Posts Tagged ‘Bosch’

A brief history of corporate governance

Posted in Governing Programmes and Projects on July 27th, 2009 by Raymond Young – Be the first to comment

Governance legislation since the Great Crash of 1929 has largely been enacted in response to corporate excess. Arguably, the objective of the legislation has had more to do with reassuring the public than reducing risk.

Most authorities point to the UK Cadbury report (1992) as the source of our modern ideas of corporate governance. The Cadbury report was a reaction to the collapse of BCCI, Polly Peck and Maxwell Communications. Like much of the corporate governance legislation to follow, the resultant Cadbury Code was responding to executive excess.

Australia’s Bosch Report (1995) followed the collapse of Rothwells, Elders, Bond Corporation, Tricontinental, Pyramid and Quintex. The unfettered actions of mavericks such as Laurie Connell, John Eliot, Alan Bond, Christopher Skase are now part of corporate legend.

Governance responses to corporate disasters

Corporate Disaster Response Main Details
Maxwell (1991), BCC1 (1991), Polly Peck (1991) Cadbury (1992) Directors responsibilities include safeguarding the assets of the company and preventing and detecting fraud and other irregularities
Rothwells (1986), Elders (1986), Bond (1987), Tricontinental (1989), Pyramid Building Society(1990), Quintex (1990) State Bank of VIC (1991), State Bank of SA (1992), AWA (1992) Bosch (1995)

ASIC (1989)

CLERP

tough penalties against directors who breach their duties of care, diligence or do not comply with the legislation, especially so in relation to insolvent trading
Zeebrugge Ferry (1987), Kings Cross Fire, Lockerbie air disaster (1988) Hampel (1998),

Turnbull

Directors should have responsibility for all aspects of control and a duty to establish a robust system of risk management
Barings (1995), Allied Irish Bank (2002), NAB (2004) Basel
HIH (2001), One.Tel (2001), Harris Scarfe (2001), Ansett (2001) Clerp9
Enron (2001), WorldCom(2001),Tyco (2001), Adelphia (2001), Qwest (2001), Parmalat Sarbanes-Oxley (2002)
AWB (2004), James Hardie (2004)

Cadbury in the UK, COSO in the US, COCO in Canada, King in South Africa and Bosch in Australia, marked an end to the old boys club. Directors were made firmly accountable for preventing and detecting fraud. The 1992 AWA case in Australia lifted the stakes further in the Commonwealth countries. The ruling established that the law does not differentiate between executive and non-executive directors with all being equally liable.

Sabanes-Oxley represents the most recent knee-jerk reaction to the collapse of Enron, Worldcom, Tyco, and so on. Many feel this legislation is deeply flawed and at least one major Australian organisation has delisted from the US stock exchange rather than comply with unnecessary requirements.

The commonwealth countries have followed a different path with ‘comply or explain’ regimes of corporate governance. The UK’s Combined Code is probably the best example, and represents the maturing of the Cadbury Code following the Hampel, Turnbull and Higgs reviews.

Australia followed a parallel path with the CLERP9 reforms to the Corporations Act (2001) following the collapse of HIH and One-Tel. However, reforms have not been uniform and the resulting regulatory landscape is considered by the Australian Institute of Company Directors (AICD) to be one of the most complex in the world.

There are the ASX guidelines for listed companies, the generic Australian standard AS8000 for all companies, and applied industry guidelines relating issues such as doing business on the internet (security, privacy and spam). There is also competing and sometimes conflicting legislation at both state and federal levels. This includes the Tax Act and related accounting standards, the Trade Practices Act which is prosecuted vigorously by the Australian Competition and Consumer Commission (ACCC), environmental legislation at state and federal levels that is also prosecuted to make an example of any transgressions, the Anti-money Laundering and Counter Terrorism Act and various conflicting state legislations around occupational health and safety, bullying and anti-discrimination, and so on. The most severe jurisdiction is arguably in the ACT where directors can be imprisoned for up to 20 years for industrial manslaughter.

The legislative line is very punitive with directors and officers assumed to be guilty and needing to prove they have taken every reasonable precaution. A culture of compliance is advocated by the AICD as the best defence.