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Learning Journal II: Week 6 to Week 12
Corporate governance is ‘the system by which business corporations are directed and controlled’ (Mucciarone 2012). Milton Friedman argued that “corporate governance is to conduct the business in accordance with the owner or shareholders’ desires, which generally will be to make as much money as possible while conforming to the basic rules of the society embodied in law and local customs (Mucciarone 2012).
I’ve learnt now that corporate governance is an integral part of our lives. This was evident during the collapses of Enron and WorldCom in the United States and the collapse of ABC learning in Australia. ABC Learning was a listed company on the Australian Securities Exchange, with market shares worth A$2.5million. In 2008, the company went into administrative receivership and was overwhelmed with massive debts. According to (Kruger 2009), it came to light that ABC Learning employed methods of financial reporting designed to artificially create apparent shareholder value, when, in fact, that shareholder value associated with the child-care licences (91 per cent of net assets) is based entirely on the future net cash flows of the company. ABC Learning’s profits increased rapidly through acquisitions, which should have raised questions about the underlying valuation of assets it acquired - especially given that 70 per cent of its assets were intangibles (Kruger 2009). Dr Philip Ross, the head of the school of accounting at the University of Western Sydney, describes it as a "failure of regulatory and accounting processes" and says that despite changes to corporations’ law and accounting standards ABC Learning's situation is not that different to the One.Tel and HIH collapses (Kruger 2009). I have inferred that the above examples have one commonality amongst them, which is, the