Question

Case: In the case of Girvan Corp., there was a clear cut case of the clash between goals of the management and shareholders. The intentions of the company's managers pose questions from the very beginning, ie the formation of the Girvan machine. Girvan Corporation Ltd became listed when it was acquired by a small publicly listed firm, Sift Securities Ltd which then changed the name to Girvan Corporation Ltd. P.Petersen, executive chairman, has received 188.5 million shares. The Girvan group consisted of the holding company Girvan Corp. Ltd, Girvan Holdings Pty. Ltd and its subsidiary, the long-established construction firm Girvan NSW Pty Ltd. The complex corporate structure was a major factor in enabling managers to cover the company's poor performance over the time, which has lead to the imminent collapse. Executives were aware of the firm's severe cash flow problems, however, they continued to increase its indebtedness to unsustainable levels. The result was that liabilities by January 1990 mounted over assets at $650 million.

This case is a good example of conflict between goals is a lack of coincidence in interest between a firm and government. The most obvious case is taxation, where strategies of the parties are mutually exclusive. The company's benefit is retaining as much profits as possible, whereas the government is concerned with the increase of effectiveness of the tax collection.Research the case of early corporate collapses of Girvan Corporation. Prepare a brief report outlining the case. What was the underlying reason for the failure? Would today's corporate governance codes, rules and regulations have prevented these outcomes? (200 words)

Answer 1

Answer:

The reason for the failure of Girvan Corporation is that there was a clash between the goals of the management of the organisation and that of the shareholder’s. The company was poorly performing in terms of the financial aspects and management of the organisation was hiding these failures of the company within its complex corporate structure. Executives of the firm were aware about the inappropriate cash flows within the organisation, but they still continued with the same process and had never thought of optimising the processes. As a result of this, company had suffered with high indebtness of $650 million.

If the Girvan Corporation would have applied the today’s corporate codes, rules and regulation than it could have been saved from getting collapsed. Under these rules, company would have been required to fairly display its financial analysis to its shareholders and would have been required to maintain transparency in its operation. This would have resulted into informing the status of the company in terms of its success or failures. If the company would have failed in its operation, shareholders would have suggested the appropriate move for the company.