ACC03043 Corporate Governance: Corporate Collapses Analysis

This report analyzes corporate governance, focusing on two key areas: early corporate collapses in Australia and the implications of the global financial crisis. The first section examines the failures of Alan Bond, Laurie Connell of Rothwells, and the Girvan Corporation, exploring the underlying causes of these collapses, such as weak security regulations and poor governance practices. It assesses whether today's corporate governance codes would have prevented these outcomes. The second section delves into the collapse of financial institutions, particularly in the context of the 2007-2008 financial crisis. It discusses the governance issues, including deregulation, reckless investments, and the securitization of debt, which led to the crisis. The report highlights the role of non-executive directors, regulatory failures, and the subsequent changes in corporate governance codes, such as increased transparency, accountability, and risk management practices. It concludes that corporate governance failures were a major contributor to the financial crisis, prompting crucial changes in global governance practices.

Running head: CORPORATE GOVERNANCE 0
Corporate Governance
Understanding Corporate Collapse
Student Details:

CORPORATE GOVERNANCE 1
Contents
Q1 Corporate Collapse in Australia.......................................................................................................2
Q2 Collapse of financial institutions......................................................................................................5
Reference List.......................................................................................................................................7

CORPORATE GOVERNANCE 2
Q1 Corporate Collapse in Australia
Corporate Governance is the driver of the performance of an organization. The term
corporate governance has a broad concept relating to monitoring the actions of the company
in regards to its stakeholders which includes employees, customers as well as investors and
shareholders (Capaldi & Idowu, 2017). There are various codes and, policies and practices
are incorporated to streamline the process of corporate governance. Corporate governance
can be explained as broader view of business ethics. It is crucial to follow certain rules
towards social, regulatory and market environment. The underlying reason for the failure of
Australian companies in 1980 crisis is that the disclosure requirements have not been
properly enforced. The major reason of the failure of Alan Bond, Laurie Connell of
Rothwells and the Girvan Corporation is Australian securities Regulation (Tricker, 2015). It
is important to note that the guidelines should be followed properly. As corporate governance
is the crucial element of sustainable future of any organization. In 1980 the huge wave of
companies collapse occurred due to the weak and fragmented security regulations. The bond
corporation and Girvan Corporation involved in deals with the government which led to loss
of 600 Million Australian dollars of public investors between 1983 and 1987 (Wahlquist,
2015). The government lent loans, financial guarantees, and assets at inflated prices to the
companies. It is a political scam which occurred due to poor governance practice.
With changing era, the corporate governance codes are developing and growing. It is
important to observe that importance of corporate governance codes is well recognized. The
best practices in corporate governance are being adopted by all the private as well as public
listed companies. Corporate governance codes acts as the points of regulation. It is important
that Australian regulators enforce and regulate company financial conditions in order to

CORPORATE GOVERNANCE 3
protect Australian consumers and shareholders (Mallin, 2018). There have been various
attempts to improve management accountability of the company to protect the stakeholders
from any financial disasters. The company board of directors are responsible for proper and
ethical functioning of the company. In the wake of the financial crisis, the government has
imposed liability upon passive members. The legislation has also imposed stringent duties on
directors. With the increase of awareness corporate social responsibility has been enhanced
all over the world. Corporate governance has three major factors which are environment,
Social and governance. The shareholders have become involved in management decision
making where critical decision is required. Shareholder proxy votes has the power which
should be utilized properly by the board of directors. It is the board’s key role to ensure the
management achieve goals effectively. The concept of CEO and chairman of the board being
the same dominate the working and decision making of the company. The governance is all
about performance with taking care of legal as well as ethical concerns of society.
Various changes were incorporated in 1990 to improve corporate governance practices. Some
of the important changes in board are explained below:
 The Independent non-executive members were introduced in board of directors. As
non-executive directors get fixed remuneration compared to profit participation of
executive directors (Tricker, 2015).
 The division of responsibility between the chairman and chief executive officer
(CEO) as its helps CEO manage the business and it gives autonomy to run the board.
 Introduction of three important committees which have designated role:
- Audit committee which takes care of the financials of the company and the board
should be comprised of independent directors for better transparency

CORPORATE GOVERNANCE 4
- Remuneration committee oversees executive awards and remuneration of board of
members
- Nomination Committee proposes new independent members for the board (Lahlou,
2018)
With the stricter guidelines and changes in governance codes, it can be concluded that the
today’s governance practices would have prevented this outcome.

CORPORATE GOVERNANCE 5
Q2 Collapse of financial institutions
In 2007, the financial crisis began with international banking crisis in the United States
(Medland, 2017). It was primarily caused by deregulation in the financial industry. It was
cleared that loans were provided to people who were not having good credit risk ratings. The
major governance issue was arising as financial institutions bundled the loan asset into
securities. The securitization of debt has exposed the high risk for the financial system. The
bankers have made reckless investment decision which has led the shareholders exposing to
loss. It is important to analyze the directors of failed financial institutions especially the non-
executive directors whose role is to see working and decision making of the executive
directors.
Banking regulators have been criticized for their poor coherence decisions relating to
mortgage loans (Damodaran, 2018). With these, the SEC has proposed various changes for
listed companies. The corporate governance codes got updated in the whole world. UK has
also proposed corporate codes to improve the transparency and accountability of the board.
The Companies were suggested to report their financial strategy and business model in order
to check the board and management governance methods.
Annual re-election of the chairman of the whole board of directors is considered as one of the
best practices in order to increase the responsibility of non-executive members. The company
has altered various codes in order to justify the fees and compensation of all board members.
It is necessary that remuneration of directors should be disclosed to shareholders. The
corporate governance has boarded the board responsibility towards risk management
(Tricker, 2015). The major focus of audit committee is to track the risk exposure of the

CORPORATE GOVERNANCE 6
company. The Board of directors should be evaluated by the regulators at least in three years
(Croci, 2018). Another best practice is to have separate CEO and chairman of the board. The
division of the responsibility can lead to proper management of all the committees. It is
inferred that their potential for abuse of power is concerted in one deciding person. The
performance-related pays were linked to long term interest and commitment of the company.
The major implication of financial crisis is to introduce short term goals. The short term goals
are linked to executive compensation in order to improve the decision making of the board
(Dignam & Galanis, 2016). The proper internal controls are implemented to measure risk
management processes. High ethical standards and good governance practices are integrated
as core objective of the company (Klettner, 2016). It can be concluded that financial crisis
was result of corporate governance failures and it has led to crucial changes in corporate
governance practices all over the world.

CORPORATE GOVERNANCE 7
Reference List
Capaldi, N. & Idowu, S., 2017. Dimensional Corporate Governance: An Inclusive Approach.
United States of America: Springer.
Croci, E., 2018. The Board of Directors: Corporate Governance and the Effect on Firm
Value. United States of america: Springer.
Damodaran, M., 2018. Regulatory lessons from the 2008 financial crisis. [Online] Available
at: https://www.livemint.com/Opinion/7nxSJt5fGtYfiPWsEZLeDK/Regulatory-lessons-
from-the-2008-financial-crisis.html [Accessed 19 July 2019].
Dignam, A. & Galanis, M., 2016. The Globalization of Corporate Governance. London:
Routledge.
Klettner, A., 2016. Corporate Governance Regulation: The changing roles and
responsibilities of boards of directors. London: Routledge.
Lahlou, I., 2018. Corporate Board of Directors: Structure and Efficiency. United States of
America: Springer.
Mallin, C., 2018. Corporate Governance. United Kingdom: Oxford University Press.
Medland, D., 2017. Barclays And The Great Corporate Governance Cop-Out: An 'Honest
Mistake'. [Online] Available at:
https://www.forbes.com/sites/dinamedland/2017/04/10/barclays-and-the-great-corporate-
governance-cop-out-an-honest-mistake/#6c51b31d51b6 [Accessed 19 July 2019].
Tricker, , 2015. Corporate Governance: Principles, Policies, and Practices. United
Kingdom: Oxford University Press.

CORPORATE GOVERNANCE 8
Wahlquist, C., 2015. Alan Bond: the rise, spectacular fall and rise again of the America's
Cup hero. [Online] Available at: https://www.theguardian.com/sport/2015/jun/05/alan-bond-
the-rise-spectacular-fall-and-rise-again-of-the-americas-cup-hero [Accessed 19 July 2019].