FNSACC604 Monitor Corporate Governance Activities

Assessment Task 3- Written

FNSACC604 Monitor Corporate Governance Activities


Case study

 

Corporate governance is "the system by which companies are directed and controlled" (Cadbury Committee, 1992).  Corporate Governance is a set of relationships between a company’s management, its Board of Directors, shareholders and stakeholders.  Corporate governance guarantees that the company is directed and controlled in a responsible, accountable and transparent manner with the purpose of achieving its objectives.

 

The collapse of the HIH Insurance group of companies was a significant failure of corporate governance and it was an eye opening event for the stakeholders, governments and regulators. HIH Insurance was second largest Australian insurance company and with liquidators’ estimate, the HIH's losses totalled up to $5.3 billion. Investigations into the cause of the collapse have led to conviction and imprisonment of a handful of members of HIH management on various charges.

 

The Royal Commission released the report “The Failure of HIH Insurance” in 2003.  The report provides insights into how such big company with complex corporate governance, policies and procedures collapsed and highlighted the weaknesses of Board of Directors and its tragic failure which significantly impacted the stakeholders’ confidence.  The report particularly focused on a lack of attention to detail and skills, a lack of accountability for performance and a lack of integrity in the company’s internal control system.

Required:
  • Briefly explain the HIH Insurance group and its organizational structure.

  • Critically analyse the collapse of the HIH Insurance group of companies.

  • Identify the major weaknesses in the Corporate Governance of HIH and failure of the Board of Directors which caused the collapse of HIH Insurance.

  • Include in your analysis the negligence and failure, if any, of auditors, the non-executive and executive directors.

  • Make reference to relevant laws, regulations and requirements of statutory authorities and other regulators, where necessary, such as Australian Companies Act 2001, the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (also known as CLERP 9), 1991 Bosch Committee guidelines, ASX Corporate Governance Council’s Principles of Good Corporate Governance Practice and Best Practice Recommendations, AASB (Australian Accounting Standards Board), ACCC (Australian Consumer and Competition Commission), Australian Institute of Company Directors, etc.

  • Explain briefly the current formats required for the submission of statutory returns.

  • Assuming there were no issues with the company, outline key management processes that would support corporate governance.

  • The HIH Group collapsed in 2001. What are the key features of current financial legislation, and statutory and regulatory requirements, and what changes, if any, were in response to the collapse of the HIH Group and other companies?

  • Make sure that you acknowledge the source of information you have included in your assignment by making appropriate reference to the source material.

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