Identify the coporate governace issues invloved in this case study . Suggest how this kind of fraud can be avoided
Identify the coporate governace issues invloved in this case study . Suggest how this kind of fraud can be avoided
Chapter5: Ethics, Corporate Responsibility, And Sustainability
Section: Chapter Questions
Problem 8CTQ: How would a stakeholder approach, if taken by the companys top leaders and board of directors, have...
Related questions
Question
Identify the coporate governace issues invloved in this case study .
Suggest how this kind of fraud can be avoided
Transcribed Image Text:Case study 1.1 Robert Maxwell: a classic corporate governance case
Robert Maxwell, then Jan Ludvik Hoch, was born in Czechoslovakia in 1923, grew up in poverty, fought with the Free Czech army in the
Second World War, and received the British Military Cross. He became an international publishing baron. In the early 1970s, inspectors
appointed by the UK government led an inquiry into the failure of his company Pergamon Press and concluded that he was not 'a person
who can be relied on to exercise stewardship of a publicly-quoted company'. Nevertheless, he subsequently succeeded in building a
media empire including two public companies-Maxwell Communication Corporation and Mirror Group Newspapers. Following his death
in 1991, falling overboard from his yacht with a heart attack-rumours that he had committed suicide or been murdered because he had
been a spy were disproved by four coroners-it was alleged that he had used his dominant position as chair of the trustees of the
group's pension funds to siphon off funds to support his other interests and that he had been involved in an illegal scheme to bolster the
price of companies in the group. Eventually, the lead companies were declared insolvent, banks called in loans that could not be repaid,
and the group collapsed. Investigators estimated that £763 million had been plundered from the two public companies and their pension
funds to prop up Maxwell's private interests.
There are many lessons for directors in the Maxwell affair. Maxwell's leadership style was dominant: he reserved considerable power
for himself and kept his top executives in the dark. An impressive set of independent non-executive directors added respectability to the
public company boards, but they were ill-informed. Maxwell threatened litigation to prevent criticism of his corporate affairs: many
investigative journalists and one doctoral student received writs. The complexity of the group's organizational network, which included
private companies incorporated in tax havens with limited disclosure requirements, made it difficult to obtain a comprehensive over
of group affairs. The auditors were criticized. In a revealing internal memo (discovered by Persaud and Plender, 2006), the senior
partner of CoopersLybrand Deloittes wrote:
The first requirement is to continue to be at the beck and call of Robert Maxwell, his sons, and his staff, appear when wanted, and
provide whatever is required.
The failings of the trustees of the Maxwell group pension fund and the regulatory bodies were all recognized.
Involvement with his father's empire left Robert Maxwell's son Kevin bankrupt. Two decades later, in 2011, he was disqualified as a
director for eight years by the UK Department for Business Innovation and Skills. The Department found that he and two other directors
had diverted more than £2 million out of the bankrupt construction company Syncro Ltd ahead of liquidation. He had also failed to
preserve accurate records in a 'disregard for a director's duty'.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Recommended textbooks for you