mitnick, 2015). The provided recommendations can be used to
improve system of corporate governance in both the United Kingdom and Australia.
3. Reflection
Reflection on different corporate governance theories 2
These articles discuss different corporate governance theories. The discussed organisation that is
Thomas Cook is the main concern of this study. Theories of corporate governance must be
suitable for all size organisation and have the ability to provide assistance in hard times. It must
inspire organisation and show a scenario of good governance to influence the economy
positively. Corporate governance signifies towards public and private institutions, it includes
laws, acceptable practices of business and regulations that are used to govern the relationship
between entrepreneurs and corporate managers. Corporate governance is defined as a procedure
via which different shareholders induces management tasks so that it acts in their favor.
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It provides a confidence degree that is important for markets to effectively function. It
can also be regarded as a mechanism through which the investors who were outside the
organisation. Protect them from insider exploitations. That is from the managers and controlling
shareholders.
This provides answer can be justified on the basis of collapse experience by Thomas cook. The
company gets shafted because of poor governance theories and lack of intention by government
side to save the organisation. The 178 years old organisation also falls because of its own
management blunders. The shareholders of Thomas Cook were also not dedicated towards
saving the firm and started selling their shares to minimise the loss. Thomas Cook must be saved
if the government is ready to modify its theories of corporate governance by implementing the
modification recommended above. Uncertainty also gets proven as one of the most significant
reasons behind fall of this organisation. Theories of corporate governance require certain
modification based on the remarks.
Reflection on the subject as a whole
This study deals with the reasons that caused the fall of travel business names as Thomas Cook.
This organisation was suffering from different significance debt and also has variable demands
regarding traditional packages. This causes discouragement among investors and shareholders
and they started selling their shares. A fast-track analysis is declared by the government to assess
the reason behind this collapse. However, the government did not provide proper assistance to
save the organisation, as it does not pass the two hundred billion dollars that are demanded by
company. There are also some potential concerns as well as poor governance among
organisation, these all constraints results in the fall of Thomas Cook. The main thing that I
understood after going through this topic is that the governance theories required certain
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modifications as it is so lustrous. The most important and most useful thing highlighted through
this case is needed for excelled risk management in organisation. If Thomas Cook has proper
management to assess risk it might save it. The thing which is most difficult to understand is
government behavior in this case. Government does not intend to drive the company out of this
trouble. Poor corporate governance theories result in fall of Thomas Cook. However, lack of
support from shareholders in difficult times is another bizarre thing noticed in this study.
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References
Ateljevic, J. and Page, S.J. eds., 2017. Tourism and entrepreneurship. Routledge.
Bendickson, J., Muldoon, J., Liguori, E.W. and Davis, P.E., 2016. Agency theory: background
and epistemology. Journal of Management History, 22(4), pp.437-449.
Chu, E.Y., Lai, T.S. and Song, S.I., 2016. Corporate governance and financial constraints in
family controlled firms: Evidence from Malaysia. International Journal of Business and Society,
17(3).
Collins, P., Igreja, V. and Danaher, P.A. eds., 2019. The Nexus Among Place, Conflict and
Communication in a Globalising World. Palgrave Macmillan.
Esty, B., Gilson, S.C. and Sesia, A., 2016. Thomas Cook Group on the Brink (A, B, and C
Cases). HBS Case Studies, (215-008), pp.215-051.
Formentini, M. and Taticchi, P., 2016. Corporate sustainability approaches and governance
mechanisms in sustainable supply chain management. Journal of Cleaner Production, 112,
pp.1920-1933.
Kaymak, T. and Bektas, E., 2017. Corporate social responsibility and governance: information
disclosure in multinational corporations. Corporate Social Responsibility and Environmental
Management, 24(6), pp.555-569.
Laszlo, C. and Cescau, P., 2017. Sustainable value: How the world's leading companies are
doing well by doing good. Routledge.
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Lebedeva, T.E., Akhmetshin, E.M., Dzagoyeva, M.R., Kobersy, I.S. and Ikoev, S.K., 2016.
Corporate governance issues and control in conditions of unstable capital risk. International
Journal of Economics and Financial Issues, 6(1S), pp.25-32.
Lewis-Pryde, J. and Evans, R.D., 2016, August. A social networking strategy for improving
knowledge management and communication in the travel industry. In Proceedings of the The 3rd
Multidisciplinary International Social Networks Conference on SocialInformatics 2016, Data
Science 2016 (p. 24). ACM.
Mitnick, B.M., 2015. Agency theory. Wiley encyclopedia of management, pp.1-6.
Niño-Zarazúa, M., Roope, L. and Tarp, F., 2016. Income inequality in a globalising world.
Panda, B. and Leepsa, N.M., 2017. Agency theory: Review of theory and evidence on problems
and perspectives. Indian Journal of Corporate Governance, 10(1), pp.74-95.
Shogren, K.A., Wehmeyer, M.L. and Palmer, S.B., 2017. Causal agency theory. In Development
of self-determination through the life-course (pp. 55-67). Springer, Dordrecht.
Steger, T., 2015. Corporate Governance. Wiley Encyclopedia of Management, pp.1-4.
Wondem, B.A. and Batra, G.S., 2019. The Impact of Corporate Governance Practices on
Corporate Financial Performance in Ethiopia. Int J Account Res, 7(196), p.2.
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