Driven to the Brink (eBook)

Alicia Micklethwait is a graduate of the University of Oxford, a member of the Chartered Institute of Management Accountants and has an MBA from IMD. She is CFO of a technology start-up company and has held senior accounting and commercial positions in multinational manufacturing companies in London and Brussels. Alicia has taught accounting and finance at several European business schools and in China and co-wrote Greed and Corporate Failure together with Professor Stewart Hamilton.Patricia Dimond has 25+ years of board level experience in consumer markets in London, Geneva, New York and Toronto and is a McKinsey Alumni.  She is currently involved in early stage Investment and fund management.  She is a CFA, a member of the Institute of Chartered Financial Analysts, and has served on the Board of the Swiss CFA society.  Patty graduated from Canada’s Richard Ivy School of Business, with an HBA and has an MBA from IMD, Switzerland.  She qualified as a chartered accountant (CA) working with Deloitte Haskins and Sells.

Foreword 6
Acknowledgements 9
Contents 10
About the Authors 12
Praise for Driven to the Brink 13
1: Introduction 15
Companies Do not Fail, Corporate Boards and Leadership Teams Do 17
Independent Thinking is the Greatest Value the Board can Add 18
The Trouble with Dominant CEOs 19
Board Oversees Strategy and Risk 20
A Slovenly Approach to Risk Management is a Common Theme 21
Board Oversees Culture: Culture Defines Leadership 22
A Productive Ethical Culture must be Part of a Risk-Management Strategy 23
The Stories that Follow 26
2: Enron: Launch to Boom and Bust, 1985–2001 29
The Creation of Enron and Its First Ten Years 31
Introducing the Dream Team...? 34
And then there was the Board 35
The Enron Culture: ‘Rank or Yank’ 35
Global Energy Provider and Trader to Ponzi Scheme, 1994–2001 38
The Most Creative Financial Officer of the Year: Where there is Smoke there is Fire. 41
Going Off-Balance Sheet 42
The Beginning of the End 45
The Powers Committee Post-Mortem 47
Ineffectual Board Oversight: Failure in Strategy, Risk Management and Culture 48
A Few Selected Highlights from the Enron Story 51
3: The Banking Crisis: Born of Dreams, Fuelled by Bad Behaviours 53
‘The Blood of the Global Economy has Begun to Freeze Right from its Heart—The United States’ 55
The Pursuit of Happiness: Let the Good Times Roll 56
Cracks Began to Form: The Unravelling 59
The Aftermath 61
Crisis in the UK Started with the ‘Run on the Rock’ 62
London’s Financial Markets Transformed Through ‘Big Bang’ 63
The Good Times in the UK 64
The Unravelling in the UK 65
The Aftermath in the UK 68
Canada: Obama Adviser Looks to Canada’s Financial System34 69
The Good Times in Canada 70
Canada: Tripped but did not Fall 71
So What did We Learn from this GLOBAL Crisis: Highlights of Regulatory Reform 73
What Role did Inadequate Corporate Governance and Flawed Culture Play? 74
A Productive, Ethical Culture must be Part of a Risk Management Strategy 76
Moving Forward 76
A Few Selected Highlights from the Banking Crisis Story 77
4: Global Banking: Will the Scandals Never End? 81
Libor: Rigging Interest Rates on a Grand Scale 82
Early Days of Libor 83
Credit Ratings Encouraged Banks to Lowball Submissions 85
Rigging Rates for Personal Profit 88
Regulators Moved In 93
New Scandal Emerges Hard on the Heels of Libor: FX Manipulation 94
‘The 3 Musketeers’ and ‘the Cartell’ Formed to Manipulate the Fix 96
Out in the Open 97
Where were the Systems and Controls to Prevent this? 98
‘When Bankers Become Detached from End-­Users, Their only Reward Becomes Money’ 100
Perverse Incentives 101
Amoral Focus on Profit 102
When Bad Behaviour is Ignored it will Become Entrenched 104
A Few Selected Highlights from the Global Banking Story 104
5: Olympus: Management was Corrupt at Its Core 109
Early Days 110
Appreciation of the Yen Led to Financial Engineering 111
Hiding Losses in Tokkin 112
Tobashi: ‘Flying Away’ 114
Final Leg of Tobashi Scheme: Three Small Companies 115
Gyrus Acquisition: Record-Breaking Advisory Fees 117
News Crept Out 120
The Fallout 125
Corporate Governance Failings 126
Japan’s Corporate Governance 129
A Few Selected Highlights from the Olympus Story 130
6: The Co-operative: CEO Resigns amid Turmoil and Calls for Reform 133
The Co-operative Movement has International Significance 134
The Co-operative Group Dates Back to Rochdale, 1844 135
Food Retailing: Our Coverage is Incredible, with a Food Store in Every UK Postal Area6 136
And then Co-op Buys its Rival Somerfield for £1.57 Billion 137
The Co-op Bank: Focused on Future Growth, financial statement cover, 2010 139
A Disastrous Year, 2013 143
The Group Experiences a Significant Shake-Up 144
The Co-op Bank under the Microscope 145
Independent Review of Governance, May 2014 147
The Co-operative Group: Here for You for Life? 149
A Few Selected Highlights from the Co-operative Group Story 150
Notes 151
7: Kids Company: Passion Overruled Reason 153
The Charismatic Founder and CEO 154
The Foundation of Kids Company: Meeting an Urgent Need 155
Precarious Funding: Ten Days of Reserves 157
Funding: Donations and Government Grants 158
Inadequate Monitoring by Government and Trustees 161
The Trouble with Kids Company 163
What Impact did the Charity Actually have? 164
A Dominant CEO and a Complacent Board? 165
And What of Risk Management? 167
Duties of Trustees 167
A Few Selected Highlights from the Kids Company Story 169
8: China: Land of Opportunity but Beware of Landmines 171
Google vs LinkedIn 173
Bribery is Often ‘an Unspoken Rule’ in China 174
Lack of Systems and Institutions to Keep Corruption in Check 177
Guanxi: You Got My Back, I Got Your Back 178
GlaxoSmithKline: Doing Business in a ‘Connected’ Society 179
ChinaWhys: Illegal to Purchase Personal Information 183
Fraud and Accounting Scams 184
Lixil and Joyou: Failed Due Diligence 188
Caveat Emptor—Due Diligence is Vital 191
A Few Selected Highlights from the China Story 192
9: Alibaba: Largest Etailer on the Globe a Mere 15 Years On 195
Building the World’s Biggest Internet Company: Alibaba’s Explosive Growth 197
The Spirit of Guanxi: Strong Relationships Accelerated Alibaba’s Growth 198
Much of Alibaba’s Growth was Organic or Came from Small Acquisitions 200
Culture is Often a Profound Illustration of the Values of Its Founder(s) 202
No Matter how Big, it will Always be a Start-Up with a Customer-Centric Approach 204
Culture is Shaped through Behaviours that are Reinforced through Acceptance 205
Being Accountable for the Outcomes of a Company’s Actions and Inactions 206
Online Scandal in China: Alibaba and the 2,236 Thieves16 206
The Alibaba Group’s Corporate Governance and Control 207
The SINA Structure, Getting Around Chinese Regulation on Foreign Ownership 207
A Structure that Leaves Shareholders Vulnerable 209
Increasing Shareholder Risk, Separation of Ownership and Control 209
What About the Quality of Board Oversight? 210
Alibaba’s Performance since the IPO 211
Is a Strong Ethical Culture Enough to Protect Shareholders? 212
A Few Selected Highlights from the Alibaba Story 213
10: Conclusion 215
Some Progress has been Made 216
Shareholders have a Role to Play 218
Independence in a Director is a Valuable Trait 219
Independence is Essential to Discharge the Duties of the Director 221
Avoid the Pitfalls of a Dominant CEO 223
Risk Management is a Primary Responsibility of the Board 224
A Productive Ethical Culture is an Important Part of a Risk-Management Strategy 226
Remuneration and Organisational Structure Drive Behaviours 227
Bad Behaviours Need to be Identified and Addressed 229
Final Word 230
Glossary 234
List of Abbreviations 243
Index 246