Executive SummaryThe fall down of the insurance group, HIH, was one of the Australia’s infamous business failures. The reasons behind this stunning business implosion make it a very useful case study from which learning of various fields of management and commercial jurisprudence may be derived. This is predominantly because failure of HIH is not just a matter of a big fraud or misappropriation; rather the failure was a complete managerial or organizational collapse. This assignment endeavors to highlight these issues. It would logically co-relate the strategic issues regarding the company and its operations which ultimately led to the failure of the company.
At the end it would also summaries various steps which would have saved the company from such a drastic down fall. IntroductionThe imminent and the most conspicuous reason which lead to the failure of HIH was the enormous financial deficits which came up because the insurance claims filed against quite a few of the earlier insured events accounted for more than the provisions carved out for them. The payouts for such claims were made from the revenue received from the newer business and ultimately it led to the deficit situation which became unsustainable (Royal Commission Report, 2003).
Though the whole affair seems a case of mere under reserving, the reason for this sinful mal-practice which led to this failure was inherently that of mis-management, poor strategic decision and its execution. Further, the whole affair points towards absence of any corporate governance practices in the organization altogether (Maltas, 2005). The poor corporate governance is evident in this case from the perspective of poor decision making. It is very pitiable to observe the transition of HIH from such an entrepreneurially run company to a benchmark in corporate failure.
The analysis of this case will now be done by peeling off various layers which are associated with the strategic issues pertaining to the operations and the company as a whole. Overriding CEORay Williams was the Chief Executive of the company since the beginning of its operations till October 2000. Williams subjugated HIH and he was influential in bringing his associates and acquaintances to the governing board of the company. This led to a situation where the senior management lacked appropriate accountability to the governing board and a situation which resulted in governing board getting dependent on the management altogether.
Hence, there was no neutral and fair evaluation of the performance of business operations, even when the financial results were deteriorating. The approach of the governing board and the top management towards Ray was unjustifiably reverent. The lack of intellectual autonomy doomed that the governing board of the company was distinctly disposed to agree for whatever it was asked to do, without any suitable inquiry.
Further, the board often resorted to waiver of rules and guidelines. As a dominant chief executive, Williams had vaguely unlimited authority especially in areas of strategic importance which needed review by the governing board. Private and business funds were intermingled and the board was kept aloof. The board never used to decide the matters for debate in the board meetings, rather issues were being forwarded to the board at the discretion of the CEO.