Australian Case Study in Corporate Governance – Hih Insurance

4824 Words Jun 2nd, 2008 20 Pages
1. INTRODUCTION
“The collapse of the HIH Insurance group (“HIH”) resulted in a deficiency of up to A$5.3 billion, making it Australia’s largest corporate failure. The ensuing Royal Commission report released in April 2003 provides a rare detailed dissection of a spectacular corporate implosion and a very useful case study from which corporate governance lessons may be learned. This is particular so because HIH was not unusual case of major fraud or embezzlement. The failures identified by Commissioner Owen were by and large failures stemming from mismanagement. Most breaches of the law were designed to cover up the consequential increasing financial difficulties which were engulfing HIH” (Lipton, P., 2003, p.273, Retrieved 19th December
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(v) Responsibility
There was insufficient ability in those at the top of HIH to see what had to be done and what had to be stopped or avoided. Thus, by their own poor example and failure to uphold high ethical standards, allowed a culture to flourish in which secrecy, rule-breaking and fraudulent behaviour became acceptable or, at best, ignored. For instances, Chairman Geoffrey Cohen seemed reluctant to act on matters if he knew that he would not get the support from the chief executive such as he did not bring Raymond William into account when the later bypassed the board in distributing information memorandum about Allianz transaction.

(vi) Fairness
The element of unfairness in the management and board strategy existed in HIH. For example, the lateness of the notice issued to board members resulted only 7 out of 12 directors were present in the meeting urgently held on 22 September 1998 to decide on the FAI acquisition. In fact, only 3 directors were present in person whilst the remaining 4 directors participated by video conferencing. Those participated by video did not have copies of all relevant documentation including the reports prepared by HIH’s financial advisors.

(vii) Social responsibility
The large part of the problem relating to the demise of HIH was its strategy of growth at all costs. HIH had been offering insurance at too low a price, and had not set aside enough capital to cover its future liabilities. This was worsen by

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