Some Major Corporate Tragedies Arising out of Poor Corporate Governance in UK

Over the recent past, a number of companies were investigated and their directors charged with governance related offences in the UK. Some of these were:

BCCI

This bank is often cited as a major example of governance failure. Its management was accused of creating a complex and intricate web of entities, thereby evading ordinary legal restrictions on the movement of capital and goods as a matter of operational routine. While there is a school of thought that earnestly believes that BCCI was punished for being such a hugely successful non-Western or non-Jew international bank, there is little doubt about the improperness of the various tactics used by the bank’s top management for achieving that level of success.

Barings Bank

The management of this bank failed completely in its internal controls, letting a single employee cause a loss of $1.4 billion in stock trading. When Nick Leeson, its head of settlements department, was made head of trading, he was not asked to relinquish the former charge. This was a fatal internal control failure that allowed his activities go completely unchecked. The bank never questioned the legitimacy of huge payments authorized by Leeson to Singapore Money Exchange (SIMEX) and Osaka Stock Exchange (OSE). The bank with 233 years history and considered one of Britain’s best merchant banks eventually had to close its operations in Singapore.

Mirror Group of Newspapers

Robert Maxwell, born in Czechoslovakia, became a naturalized British. He rose from extreme poverty to being a very influential businessman. His many investments included Mirror Group of newspapers. He is presumed to have fallen overboard from his luxury yacht, the Lady Ghislaine, which was cruising off the Canary Islands, and his body was subsequently found floating in the Atlantic Ocean. It was in October 1991 when the exposure of his frauds became inevitable. It was subsequently found that he had misappropriated hundreds of millions of pounds from his various companies, even from the pension fund of Mirror Group. The group was declared bankrupt as were his sons.

Polly Peck International

This company went from being a small firm with a market capitalization of just £300,000 to being a constituent of FTSE 100 index in less than 10 years with a market value of over £1.7 billion. Its principal owner, Asil Nader, set up or bought over 200 subsidiary companies in various parts of the world including interests in Japanese company Sansui, but mostly in Turkey and Northern Cyprus. A large number of irregular payments to Cyprus companies were detected, totaling over £58 million. Asil Nader was formally charged with 70 counts of fraud when the company collapsed in 1991. (See case study at the end of this chapter)