Driven to the Brink: Why Corporate Governance, Board Leadership and Culture Matter

255 Pages·2017·2.01 MB·English

by  Alicia Micklethwait

ALICIA MICKLETHWAIT and PATRICIA DIMOND

driven
to
the
brink
WHY CORPORATE GOVERNANCE,
BOARD LEADERSHIP AND
CULTURE MATTER
Driven to the Brink
Alicia Micklethwait • Patricia Dimond
Driven to the Brink
Why Corporate Governance, Board Leadership
and Culture Matter
Alicia Micklethwait Patricia Dimond
United Kingdom United Kingdom
ISBN 978-1-137-59051-0 ISBN 978-1-137-59053-4 (eBook)
DOI 10.1057/978-1-137-59053-4
Library of Congress Control Number: 2016956856
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With fond memories of Professor Stewart Hamilton, his knowledge,
generosity and dry wit, and to the IMD MBA class of 1993.
AM & PD
Foreword
Driven to the Brink: Why Corporate Governance, Board Leadership and
Culture Matter was inspired initially as a tribute in memory of IMD
Professor Stewart Hamilton. Stewart was a strong advocate of the value
of economic history, although he also observed that few apparently took
its lessons to heart. He had long been fascinated by stories of corporate
disaster, writing several case studies about the most egregious ones, some
in collaboration with Alicia Micklethwait. Greed and Corporate Failure:
The Lessons from Recent Disasters (2006), which Stewart and Alicia wrote
together, was a natural development of these two interests, relating the
stories of recent disasters and drawing the conclusion that the causes
of failure were small in number and common to most. Sadly, Professor
Hamilton passed away in September 2014. This book is a tribute to
Stewart and his work.
Driven to the Brink was originally conceived as a second edition of
Greed and Corporate Failure. However, as Patricia Dimond and Alicia
Micklethwait began to research content for the second edition, they were
disappointed to discover that, in the decade after the first edition of this
book, there had been a significant number of new failures, at both corpo-
rate and market level, and across several geographic regions. There was a
need then to explore, in more depth, the over-arching causes of corporate
failure and whether lessons had been learned since Greed and Corporate
vii
viii Foreword
Failure had been published. These considerations warranted a new book
rather than a second edition.
Using a similar approach, Driven to the Brink identifies major recent
cases of corporate failure in companies and organisations with origins in
the USA, UK, Germany, China and Japan and individual case stories are
developed around these incidents. Additionally, the authors look at mar-
ket failures in the context of price rigging scandals in the global LIBOR
and foreign exchange markets as well as causes and consequences of the
US and European banking crises of 2008. The authors then draw insights
from these experiences, review regulatory responses, and offer specific
recommendations on how such corporate failures or market scandals
could be avoided in the future.
The central thesis of the book is that the seeds of corporate failure are
mostly rooted in inadequate board composition and practices which in
turn are often associated with a flawed corporate culture as propagated by
the board and senior management. The authors are critical of ill-chosen
and poorly informed boards, board focus on short-term profits, lack of
independent board thinking, board complacency, lack of board attention
to risk management responsibilities, and a corporate culture of deference
and excessive loyalty to senior management.
The book discusses steps and precautions that boards, individual board
members and regulatory agencies can and should take to prevent simi-
lar corporate or market failures in the future. It is in these respects that
Driven to the Brink most develops the work of Professor Hamilton and
contributes in significant ways to the literature on corporate governance,
corporate culture and the links between these two drivers of corporate
failure or success.
The book has insights that will attract a readership of those who are
looking to become, or are already, board members, especially non-execu-
tive directors and trustees of charitable organisations. Driven to the Brink
should also encourage investors to look more closely at the boards, lead-
ership, and corporate culture of companies they invest in and attract cor-
porate leaders and more general readers who are interested in stories of
recent corporate and financial market scandals and the reasons behind
these failures.
Foreword ix
Patricia Dimond and Alicia Micklethwait are to be highly commended
for a well-researched, readable and insightful book on an important busi-
ness topic which develops specific and practical recommendations for
how corporate and market failures could be avoided in the future.
James C. Ellert
International Institute for Management Development
Lausanne, Switzerland
Acknowledgements
We would like to express our appreciation to IMD, the institution that
brought us together so many years ago and that had a profound impact
on shaping our future. We were inspired then by so many accomplished
professors, four of whom contributed to the writing of this book.
First, thank you Stewart Hamilton for your friendship over the years.
You remain in our thoughts. Thank you Jim Ellert, Bill Fischer and J. B.
Kassarjian for the wonderful spirit in which you have all given your time:
Jim, for your guidance on banking and for agreeing to write the foreword;
Bill, for sharing your experiences and entertaining stories of China; and
J. B., for your wisdom and patience as we gained a better understanding
of how corporate culture evolves.
We would like to thank our family and friends for their support and
input, with a special thanks to our ‘editing team’: Hana, Millie and
Phoebe. We would like to thank Mairi Hamilton for allowing us to access
some of the material in Greed and Corporate Failure. Last, we would like to
thank the Deloitte Academy for its inspiration and many cups of coffee!
London, UK Patricia Dimond
Alicia Micklethwait
xi
Contents
Foreword vii
Acknowledgements xi
1 Introduction 1
2 Enron: Launch to Boom and Bust, 1985–2001 15
3 The Banking Crisis: Born of Dreams, Fuelled by
Bad Behaviours 39
4 Global Banking: Will the Scandals Never End? 67
5 Olympus: Management was Corrupt at Its Core 95
6 The Co-operative: CEO Resigns amid Turmoil and Calls
for Reform 119
7 Kids Company: Passion Overruled Reason 139
xiii