Analyzing the Collapse: A Case Study of Maxwell Communication Group

This case study delves into the downfall of Maxwell Communication, highlighting the series of frauds perpetrated by its founder, Robert Maxwell. The rapid expansion of the media empire, coupled with a lack of transparency and misappropriation of funds, led to its collapse. Maxwell's secretive management style and disregard for stakeholder theory further exacerbated the situation. The analysis emphasizes the importance of ethical principles, transparent business practices, and the equitable treatment of stakeholders. Key lessons learned include the need for organizational awareness, proper reporting and accounting, and active engagement of trustees. Desklib provides a platform for students to access similar case studies and solved assignments to enhance their understanding of corporate governance and business ethics.

Presentation
MAXWELL COMMUNICATION
CASE STUDY

1. CASE STUDY
The case of Maxwell communication presents a series of frauds that were
conducted by Robert Maxwell, the founder of the organization. Robert
Maxwell build a media empire that comprised of a mix of private and public
companies.
The media was expanded too rapidly with an aim to compete with an
Australian rival named Rupert Murdoch. This web, known as the maze of
companies, depicted an old accountancy trick with the help of which
inflated sales were presented before the public.

CONTINUED…
 There was lack of transparency and the senior employees were not
provided any information about the dealings of the company.
 As the financial difficulties approached, funds were transferred by
Robert Maxwell from pension funds to companies that were
privately owned.

2. REGULATORY FRAMEWORK
The corporate governance framework at that time required the
owners to care for the rights of the shareholders however, this was
breached by Maxwell Communication as it did not facilitate the rights
of shareholders.
It also breached the laws related to equitable treatment of
shareholders.

3. CAUSES OF COLLAPSE
Misappropriation of funds- One of the reasons for collapse of Maxwell
communication was misappropriation of funds. Robert misappropriated
funds and pledged assets as security for additional loans. He also diverted
cash from one company to another.
Management style- Robert demonstrated a secretive management style
whereby he did not trust his employees and seniors. Due to this reason, he
kept board members aloof and confined important information to himself.
This lack of trust was also one of the causes for the collapse of the company.

CONTINUED…
 Lack of disclosure and transparency- Corporate governance
requires the organization to make its board members aware about
the important dealings and aspects. However, Robert Maxwell did
not provide the important and useful information to his employees
even if they enquired.

4. ETHICAL IMPLICATIONS
Stakeholder theory
 As per this theory, it is the ethical responsibility of an organization to treat all
its stakeholders equally. Individual ambitions must be set aside in order to
present the goals of the organization before the stakeholders.
 However, it can be critically evaluated that considering Maxwell’s case, the
individual ambition were focused by Robert Maxwell in order to compete
with its rivals. Hence, equitable treatment was not given to the stakeholders.
 This implies that the organization should work towards common goals rather
than individual ambitions.

CONTINUED…
Ethical principles
 Maintaining transparency of business practice is an ethical principle that
must be followed. The voices of all those employees who have contributed
towards the success of the organization should be heard.
 However, it can be critically evaluated that in Maxwell Communication,
the senior employees were neither provided transparent information about
the organization, nor were included in important decisions of the company.

5. LESSONS LEARNT FROM COLLAPSE OF
MAXWELL COMMUNICATION
 Awareness about structure- It is necessary for the owner to be
knowledgeable about the structure of the organization. In the presence of
complex structures, as was the case of Maxwell, there should be clear
communication about the ownership and legal relationships.
 Proper reporting and accounting- When there is use of foreign structure,
as Maxwell used foreign companies, reporting of the same should be done
to the directors of the lower tier.

CONTINUED…
 Role of trustees- It is important for the trustees to meet and engage
in direct dialogue with the auditors. This is required to insure
thoroughness and competency.

REFERENCES
 Adams, R. B., Hermalin, B. E. and Weisbach, M. S., 2010. The role of boards of directors
in corporate governance: A conceptual framework and survey. Journal of Economic
Literature. 48(1). pp.58-107.
 Kolk, A. and Pinkse, J., 2010. The integration of corporate governance in corporate social
responsibility disclosures. Corporate Social Responsibility and Environmental
Management. 17(1). pp.15-26.
 Cohen, R., 2017. Maxwell's Empire: How It Grew, How It Fell -- A Special Report.;
Charming the Big Bankers Out of Billions. [Online]. Available Through:
<http://www.nytimes.com/1991/12/20/business/maxwell-s-empire-it-grew-it-fell-special-
report-charming-big-bankers-billions.html?pagewanted=all>. [Accessed on 13 February
2017].
 ROBERT MAXWELL: Lessons Learned. 2007. [Online]. Available Through:
<http://www.rowbotham.com/pdfs/executive-newsletters/8-ROBERTMAXWELL-
LessonsLearned.pdf>. [Accessed on 13 February 2017].