Question

Discuss some of the key company collapses that gave rise to the foundation of corporate governance

Answer 1

Some of the key company collapses that gave rise to the foundation of corporate governance are :

The collapse of large corporations due to fraudulent and unethical practices gave rise to a number of issues which led to the foundation of corporate governance practices.The companies in question are :

• Colorall
• Bank of credit and Commerce International

Colorall had acquired large sums of debt around $400 million to complete an acquisition. The company attempted to hide this news from it's investors . Once this news was publicly available , the company collapsed as a result. This is an example of fraudulent financial reporting.

The Bank of credit and Commerce was always involved in scandals which involved issues of money laundering, bribery and they would also support terrorist activities. A lot of funds used for these activities was accounted for .

Due to lack of internal controls, lack of risk management techniques, hidden practices leading to unreliable financial reporting, inexperienced board of directors.

So, due to these reasons there was a greater need for making sure that the management of the company take decisions keeping the best interests for shareholders in mind that is shareholder wealth maximisation.