Corporate governance failure and misconduct at Hastie Group

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.

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.

Fourth, it seems that Hastie was doing this already (to no avail) but there needs to be people on the board that are non-executives of Hastie and, furthermore, not employees in any way shape or form of the Hastie Group except in the capacities required by the board. This is necessary so that the board members are truly acting in only the interest of their jobs and the firm and not because they are financial benefitting from what is going on.

Fifth, the board structure should go a step further and it should be required that Hastie non-executive/non-employee board members in no way financially profit from anything related to Hastie. They should truly be third parties EXCEPT for their activities on the board. Similarly, board members (both executive and non-executive and both internal and external) should be expressly forbidden from having any dealings with competitors of any sort and they should have no involvement with the regulatory bodies that regulate Hastie. There needs to be a clear demarcation between the activities of Hastie and anything or anyone else that could influence the behavior and decisions of board members.

Sixth, Hastie should make it clear that any employees clearly engaging in illegal behavior will be reported, by Hastie, to the relevant regulatory and legal authorities and that person will be immediately dismissed. Hastie will pledge to be fully cooperative with authorities in investigating and prosecuting people engaging in illegal activities. Hastie must disavow and swiftly deal with anyone who engages in such behavior and this includes people that are engaging in clearly unethical behavior but are not technically violating any laws. There must be a culture of compliance and general corporate governance with Hastie. If there is not, it is often indicative, or at least can lead to, a slippery slope where the bad actions get more and more pervasive as well as more and more serious. This is no doubt what happened with Hastie the first time and it cannot be allowed to denigrate into that yet again.

Seventh, people in all positions of power within Hastie should have absolutely no history of financial reporting problems. Preferably, they will have an established track record that far surpasses and extends far beyond Hastie. Having this be the norm will lend much more credence to the staffing quality than if all of the leaders were bred from within Hastie, as the latter would be much more apt to protect the company at the expense of honestly.

The eighth lesson is related to the seventh but is slightly different. The people that are hired and moved up into the upper echelons of Hastie need to be very good at their job and must know what they are doing. There should be no "Peter Principle" nominees in upper positions of the company, up to and including the board of directors. There are a few ways in which this can be executed. The first is succession planning where people are prepared and bred for their eventual promoted positions rather than having to be foisted into the position and trained on the fly. Second, people moving up I the company should have mentors that teach them the way to behave and act as an employee so that it's not new to them when they get there. This includes the standards set by the company as well as how to execute and conduct themselves within the job properly.

Ninth, employees and managers should be urged to be a whistleblower, even if it's anonymous, for the company if they discover that negligence or illegal behavior is going on. A mechanism should be offered that allows employees to report illegal or unethical behavior via email, letter or even fax. All reports should be investigated extensively but as subtly as possible, as there is the possibility of people trying to "tattle" on others even if there is no substance to the allegations. If the identity of a whistleblower is discovered, on accident or not, the person must not be retaliated against unless it is clear that they were not acting in good faith. If it's clear that they were actively lying and creating stories, however, then all bets are off. Regardless, Hastie has to be careful to not be deemed to be cracking down on people that are trying to reveal bad behavior so as to protect the firm. The press would have a field day with that it was verifiable, or at least perceived, that Hastie was squelching people from reporting bad behavior.

Conclusion

It is clear that there was a clear lacking of corporate governance within Hastie and it ultimately led to the demise of that Hastie subsidiary and at least tarred the reputations of the other subsidiaries within the company. This is perhaps very unfair if the malfeasance was limited to that one group, but that is the way it goes. Even if it's not clearly evident and provable, there is clearly a guilt by association when talking about "corporate fat-cats" purloining the riches and wealth of a company and lying pervasively while executing the fraud. This is all the more reason why companies should be exceedingly careful and thorough when crafting and enforcing corporate governance standards. People should not look the other way and need to be urged to say something should they know something important. If the standing and prevailing corporate culture is one of compliance and good behavior, then the chances of something like this happening again is slim. However, if the prevailing culture is to hide and create illusions, then this will certainly happen again and it's just a matter of when it all blows up and how big the explosion is.