Corporate Governance Practices: HIH Insurance and Woolworths

This report delves into the realm of corporate governance, presenting a comprehensive analysis of the practices and principles within the context of the HIH Insurance collapse and the operational strategies of Woolworths. Part A meticulously examines the history of HIH Insurance, dissecting the events that precipitated its failure, scrutinizing the audit reports, and evaluating the effectiveness of internal control procedures and the composition of the board of directors. It also explores the emerging trends in corporate governance reporting within Australia. Part B shifts focus to Woolworths, analyzing its independent audit reports, the roles and responsibilities in financial statement preparation, the efficacy of its internal controls, and its adherence to accounting standards. The report concludes with a comparative perspective, emphasizing the importance of sound corporate governance practices for organizational stability and success, drawing lessons from the HIH Insurance case and highlighting best practices exemplified by Woolworths. The report is well-researched and includes references and a bibliography to support the analysis.

Running head: CORPORATE GOVERNANCE
Corporate Governance
Name of the Student:
Name of the University:
Author’s Note:

1CORPORATE GOVERNANCE
Table of Contents
Part A:..............................................................................................................................................2
History of HIH Insurance Ltd:.....................................................................................................2
Events leading to the collapse of HIH Insurance Limited:..........................................................2
Analysis of the audit report of the HIH Insurance Limited:........................................................3
Analysis of the internal control procedure of the HIH Insurance Limited:.................................3
Analysis of the Board of the HIH Insurance Limited:.................................................................4
Emerging trends in reporting corporate governance practices in Australia:...............................4
Conclusion:..................................................................................................................................4
Part B:..............................................................................................................................................6
Sub part a:....................................................................................................................................6
Sub part b:....................................................................................................................................6
Sub part c:....................................................................................................................................6
Sub part d:....................................................................................................................................7
Sub part e:....................................................................................................................................7
References and bibliography:..........................................................................................................8

2CORPORATE GOVERNANCE
Part A:
History of HIH Insurance Ltd:
HIH Insurance Limited is a publicly listed insurance company based on Australia. HIH
group was the second largest general insurance in the Australia and they had a presence in
various other countries. The HIH Insurance Limited along with many of their subsidiaries were
placed to provisional liquidation on 15th March 2001. The company was incorporated in the year
1968 by Ray Williams and Michael Payne with an objective of providing general insurance
services to the business organizations, with the efficient management and excellent financial
performance, the company had been growing and expanding their business from national level to
international level. They had acquired controlling interest in many other companies in the same
industry. Later on, with a significant fall in profitability and liquidity of the company, the HIH
Insurance Limited collapsed in the year 2001 (Hih.com.au. 2020).
Events leading to the collapse of HIH Insurance Limited:
The main reason behind the collapse of the HIH Insurance Limited was their aggressive
business expansion strategy. The company had been performing very well financially at the
initial stage. With the hope of same performance and with the expectation expanding their
business globally, the started acquiring various companies in various other countries also.
Expansion of their business in an uncontrolled manner and lack of proper management and
coordination and organization, their business started making a loss and the liquidity of the
company had been decreased significantly for the company as a whole along with their
subsidiaries (Hih.com.au. 2020).

3CORPORATE GOVERNANCE
Another reason for collapse of the company can be identified as the expansion of their
business in an already overcrowded market in various countries. During 1990s, the company had
acquired some sick and troubled insurance company as a part of their aggressive expansion
strategy. Offering insurance at a very low price, but they did not set aside sufficient amount of
fund to meet their future liabilities. Many other reasons such as stock market manipulation,
Disseminating false information, false reports, and reckless management can also be considered
as the reasons behind corporate failure and collapse of the HIH Insurance Limited (Hih.com.au.
2020).
Analysis of the audit report of the HIH Insurance Limited:
From the last audit report before the collapse of the HIH Insurance Limited, it can be
observed that, auditors had highlighted certain issues which can be made liable for the collapse
of the company. Auditors had highlighted that the, there was a lack of independent or non-
executive directors from the management. It lead to violation of the ASX corporate governance
practices. It made the board of the company more rigid and they ignored issues which needed
due consideration in time. On the other hand, it can be observed that, auditors had highlighted
the inadequacy of the risk management policies of the company. As the company is a general
insurance company, they must have a sound risk management policy to meet their obligations
arising from the insurance contract. Another most important point highlighted by the auditors is
the lack of independent information resources to help them in fulfilling their responsibilities.
Analysis of the internal control procedure of the HIH Insurance Limited:
Internal control mechanism works as a check system for detecting mismanagement and
frauds internally by the company. There must be a strong and efficient internal control
mechanism in the company to detect errors and mismanagement by the employees in the

4CORPORATE GOVERNANCE
organization. It can be observed that, the HIH Insurance Limited did not have an efficient
internal control mechanism, which lead to mismanagement and misinformation leading towards
the corporate failure for the company.
Analysis of the Board of the HIH Insurance Limited:
HIH Insurance Limited was having inadequate number of independent directors and non-
executive directors in the board. Some of the senior board of directors enjoyed a dominating
power of the board and most of the decisions were influenced by their intent. Therefore, rigidity
in the board of directors and domination over of the board by some of the directors lead to the
corporate failure. The board could have appointed sufficient number of independent directors
and non-executive directors to comply with the ASX corporate governance practices and to lead
the company towards success (Hih.com.au. 2020).
Emerging trends in reporting corporate governance practices in Australia:
Better Investors Stewardship, has become the recent and important corporate governance
practice in Australia. Hence, reporting such information in the corporate governance report has
become a recent trend. Some other trends in reporting corporate governance practices are
reporting board quality and composition, reporting information related to the compensation to
the directors, information related to the environmental, social and governance risks, and lastly
the information relating to the human capital of the organization.
Conclusion:
From the above discussion and analysis it can be concluded that, every company should
have a predefined and a sound corporate governance principle and practice. It is the core of the
administration and management of the business. A sound corporate governance practice ensures

5CORPORATE GOVERNANCE
the fair treatment with all the stakeholders of a company. Inadequacy in corporate governance
practices of a company may lead to the corporate failure which can easily learned from the case
of the HIH Insurance Limited.

6CORPORATE GOVERNANCE
Part B:
Sub part a:
For this part the Woolworths group has been selected for answering this question and the
following questions. It can be observed from the annual report of the company that, the Deloitte
was the independent auditor of the company. The audit firm is completely independent to the
company as there no such corporate relationship between the Deloitte and the Woolworths. The
Sydney office of the Deloitte signed the independent audit report. The report was an unqualified
report and certifies the true and fair view of the financial statements of the Woolworths. It can be
observed that the audit report was prepared after two months from the close of the financial year
of the Woolworths (Woolworthsgroup.com.au. 2020).
Sub part b:
The management of the company bears the responsibility of preparing the financial
statements of the company. Auditors are just independent authority to check the accuracy of the
information provided in the financial statements. As per the standards on auditing laid down by
the AASB, management of the company is responsible for preparing the financial statements of
the company and not the auditors are liable for preparation of the financial statement of the
company (Woolworthsgroup.com.au. 2020).
Sub part c:
It can be observed from the audit report as well as the annual report of the company, that
the internal control procedure of and policies of the company was adequate enough the detected
mismanagement and frauds and it helped them to implement various corrective measures in right
time (Woolworthsgroup.com.au. 2020).

7CORPORATE GOVERNANCE
Sub part d:
It can be observed from the independent audit report of the company that the financial
reports of the company have been prepared in accordance with the Corporations Act 2001, and
the Australian Accounting Standards have also been used for checking the compliance in
accounting and reporting of the financial information (Woolworthsgroup.com.au. 2020).
Sub part e:
It can be observed from the financial statement of the company, that there was a net
change in cash balance of $360million. The beginning cash balance was $917million and the
ending cash balance was $1277million (Woolworthsgroup.com.au. 2020).

8CORPORATE GOVERNANCE
References and bibliography:
Beekes, W., Brown, P. and Zhang, Q., 2015. Corporate governance and the informativeness of
disclosures in A ustralia: a re‐examination. Accounting & Finance, 55(4), pp.931-963.
Betta, M., 2016. Three Case Studies: Australian HIH, American Enron, and Global Lehman
Brothers. In Ethicmentality-Ethics in Capitalist Economy, Business, and Society (pp. 79-97).
Springer, Dordrecht.
Christensen, J., Kent, P., Routledge, J. and Stewart, J., 2015. Do corporate governance
recommendations improve the performance and accountability of small listed companies?.
Accounting & Finance, 55(1), pp.133-164.
Cummings, S., 2018. Left behind in Rosedale: Race relations and the collapse of community
institutions. Routledge.
Damiani, C., Bourne, N. and Foo, M., 2015. The HIH claims support scheme. Economic Round-
up, (1), p.37.
Feng, T., Cummings, L. and Tweedie, D., 2017. Exploring integrated thinking in integrated
reporting–an exploratory study in Australia. Journal of Intellectual Capital.
Hih.com.au. 2020. HIH Insurance. [online] Available at: https://www.hih.com.au/background
[Accessed 26 Feb. 2020].
Miglani, S., Ahmed, K. and Henry, D., 2015. Voluntary corporate governance structure and
financial distress: Evidence from Australia. Journal of Contemporary Accounting & Economics,
11(1), pp.18-30.

9CORPORATE GOVERNANCE
Woolworthsgroup.com.au. 2020. [online] Available at:
https://www.woolworthsgroup.com.au/icms_docs/195396_annual-report-2018.pdf [Accessed 26
Feb. 2020].