Notesale: Turn your study into money

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and fraud
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Polly Peck was one of a few
scandals which prompted the 1991/2 Cadbury Committee and Code on Corporate Governance, internationally the first
of its type
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BCCI collapse - The Luxembourg-registered Bank of Credit and Commerce International (BCCI) was founded in 1972
by Agha Hasan Abedi, with HQs in Karachi and London
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Following regulatory
concerns and investigations BCCI was found to be established fraudulently, trading illegally on a vast scale, including
money-laundering, and in 1991 regulators raided and shut its operations in seven countries
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The BCCI scandal was a major prompt, along with Polly Peck's collapse, for the
19991/2 UK Cadbury Committee on Corporate Governance
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Amusingly, Saunders later gained early release from prison due to contracting the incurable
Alzheimer's disease, from which later he made a miraculous full recovery
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Exxon Valdez Disaster - This was a huge oil spill off Alaska when the Exxon Valdez tanker ran aground in 1989,
resulting in protracted litigation and fines of hundreds of millions for ExxonMobil
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Others:
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Carrian Group - 1983
Texaco - 1987
Qintex - 1989
Lincoln Savings and Loan Association - 1989

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Recommendations: do not give too much power to one director, Add non-executive directors
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The final report 'The financial aspects of corporate governance' (usually known as the Cadbury Report) was published
in December 1992 and contained a number of recommendations to raise standards in corporate governance
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What were the major recommendations of the Cadbury Report?
Book: Tricker page 503 p
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5 chapter 1
The creation of board level audit committees (monitor and control internal happenings), remuneration committees
(monitor how board members are compensated), and nomination committees (nominate directors fit for position), with
independent outside directors; the separation of the board chairman from the CEO ​(cf
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Key Recommendations:
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The boards of all listed companies should comply with the code of best practice set out by the
committee
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The listed companies reporting in respect of years ending on or after 31 December, 1992, should make
a statement about their compliance with the code in the report and accounts and give reasons for any
areas of non-compliance
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The Auditing Practices Board should consider the extent and form that an endorsement by the auditors
could take
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Name some financial institutions in the USA that failed during the GFC
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What additional dimension did the Australian Hilmer Report add to the conformance
and compliance concepts of CG?
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Hilmer Report 1993
National Competition Policy
Report by the Independent Committee of Inquiry

Hilmer - governance is about performance and conformance - boards key role is to make sure that board performance
is effectively above average performance on account of risk
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A key recommendation of the post-Hilmer policy measures towards
public utilities was the structural separation and regulation of those segments considered to be natural monopolies, the
networks (‘NSPs’) and system and market operation, from those considered to be contestable, notably generation and
retail supply, which were to be largely unregulated
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Key Recommendations​:
(1) The prohibition on price fixing should be strengthened 'by removing the distinction between goods and services,
which potentially allows agreements relating to services to be authorised, thus sending an unambiguous signal about
the non-desirability of collusive price-fixing' (Report p xxiii) (NOT IMPLEMENTED)
(2) Removing the per se prohibition on third line forcing and subjecting it to a competition test (NOT IMPLEMENTED)
(3) Permitting authorisation of resale price maintenance where it offers net public benefits (IMPLEMENTED)
(4) Repealing specific prohibition on price discrimination (any anti-competitive conduct could be addressed by the
misuse of market power provisions (IMPLEMENTED)
(5) Remove 'unjustified distinctions between goods and services' (IMPLEMENTED)
Exemptions and authorisation: ​The “general conduct rules of a national competition policy should, in principle, apply to
all business activity in Australia, with exemptions for any particular conduct only permitted when a clear public benefit
has been demonstrated through an appropriate and transparent process”
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National Competition Council: ​A new “National Competition Council” should “be established jointly by the
Commonwealth, State and Territory Governments to play a key role in policy decisions relating to the additional policy
elements
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(IMPLEMENTED)
On competition policy: ​Competition policy is not about the pursuit of competition ​per se​
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These accommodations are reflected in the
content and breadth of application of pro-competitive policies, as well as the sanctioning of anti-competitive
arrangements on public benefit grounds
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The Sarbanes-Oxley Act was passed in the USA in 2002 in response to the collapse of
Enron, WorldCom, Arthur Anderson and others
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CEO & CFO → consolidate financial statements (criminal violation for non-compliance) & increased
financial disclosure
Auditors = independent and external
company can’t loan to

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