Essay: Corporate Governance And Ethics In HIH Insurance, ABC Learning, And One Tel Phone Company.

Corporate Governance Practices of HIH Insurance

Question:

Discuss About The Hih Insurance One Phone And  Abc Learning?

The company operates through its board of directors. Board of directors is regarded as the management of the company. The board of directors has the power to take each and every decision for or on behalf of the company. The decision shall be taken with reference to the interest of the stakeholders and the shareholders of the company. If the company fails to take an effective and efficient decision then the company will not be able to survive in the future years. The functioning of the company is commonly referred to as the Corporate Governance. The functioning shall be done with reference to the principles, guidelines and the provisions of the different statutes prevailing within the country.

If the company fails to function as per the guidelines, then it will be said that the company has low corporate governance. The report has focused mainly on the corporate governance of the three companies – HIH Insurance, ABC Learning and One Tel Phone Company and how the same have lead to the liquidation of the company. Along with the corporate governance, ethics have also been detailed as to how it has been followed throughout the companies and how the same has led to the liquidation of the company.   

The HIH Insurance Company was in the business of insurance and was named as the largest insurance company in the Australia. Ray Williams and Miachel Payne had established CE Health International in the year of nineteen hundred and sixty eight. In the year of 1971, it was acquired by the CE Health PLC which is the British based company. In the year of 1980, Ray Williams have been appointed on the board of CE Health. Thereafter, CE Health was acquired by CE Health International Holdings Limited.  In the year of 1992, the company has been floated and listed on the Australian Stock Exchange. In the year of 1995, the company sells the stake to the Switzerland based insurer – Winterthur to the tune of 51% and changed the name of the company to HIH Winterthur (UK Essays, 2013).

After that in the two consecutive years of 1997 and 1998, the company has acquired large number of companies operating in Australia and other countries. The most notable acquisition was of the FAI Insurance company which was operating in Australia made in the year of 1998 and the Chief Executive Offices of the FAI Insurance company has become the Non executive director of the HIH Winterthur and simultaneously Winterthur sells its stake of 51% to the public and the company name was changed to HIH Insurance (Lipton,2013).       

Corporate Governance Practices of ABC Learning

One Tel Phone company was established in the year of 1995 in Australia. It is a telecommunication company.  The basic premise of the thought of the company was that the company will have more focus on the deliverance of good service to the customer and wants have such kind of country where even the person walking in the street shall have the access to the telephone products and shall have all information about the telephone and that is why the company has been regarded as the hundred percent company related to the telephone business. Since then the company has basically provided three type of services – one is related to communication through the fixed length wire system, second is the internet connection and the third one is the telephone service.  Within five year of its operations the company has expanded its operations in seven countries and has formed the base of nineteen lacs customers all over the locations.   

In the earlier times, ABC Learning was regarded as the one of the largest company in the country of Australia serving for education services for the children up to 4 years of age. It is like the childcare institution where the children are guarded and educated about the eating habits and related activities. The company was established in the year of 1988 in Queensland. Since then the company has been able to establish 950 plus centre across the country of Australia and the country of New Zealand by the year of 2006. After that the company has announced that the company will acquire the largest child care in the United States – La Petite Academy and after sometime the company has acquired the same and has got share in the market of the United States also.

HIH Insurance –Following events have led the company to go for liquidation:

• The company has acquired the business of the FAI Insurance which is involved in the more risky business of the insurance. The company has incurred the considerable damage claims.
• Second risky area was the film financing which again have led the company to incur losses of hundred million dollar over the year.
• Due to the insurance business in the field of natural disasters, the company has again incurred the quantum loss from the typhoon which has come at Florida.
• Due to sudden change in the compensation claims to be paid to the workers working in different industry of California, the company is required to incur big amount as losses.
• The acquisition of business of FAI Insurance Company has been made without conducting the due diligence of the company and also without the consent of the board of directors of the company (Mak, Deo and Cooper, 2005 and Mirshekary, Yaftian, and Cross, 2005).

• The company has been reporting the higher revenue and deferring its expenses over the next three years. This is against the accounting standards and the accounting policies uniformly considered by every company across the globe.
• The company’s expansion in other ventures and the countries without having the due diligence or the market survey whether the company will have profits from the ventures.
• Increase in the compensation paid to the key managerial personnel of the company regardless of the fact that the company is entering into the losses and the stock price has considerably fallen to sixteen cents.
• The company has charged one seventh of the purchase price from the customers in the consideration that the company will be able to cover the cost of purchase in the future periods to the maximum of seven months but the same have not happened as though by the company. Instead of recovering the purchase cost the company was not even able to run its daily expenses and thus led itself into the cash flow problem. In actual, the company has purchased the product as the bundled service on the customer basis at Australian dollar 350. The company has charged one seventh of purchase price which is 50 dollar and the company has significantly suffered cash problem and sooner has turned into company with huge obligations.
• The audit firm employed by the company is very unethical in its professional conduct as they are certifying the financial statements without considering the results of various flaws like deferring of expenses, etc.
• Unethical conduct of the management of the company as no management member has taken the stand to consider the cash problem and other unprofitable ventures. (Reza, 2011).

• Wrong accounting of the Childcare Licenses and intangible assets like Goodwill. The company has made the valuation by $2.4 billion of the licenses and other intangibles and has booked the profit accordingly and has charged the impairment of only $8.4 million. The future cash flows taken for valuation of the intangibles were found wrong which has resulted the company to run in losses as profits has been decreased by 42%.
• The company has the high debts of $1.8 billion which the company was unable to pay due to employee cost and other related costs.
• It has been argued by the Community of Child Care of New South Wales that the company has made the profits on the premise of the low staff wages and other cost cutting which has resulted in the low quality of education and care to the children.

• The company has acquired the FAI Insurance without the consent of the Board of Directors and also immediately Winterthur has sold his shares and resigned from the company. It shows that the company has bad corporate governance.
• The above phrase is also solicited from the fact that the company has begun entering into the more risky areas like natural disasters, marine and the film financing insurances.
• The company has not carried out any due diligence before the acquisition and there has been continuous change in the key managerial personnel (Jiangbo, 2003).
• Mr Ray Williams was held with three charges – one for not serving the duties and the responsibilities of the directors, second for issuing the prospectus with material omission and third for overstating the profits for the Financial Year 1998-99 in the Annual Report of the company

• The company has violated the accounting rules and the accounting policies and thus it has affected the ethics in compliance.
• The pricing strategy adopted by the company was very weak and none of the directors have represented the fact that the company will soon fail because of the loss of the income and thus there will be liquidity problem. It depicts that the ethics in business has also not been followed.
• In relation to the operation of the other companies, the management of the company has not monitored the financial performance of the company and also has not addressed which are the high risky areas for the companies (Brown and Caylor, 2009).

• The accounting policy adopted for the accounting of intangibles was the major flaw and has resulted in the accounting fraud. It depicts that the company’s ethics in the financial accounting is very weak and can be easily modified and adapted according to the needs of the business of the company (Morey, Gottesman, Baker and Godridge, 2009). Second ethics is related to the deliverance of the services to the customers. The company has been fighting against many suits that have been filed by the customers and the government regarding the services provided.

Due to the bad working of the corporate governance, the companies have suffered huge losses. The losses are not only in terms of the money terms but also in the terms of the management failure. The losses are majorly the liabilities that the company has undertaken without proper analysis and the due diligence. All the companies have made an effective decision whether it is HIH Insurance while acquiring the business of Fai Insurance or One Tel Company while acquiring licenses at increased price or ABC Learning while opening centre at United Kingdom.

It has been analysed that all the three companies have not went for liquidation suddenly; it has been the year’s process which has been accumulating and after the saturation, the company has been liquidated. The company has been working very negligently for many years. On the basis of the analysis, every company shall have proper management which can take decision in the interest of the shareholders and the stakeholders of the company.

Conclusion

The three companies have gone for liquidation of the company. This has spread the wave across the world in the banking industry and the insurance. The major cause for all the three companies for liquidation is the poor corporate governance practices and the failure to identify the risk before its occurrence and the failure to consider the financial position of the company on the regular intervals. In order to conclude, the company shall strive for the stakeholders and the shareholders of the company.

References

Avison, D. (2012): “IT Failure and the Collapse of One.Tel” in Traunmuller, R. (ed.): Information Systems: The e-Business Challenge, Kluwer, pp 31-46.

Brown, L. and Caylor, M., 2009, ‘Corporate Governance and Firm Operating Performance’, Review of Quantitative Finance and Accounting, 32, 2: 133-144.

Jiangbo X, (2003), “HIH Insurance Limited: Corporate Governance and Corporate Excesses”, available at  https://www.seiofbluemountain.com/upload /product/201010/2010jjfzh05a8.pdf   accessed on 31/08/2017.

Lipton P, (2013), “The Demise of HIH : Corporate Governance Lessons”, EY Journal, 27^th, 273-277.

Mak, T., Deo, H. and Cooper, K. 2005, ‘Australia’s Major Corporate Collapse: Health International Holdings (HIH) Insurance ‘May the Force Be with You’, Journal of American Academy of Business, 6, 2: 101-110.

Mirshekary, S., Yaftian, A. and Cross, D. (2005), ‘Australian Corporate Collapse: The Case of HIH Insurance’, Journal of Financial Services Marketing, 9, 3: 249-58.

Morey, M., Gottesman, A., Baker, E., Godridge, B., 2009, ‘Does Better Corporate Governance Result in Higher Valuations in Emerging Markets? Another Examination Using a New Data Set’, Journal of Banking and Finance, 33, 2: 254-71.

Reza M, (2011), “The One Tel Collapse: Lessons for Corporate Governance”, Journal of Australian Accounting Review, pp 1-28

UK Essays. (2013), “Collapse Of HIH Insurance” available at: https://www.ukessays.com/essays/business/collapse-of-hih-insurance.php?cref=1 Accessed 31 August 2017

HIH Insurance

and has got share in the market of the United States also.

HIH Insurance

Conclusion