Founded Governance due to misleading information provided

Founded in 1968 by Ray Williams and Michael Payne, HIH Insurance was the second largest insurance company which retained a large number of departments not only in Australia where it was first invented, but globally, by covering all kinds of segments and targeted groups in the marketplace and communities. The reasons why that successful and reliable company was led to bankruptcy were actually due to issues that were spread all over the company’s branches and departments for matters such as the top manager’s greed and denial to come across with the true financial condition of the company along with the Risk Management’s negligence (intentionally) for more valid monitor, control and hedge over the risks and the potential threats that neither the stakeholders would identify nor the Corporate Governance due to misleading information provided on purpose wrongly by the company’s figureheads. That finally  leads us to the conclusion that the collapse of a company which was considered from the outside sight as a magnificent and a very successful one, was never that great and successful, as the numbers on the Balance Sheets were not in touch with reality. Seems like HIH’s bankruptcy was a tremendous surprise only for the external environment, as the Managers were completely aware of the situation and they were just buying time through wicked ways, hoping that things would somehow improve. But the first wrong steps started from 1999 and the company ended up in bankruptcy in 2001. YouTube. (2018).HIH Insurance started with a different background, changed  its name three times and as the years were passing by, the process of  its development and also the point where the most significant mistakes were made, were declared.In 1968: Known as “MW Payne Underwriting Agency Ltd”In 1971: Acquired by the British company CE Health PLC. At that period, Ray Williams became a member to the Board of CE Health PLC. In 1996: the company changed its name again to HIH Winterhur and acquired a number of companies in various countries apart from Australia (Colonial Ltd Insurances operations, Austria and New Zealand, Great States Insurance Co in the US and Solart in Argentina) and around a year later, Winterhur Swiss sold its 51% of Winterhur to the public and the company took its final name HIH Insurance Ltd.  Back at that time, the company should put aside some capital for safety in case that something goes wrong in the future, but they didn’t. Instead of that, they invested most of their money to “financial reinsurance” contracts in order to turn losses into gains, something that was wrong because later on the reinsurance cover ran out. Fraudulent came along with this deed, because they deceived APRA (Australian Prudential Regulation Authority) which is responsible for overseeing banks, companies, insurance and reinsurance companies and the greatest prohibition according to the Australian law has to do with reinsurance contracts and assets. More specifically, a company that invests money to reinsurance contracts cannot refer the expected money to the Balance Sheet as assets, but HIH did exactly the opposite. At the same time, they were offering insurances to the public at very low prices because of the high competition and because they needed the money in order to increase their real numbers of assets and also cover the deficit of the debts that they had taken in order to “keep the financial flow” of the company, provide the services and fulfill its annual obligations. But that strategy of “easy profit” was an illusion, because even if the profits were significant due to the cheap contracts they were offering, the debt liabilities and the reinsurance contracts (so they could later on “abuse” the reinsurance contracts by claiming money) would not let them put aside any capital. THE BIG BAD BOOKKEEPER. (2015).Around 1998, it is notable the company’s move to acquire the large counterpart  FAI Insurance and the CEO of FAI, Robert Adler, became the director of HIH. That was one more major mistake, as Ray Williams made that spasmodic move due to his idea to unite two companies that were both not so strong and insolvent but at the same time, they were considered from the outside as strong and profitable (due to fake numbers), something that made him thought that their unity and collaboration would raise their reputation and consequently their profit. In reality, he united two weak companies and the unfavorable result was to create one bigger and even weaker. By acquiring FAI, Ray William made the financial circumstances even harder in HIH and on top of that, he bought FAI for 300 million dollars, when later on the real value of the company was revealed and it was only 100 millions. Up to here, there are four major problems: underpricing of  their services, reserve problems and bad investments (reinsurance contracts and FAI), abuses of reinsurance, misleading information to the Corporate Governance through false information and fake numbers. In order to gain the recognition and the reputation as a stable and successful company, HIH was falsifying and overstating its profits, concealing information in order to avoid the detection from the board which led to the creation of a more ideal Balance Sheet. Integrity and ethical values were put aside from the owner and the top managers who were fully aware of what was going on but they continued to be unethical because their priority was to fulfill their own desires and ambitions. McGrathNicol. (2018)Furthermore, Ray Williams’ attitude as a CEO was very dominant and had a tremendous influence on operations (operational risk) and decision making within the company. As it is very well known, a dominant CEO is a big threat for the Corporate Governance because it increases the danger of putting aside the interest of the stakeholders and that’s what was happening in this case as well. Ray William was focused on the Senior Manager’s interest rather than the stakeholders’ interest and benefits. Other figures that played a significant role in that unethical behavior were Rodney Adler, who tried to deceive people (employees of the company)  to invest around 2 billions in a company he already  had interest and Bradley Cooper who was bribing the Senior Officials in the HIH (Ray Williams’ indirect manipulation). There were also some external factors that affected the company’s fate and let the fraudulent to be continued for a long while. Arthur Andersen supposed to be an independent auditor, but the earnings that he received for HIH Insurance (8 millions for auditing HIH (when the company back then had earned only 1,7 millions) doubts his independence and integrity towards his perceptions for the company because he had a big self-interest. In the Audit Committee, there were also two external directors (Rodney Stephen and Justin Gardener) who were former partners of Arthur Andersen and there were some facts that made them seem not so innocent and independent. Moreover, one of these two (Justin Gardener)  used to audit FAI in 1980´s and that developed even greater suspicion for his integrity. McGrathNicol. (2018)                                             RAY WILLIAMS (CEO)                       RODNEY ADLER (DIRECTOR)The High Court decided for Ray Williams and Rodney Adler to be fined 250.000 dollars and also four and a half years in prison. They were officially charged for unfaithfulness and unethical behavior by providing misleading information and deceiving the government and the stakeholders, manipulating people within and outside the company and finally for being unable and untrustworthy to complete their tasks, duties and obligations as directors. YouTube. (2018). The company had created a huge bubble that exploded and finally collapsed in 2001 with debts of 5,3 billions. The bankruptcy of HIH had a huge impact in the community, as both  professional and community groups, business and home owners and injured individuals were left with unpaid claims for private and public liability, home warranty, travel, accident and disability. There was a big distress and a major loss in many aspects that consequently costed to the citizens-taxpayers. In Queensland alone, victims from car accidents were left with unpaid claims around 180 million dollars (waiting for medical procedures and surgeries), the Australian Rugby Union faced also a tremendous problem as it was forced to cancel games until they would find out another replacement cover and injured Rugby players were left without taking the expected compensations from HIH. Finally, in New South Wales (NSW) there were public liability claims uncovered around 65 millions, associated with the local councils. The impact on the triple bottom line (People, Profit, Planet) was inevitable, as People and Profit were the major categories that were negatively affected from the collapse of HIH Insurance. (collapse, 3. 2018)  Until today, HIH remains in the list of the biggest corporate collapses across the world: