Book Review: Cases in Corporate Governance by Robert Wearing

ROHIT RAJ
ROHIT RAJ
Sep 2, 2018 · 3 min read

This book provide insights into issues in Corporate Governance through linkage between corporate governance theory, regulation, and practice and with the help of nine selected real life case studies on corporate governance. The book focuses on case studies of companies that have faced problems with their corporate governance procedures. The common themes in all these cases are powerful business leaders, companies experiencing rapid but unsustainable growth, complex organization structure, excess optimistic market expectations, etc.

It is believed that for both large and small organizations, robust systems of corporate governance are important. The book talks about why corporate governance can break down and what might be done as remedy in such situations discussing through case studies. Each case study helps in understanding corporate governance theory and explain why corporate governance regulation and codes are essential in modern business life. The book does not offer any solutions to these problems of case studies but adopt and independent and analytical approach to reinforce their understanding of these issues.

Case studies play a valuable role in a deeper understanding of corporate governance issues, and their analysis can assist in development of theories and hypotheses and makes us aware of the difficulties involved in deriving general conclusions from any case study. The book is structured with first two chapters on theory and regulation of corporate governance followed by nine case studies and, finally the last chapter offering a synthesis of conclusion.

The Corporate Governance theory discusses about the principal-agent theory and stakeholder theory as possible frameworks for analyzing corporate governance problems and reviews the development of the modern corporation.

The Corporate Governance regulation discusses about the development of Sarbanes-Oxley legislation in the USA and The Combined Code on Corporate Governance in the UK. A suitable balance needs to be maintained between the demand of managers, and the needs of stakeholders while framing codes and regulations of Corporate Governance.

The first case is about Robert Maxwell’s business empire. Robert Maxwell who was a successful business leader in important newspaper and publishing interests suddenly disappeared at sea from his Yacht called Lady Ghislaine in November 1991 and it soon became clear that his business empire was in deep financial difficulties. Many employees lost their substantial pension entitlements.

The second case is on Polly Peck, a large UK quoted company which collapsed on October 1990. Till 2004, the case has not yet been fully resolved because the former chairman and chief executive fled in exile in Northern Cyprus.

The third case is on the Bank of Credit and Commerce International (BCCI). On July 1991, regulators were forced to suspend its operations and the Bank of England’s regulatory practices were criticized subsequently in an official report for the following year.

The fourth case is on Enron, one of the world’s largest energy groups of that time operating in the USA. The company filed bankruptcy in 2001 and later was discovered that this financial scandal was the result of reported profits that had been substantially overstated.

The fifth case is on WorldCom which became bankrupt in July 2002. The main concern was that capital expenditures were found to have been misclassified.

The sixth case is on Parmalat, an Italian multinational company. The financial collapse in 2003 was due to false accounting followed by the senior executives of the company.

The seventh case is on Eurotunnel. It examines the relationship between the company and shareholders of Eurotunnel. Eurotunnel’s actual capital expenditures were much higher than those projected in the original prospectus. Also, the projected revenues were substantially overstated. It addresses the issue of how shareholders (principals) can monitor the actions of managers (agents).

The eighth case is on The Barings Bank. It collapsed in 1995 because of unauthorized trading by Nick Leeson, one of its derivatives traders.

The ninth case is on Shell. Shell, in 2004 announced of its overstated oil and gas reserves. As a subsequent impact, its share price took a hit, and the company tried to reform its organization structures and corporate governance practices.

These real life examples of corporate governance is necessarily “Backward Looking” but definitely lessons could be learned for the future. Also, relevant theories and hypotheses can be developed. For example, Enron and WorldCom incidents were major factors in development of Sarbanes-Oxley legislation.

Finally, it can be formulated as there is nothing as a complete ‘good’ or ‘bad’ corporate governance and is based on a consensus. Managers are likely to be more aware of the costs of corporate governance, compliance with codes and regulations, etc. as compared to the stakeholders who are more likely to be aware of the benefits which can prevent loss of employment, shareholders’ capital, pension entitlements, etc.