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Hastie Group Governance Failure
Hastie Group Corporate Governance
Hastie Governance Failure
The downfall of the Hastie Group reads much like the other major corporate failures around the world including Enron and MCI Worldcom in the United States. There is general pattern emblematic to more corporate scandals. That pattern is when figures are "massaged" or even completely made up. This pattern manifested itself yet again with the Hastie Group. Once someone caught on to the massive amount of lies and misdeeds, it was too late for most workers and the company itself.
Deficiencies & Circumstances
It was reported in August 2012 that the Australian Securities and Investment Commission (ASIC) by the administrator of Hastic, that being PPB Advisor, and its receiver, that being McGrathNicol, the substance and extent of the misdeeds of Hastie relative to the allegations that were levied. Even though the review at that point was in its nascent stages, the evidence of misconduct was pervasive and it was assessed that it would likely (or at least possible) envelop the entire wider Hastie company rather than just certain parts of it ("Asic reviews Hastie," 2012).
The company's collapse effectively happened in May 2012 when a massive $20 million account hole was discovered in the company's reporting. It was noted thus that it was standard practice for the receiver and administrator of the seized firm to report to ASIC as to what happened, how it happened and who was responsible. The initial collapse of the firm cost 2,700 Australian jobs ("Asic reviews Hastie," 2012)(International Business Times, 2012)(Hastie Group Job Fears, 2012).
However, the problems for Hastie employees were certainly not limited to the Australian employees. Indeed, 1,500 employees in the United States were not being paid their promised wages and/or benefits. It was discovered that $3 million in funds were transferred from Hastie's office in Dubai just days before the collapse came to light. Concurrent to that, three Hastie executives fled the country out of fear that they would be prosecuted for back checks ("Asic reviews Hastie," 2012).
It was later noted that same month of August 2012 that the $20 million accounting hole was actually indicative of losses to the company being covered up. This accounting hole led to one of Hastie's banking partners calling in to the administrators to look into the matter. Still, it was noted at the time that only one of Hastie's 44 companies was involved at that time and it may or may not wide to other Hastie companies ("ASIC examining misconduct," 2012). As noted before, about 2600 jobs were lost. It was further discovered that half a billion dollars in debts were being covered up at the same time ("FWA asked to," 2012)
In light of the massive scandal, two of Hastie's non-executive directors, those being Lindsay Phillips and Harry Boon, quit the board of Hastie over the salacious cover-up of massive losses and waning revenues. All four of Australia's major banks were embroiled in the aforementioned $500 million that was lent to Hastie. ANZ in particular was very vulnerable as they, by themselves, were on the hook for $150 million of that amount (Mark, 2012).
It also came out that a lot of non-Australian workers, including some non-native Australians that were working in Australia, were not receiving their promised entitlements. Some Hastie managers were trying to abate the fallout by using their own money to cover the shortages but they had no solace or safety from Hastie and were largely left high and dry. Some heavyweights relative to the situation noted that what happened within the inner sanctum of Hastie was almost certainly criminal and that would explain why some of the executives high-tailed it out of the country ("Hastie Group Foreign," 2012)("Hastie Group collapse," 2012).
Eventually, Chief Executive Bill Wild, who had only been in the job since October of 2011, noted that the company had "failed" its employees. That communication was sent to all 4300 of his Australian staff members. It was noted in that same report that of the 50 some-odd subsidiaries of Hastie, only about 10 were expected to survive after the upheaval. In addition to ANZ's terrible exposure as noted above, Westpac was noted to be owed $80 million and NAB's was noted to be $35 million. Lastly, Commonwealth Bank was noted to be owed $20. However, it was noted at the time that those figures could (and probably would) absolutely grow as more information came to the light (Hawthorne et al., 2012).
One thing, in addition to the clear lies and malfeasance, that led to Hastie's demise was the fact that they were borrowing money hand over fist to expand very rapidly. Seemingly, they were lying through their teeth regarding their actual financial state as they did so, as over $300 million in profits were to be wiped off the books as a result of the true state of affairs coming to light. The $500 million owed to all the creditors far surpassed the prior record for a failing company in terms of money owed, that being the $440 million Colorado Group that happened the prior year (Hawthorne et al., 2012).
It is clear that there were two major failings of the Hastie Group that led to its ultimate and widespread demise. The first, but lesser part, of the collapse is that Hastie was clearly growing too fast and they should have kept their growth patterns and strategies much more reasonable and evenly pace. The other, and much bigger, problem is that there was clearly an organized and concerted effort among no doubt a large swath of upper Hastie management to obscure, obfuscate and sometimes outright lie about the true state of the company's financial state, revenues and ability to pay its debt. It is also clear that any third party/external auditor, if one even existed for this part of the Hastie company, was either grossly incompetent or they were in on the misdeeds.
The board of Hastie clearly did not have an open and transparent relationship with its shareholders and stakeholders, as evidenced by the fact that they were clearly lying to their face with little to no remorse. It would seem that Hastie was trying to grow as fast as it could to cover its losses and mounting debt but it is clear that the debt and the problems far out-stripped the rate of revenue growth and the accounting reporting became so flawed and so full of lies, that the problems could not be covered up any more. The independence or competence of the auditors was clearly a problem with Hastie as this should have been caught long before it was. It is also clear that the non-executive directors either knew what was going on and didn't care (or were actively in on it) or they were too incompetent to know that bad things were going on.
Strategies & Lessons
The first lesson that should be taken from the demise of the Hastie group collapse is the need to set a clear and defined pattern of accounting and reporting. Any agreed to pattern should exceed, not just meet, the standards set by established and respected domestic and international governing bodies. All employees responsible for collecting and assembling the information need to be exhaustively trained and they should be re-trained if they cannot or will not abide by the reporting requirements that are to be followed. Any employees that are clearly engaging in deception and obfuscation should be reassigned or summarily dismissed, based on the severity and extent of the problem.
Second, the data should be presented to investors, the public and to any applicable regulatory bodies in a detailed and transparent fashion. If there is anything that looks amiss, even if there is not something nefarious going on, it should be explained precisely what led to the numbers lest investors or regulators think that there is something going on. Not explaining holes in the accounting is what led to Hastie's downfall in the first place, per the first section of this report.
Third, there needs to be a definite and reputable third party accounting firm that audits compliance with the accounting standards that are in force and to be followed by the company and that company should be bound to report any proven illegal activities to the proper authorities should it come to light. An international/famous accounting firm like Deloitte and Touch or KPMG, which are two of the big four accounting firms in the United States, would be examples of modern firms that cannot be coerced or bought out and are certainly not incompetent. However, even previously reputable firms like Arthur Anderson, which as absolutely complicit in the Enron debacle, can be susceptible at times. As such, Hastie would need to be very careful as to who they select to be their third party auditor. If there is any real sign that their third party partner is doing illegal or at least unethical things, they need to go with another firm.
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