管理学作业

ASSIGNMENT COVER (Individual)Subject Name:Strategy and Corporate Governance Subject No.: MGT382 Student Name: 冯红阁（08-01）Student No.:11480818I have carefully read, understood, and taken account of all therequirements and guidelines for assessment and referencing in thesubject outline. I affirm that this assignment is my own work,which it has not been previously submitted for assessment, that allmaterial that is quoted is accurately indicated as such.Signature: Date:Mark:TABLE OF CONTENTS INTRODUCTION (3)1 ABUOUT THE HIT COLLAPE (4)2 ANALYSE REASONS FOR FAILURE (6)2.1 HIH FAILED BUSINESS STRATEGY (6)2.2 STAFF'S MISTAKES (8)2.2.1SENIOR MANAGERS (8)2.2.2 ACTUARY (9)2.3IBILI GOVERNMENT REGULATORY RESPONSIBILITIES AND THE RULING PARTY'S POLITICAL CONTRIBUTIONS (9)2.4 FAATAL TRANSATIONS (10)3 RECOMMENDATION (10)CONCLUSION (11)REFERENCES (12)HIH Insurance Company Dishonesty Its Downfall IntroductionIndependent insurance intermediaries usually refers to non-life insurance intermediary business based insurance brokers and insurance agents. In the international insurance market, when non-life insurance companies collapse, people may pay more attention to economic loss rather than attack on insurance intermediaries. In fact, non-life insurance company bankruptcyis not only have a direct impact on insurance intermediaries, but also change the mode of monitoring the insurance market. After HIH Insurance Group and itsHong Kong subsidiary liquidation bankruptcy, people begun to address the impact of insurance intermediaries face and concerned the positive and negative effects on the market.HIH Insurance which was placed into provisional liquidation on 15 March 2001 was Australia's second largest insurance company. It is considered to be the largest corporate in the history of the Australian and was collapsed with liquidators estimating that losses almost up to $5.3 billion.A major insurance company with asset of more than $ 8 billion collapsed with the complex reasons.It lasted for more than 16 months, covered 3 volumes and cost over $40m. The HIH royal commission is a very costly case study which tells us how not to run a company, a poor corporate governance culture and risk management gone wrong. The commission summared that the main issue was mismanagement and lack of oversight. So what can corporate leaders learn from the largest corporate collapse in Austrilia? This essay mainly describes the company's brief introduction and collapse, analyse strategic issues such as business strategy, staff's mistakes and some fatal transactions. And at last, I will make recommendations as well as conclusions.I About the HIH CollapseHIH Insurance Limited (HIH Insurance Group Holding Company) is a listed company in Australia. Before the failure of HIH Insurance Group, it is Australia's second largest insurance company with many other operations in many other counties.HIH Insurance Group failed on March 15, 2001 . A J McMahon, T A Riddell, and J M Wardrop of KPMG London were appointed as provisional liquidators of some of the same companies in the UK, and also of other group companies incorporated in the UK. Other insolvency practitioners were appointed to various group companies incorporated in other segments in the world.At the time of its failure, the HIH group has over 240 companies, of which eight were licensed or formerly licensed insurance companies incorporated in Australia. The majority of the remaining companies were holding and investment companies, in some cases licensed insurance companies incorporated in other jurisdictions.HIH directors Charles Abbott, Geoffrey Cohen, Justin Gardener & Randolph Wein met (as well as barrister Robert Stitt, who took part through a conference call) during the evening of 14 March 2001 with KPMG audit firm partners Tony McGrath & Tom Riddell. The directors were there to review a report, entitled "Solvency Review," that had been prepared by McGrath & Riddell for HIH.With $7.8 billion in assets, HIH was considered one of Australia's largest insurance firms. However after offsetting its assets with debts and potential insurance claims against the company, HIH was left, on paper, with net assets of only $133 million. McGrath & Riddell described HIH's solvency as "marginal" and stated in their report that "an extremely small movement (just 1.7%) in the value of assets could move the balance sheet into net asset deficiency." That is, even the slightest setback would cause the company to become insolvent.In 2001, the board appointed a provisional liquidator to take control of HIH and 17 of its controlled entities. The board hoped this would give HIH time to review its operations and assess its financial position. On the same day, HIH was to announce its first-half result for the six months to 31 December 2000. The announcement hadalready been delayed once and rumours suggested that HIH's first-half result was a loss of $100 million. This figure quickly ballooned to $200 million, and then $300 million. Although the result was never announced, when McGrath announced his appointment as provisional liquidator he estimated that HIH had lost over $800 million over the six months to 31 December 2000. He attributed the HIH company failures to rapid expansion, unsupervised delegation of authority, extensive and complex reinsurance arrangements, underpricing, reserve problems, false reports, reckless management, incompetence, fraud, greed, and self–dealing.HIH insurance is currently in run–off, which means it is managing its outstanding claims and not writing any new business. This process could take several years to complete; some have suggested as long as 10 years.The demise of HIH was the largest corporate failure in Australia's history. HIH liquidators estimated that the company collapsed with losses totalling up to $5.3 billion.HIH Insurance Group StructureIIAnalyse Reasons for Failure2.1 HIH's failed business strategyMany of HIHs difficulties can be attributed to its aggressive acquisition strategy and the creation of more than 200 subsidiaries. The strategy had the effect of increasing HIHs size by many times in the course of a decade with premium growth averaging 26 per cent per annum in insurance markets that were already overcrowded and competitive.In the most controversial acquisition, Rodney Adler, who later became a member of HIHs board of directors, sold his own majority-owned insurance company, FAI Insurance, to HIH in late 1998. HIH borrowed heavily to pay A$300 million for thecompany, but the stock market did not respond well to the acquisition and FAI was later thought to be worth just A$100 million.Adler has responded to allegations that the purchase price of his company was too high by stating that the price was set, by definition, between consenting, intelligent parties with appropriate advisors on both sides. It has emerged that HIH did not conduct due diligence on FAI, and instead relied on FAIs recently completed accounts. APRA approved the deal, even though it regarded FAI as a relatively risky venture, perhaps because it saw the deal as reducing the risk of any problems at FAI. Instead, the FAI acquisition put additional pressure on HIHs financial viability at a time that HIHs reserving and pricing strategies were, most likely, already compromised.The acquisition of FAI was not HIHs only questionable business decision. The companys failure can be partly blamed on its international operations, particularly those in England and the US. It also acquired subsidiaries in Thailand and Hong Kong.One example is the strategy HIH pursued in the state of California, where it was a leading underwriter of workers compensation insurance. HIH had been writing workers compensation policies in California and pocketing modest profits until 1995 when a law setting minimum rates was scrapped. This encouraged insurers in the newly deregulated market to compete by offering lower insurance premiums.HIH believed that rates worked in three-year cycles and left the market at the time of deregulation. It stepped back into the market three years later, at the very time that state courts were awarding large increases in benefits retrospectively and reinsurers were demanding that lead underwriters assume more of the risk.HIH committed a strategic error in re-entering the California market, and its three-year cycle hypothesis seems to have led it to misjudge the inherent risks. It failed to take the difficult decision to exit the market once it had re-entered the field and had tasted the working conditions. It was not alone in taking losses, however. In the same period, other leading market participants also suffered stunning losses in the California workers compensation sector.HIH also encountered severe problems in the London insurance market, which it had entered in 1993, and where through the 1990s it pursued professional indemnity and public liability business. In addition to the substantial losses suffered by the Lloyds market as a whole in this period, HIH incurred certain high-profile losses associated with the film-financing sector, where it provided leading banks with insurance and reinsurance tied to that business.Here again, the company chose a sector that has proved problematic for many market participants and that, as an emerging insurance sector, involved HIH in business practices and legal risks it did not fully understand.The company ended up paying out claims related to a series of failed film projects, all tied to Hollywood notes that it backed. It then sought reimbursement from London-based reinsurer New Hampshire Insurance Co, which is a subsidiary of American International Group, and Independent Insurance Co of London (which has coincidentally also suffered a financial collapse).The reinsurers argued that HIH should not have paid the claim because it could have asserted various coverage breaches. The UK courts sided with the reinsurers and ruled that HIH had not been obliged to pay out on the film claims and, consequently, was not entitled to reinsurerreimbursements. HIH lost hundreds of millions of dollars from its film finance insurance business.2.2 Staff' Mistakes2.2.1Senior ManagersHIH also illustrated that senior management and the board had overseen the poor selection of management personnel, and their lack of skills and competencies to manage, what grew to be a multi national enterprise. In particular, Ray William's personal weaknesses, including a paternalistic vanity and an inability to see his own failings, and the deferring to his judgment by many on the board in an uncritical manner, were significant factors in HIH's downfall .But equally so, HIH's downfall was hastened by the inability and failure of others, including the auditors, the non-executive and executive directors, and even theregulators (APRA), to curb and check the failures and excesses of Williams and of others, such as Rodney Adler, who took advantage of William's fatal flaws.As Rodney Adler told a former associate, it was Williams' "complete and utter delusion" that had made him such an easy mark."2.2.2 ActuaryThe actuary his own is not acquittal. Mr. David is just treated as the canary in this dangerous mine and he mention many times in the report that the accounting process should be regulated according to related principle and rules. However, Richard Wilkinson also argu ed David slee‟s report has problems too. He did not validate the data that has been used, otherwise, these issues could be found timely. Furthermore, is David Slee too close to HIH? Or have he made enough warning to cause senior managements‟ attention? Ha ve he got adequate view about the quality and range of the data? For example, since David Slee have not been told there was a liability of 40 million AUD security insurance against construction works, he did not mention this in the actuarial report of 1999 and 2000. It‟s also a difficulty to delineate the responsibility.2.3 Government regulatory responsibilities and the ruling party's political contributionsBefore HIH collapsed,the rumor of financial position had worsen spread.Australian Federal Director of Financial Services and Regulation Joe Hockey has been warned by a friend, HIH has been plunged into serious difficulties. However, the regulatory authorities still have not taken any measures for HIH, HIH is still selling insurance policy in the last six months. So government is another trigger which contribute to the collapse.As founder and CEO of HIH, MrRay Williams, is very fond of political contributions.According to the Australian Election Commission records, in the past six years, HIH total donations to political parties A $ 592,700, A $457,700 of which is donated directly to the Liberal Party.Why insurance companies provided political contributions? According to the HIH Royal Commission investigation, HIH and FAI to provide political contributionsaimed at influencing the Government to amend workers' compensation insurance and the third party liability insurance regulations.2.4 Fatal TransactionsBusiness started in the 1993 in the UK had defective management information and accounting system, so general headquarters lacked of effective management. At last, HIH lost 17 hundred million in the UK.In the US merger case, board of directors failed to estimate risk, which led to the US merger case and a loss of 6.2 hundred million.Purchasing FAI Company:Broad meeting for purchasing FAI company are held under such circumstance: 5 out of 12 directors have been absent and 4 out of the rest voted through telecommunication ways. In other words, only 3 out of all 12 directors have attended the meeting in ck of enough supporting documents such as reports from HINI‟s financial advisory, the broad member ultimately made the decision to purchase FAI company, which causes a 590-million-AUD lost.Joint-venture with Allian:This action leads to the cash flow crisis of HINI, which accelerates the collapse of the company. Just after 10 weeks of the joint-venture action, HINI began its Provisional Liquidation process.HIH in the early 1990s started overseas development. Since the international insurance market has become an oligopoly structure, HIH in the UK, U.S. and Hong Kong's performance is not ideal. In order to open up the market, HIH developed a means of a low rate and high commission to seizing business. Since HIH suicide and madness ways in the last century reached its pinnacle, some insurance broker determined the risk management strategy on HIH, and no longer offered its customers HIH policyholders, resulting in loss of part of the big business HIH .III Recommendation3.1 senior managers must:Understand the core difference between managing and directing, especially if the manager is also a director; Understand that even if a manager is a nominee on a board, fundamentally, the director/manager must act in the best interests of the company onwhose board they sit (notwithstanding s187); Ensure that there are clear lines of authority and delegations from the board and that everyone understands and agrees with them; Develop Codes of Conduct that cover not only legal and management guidelines but also the written expression of the culture of the organisation and vitally, that these aspirations are reflected in the actual operations of the company; Participate in the establishment of risk management programs which can provide confidence to all stakeholders; Incorporate monitoring and review mechanisms at the strategic, operational and project levels.3.2 Some of the lessons for all directors are as follows:A director must acquire at least a rudimentary understanding of the business of the company.Directors must keep informed about the activities of the company. Directors are not required to undertake inspection of the management and day to day activities of the company but rather undertake a general monitoring - this requires regular attendance at board meetings. Directors are not required to audit corporate books but should remain familiar with the financial status of the company and regularly review its financial statements. A director may be appointed to a company because of their special skills but once appointed this does not relieve the director of paying attention to the company's affairs that might reasonably be expected to attract inquiry, even outside the area of the director's expertise.Besides, it is critical to maintain sound corporate governance structure and monitor effective.In all, the following points should learn from this lesson.●Using qualified & experienced directors doesn't guarantee success●Directors must probe senior management and ask questions●Directors cannot abdicate responsibility●Risk Management should go beyond statements, guidelines and policies●When entering new markets and/or new products, do your homework first●When entering new markets and/or new products, do your homework firstIV ConclusionFor HIH, managers should drew up overall strategy in the enterprise development, includinghuman resource development goals, directions, guidelines and policies andso on. Ideally, HR strategy will sever to ensur e a …fit‟ between corporate strategy and organization. It is important to remember that there is no one …model‟ way to manage human strategically because every organization is different. One organization shouldn‟t necessarily copy the management systems of another organization, even a successful organization that operates in the same industry. Every organization is unique. And any “best practices” that are considered or even adopted should be evaluated within the context of the specific organization in which they are being implemented.Reference:[1]Anthony Hughes，Failure in disclosure，.au/，March 17，2001[2]Anna Pha，HIH collapse: greed and corruption，The Guardian，May 23, 2001[3]Bob Browning，Is the political system for sale?，.au/ ，2 June 2001[4]David Elias，Scheme 'helped keep FAI afloat'，.au/，5December 2001[5]David Elias，Who‟s to blame for HIH？.au/，September 1，2001[6]Darren Gray，Labor accuses Libs over donation，.au/，5June 2001[7]David Humphries，Actuary 'compromised'，.au/，Dec 12 2001[8]David Robertson，Risky Business，Review Publishing Company Limited（HongKong），June 7, 2001[9]Fitch puts spotlight on auditors after HIH debacle，Australian Financial Review，March 26，2001[10]H IH Insurance-APRA‟s role，Australian Prudential Regulation Authority mediarelease，March 31，2001[11]H IH Insurance-APRA‟s role revisited，Australian Prudential Regulation Authoritymedia release，April 20，2001[12]J ohn Breusch，Fitch puts spotlight on auditors after HIH debacle，AustralianFinancial Review，March 26，2001[13]L iquidators of HIH，Liquidators‟ Report to meetings of creditors，KPMG ，3April 2002[14]M ichael Rice，Would actuaries have saved HIH？.au/[15]P enny Cagan，HIH Insurance，/，November 2001[16]R ussell Baker，Firms fail to disclose the truth，Australian Financial Review ，July 11，2001[17]S tephen Cauchi，HIH $35m rescue plan opens to victims，.au/，5 June 2001[18]S tephen Sheldon，Andersen in Aussie Audit Scandal，UPI BusinessCorrespondent，January 30，2002[19]h ttp://.au/library/pubs/rn/2002-03/03rn32.htm[20]h ttp://.au/index.html。