Exploring Corporate Governance Failures: Lessons from Wirecard and Greensill Capital Case Study

Exploring Corporate Governance Failures: Lessons from Wirecard and Greensill Capital

If you want to be successful in your assignments and improve your grades, use our case study at Native Assignment Help. Our team of proficient assignment help experts is knowledgeable and experienced enough to produce outstanding papers that meet academic standards. Thus, come together with us at Native Assignment Help for sure success in everything.

Introduction: Exploring Corporate Governance Failures: Lessons from Wirecard and Greensill Capital

Business governance (CG) has emerged as a serious and vital problem in the modern economy. The viability and efficacy of CG practices have been questioned in light of the demise of Greensill Capital and Wirecard. These corporate collapses have had far-reaching consequences, including financial losses for stakeholders, damage to investor confidence, and wider implications for the economy. Consequently, evaluating the state of CG and its role in preventing such collapses has emerged as a key concern. This report aims to critically evaluate the corporate governance and ethical issues surrounding recent corporate collapses, shedding light on the shortcomings and proposing recommendations for improvement.

Corporate governance failings

Some examples of companies' audit and CG failings

In recent years, several high-profile corporate collapses have shed light on the significant role that audit and corporate governance (CG) failings play in the downfall of companies. Examining examples from 2020 to 2021, we can gain insights into the consequences of these failures and the specific CG requirements that should have been followed.

One notable case is the collapse of Wirecard, a German financial technology company. Wirecard filed for insolvency in 2020 after revealing a $2.1 billion accounting fraud scandal. This collapse highlighted the importance of effective audit and CG practices (Forbes, 2023). In this occurrence, the distorted fiscal reports and deceitful exercises were not found by the organisation's examiners, bringing about a huge disintegration of financial backer certainty. A huge CG imperfection was the evaluators' inability to direct a reasonable level of investment and really look at the budget summaries' precision.

Another example is the collapse of Greensill Capital, a UK-based supply chain finance company. Greensill Capital entered administration in 2021 following the loss of crucial insurance coverage for its trade finance business. The collapse raised concerns about conflicts of interest and the company's CG practices (Nytimes, 2023). It was revealed that the company's founder had close relationships with politicians and granted them special access, potentially influencing decision-making processes. This case highlighted the importance of transparency, accountability, and avoiding conflicts of interest within CG structures.

Main CG requirements and differ depending on the company structure

Depending on their structure, businesses must adhere to different CG standards. For straightforwardly recorded associations, adherence to managerial designs, for instance, the Sarbanes-Oxley Act in the US or the UK Corporate Organization Code, is basic. These frameworks emphasise the board of directors, audit committees, and internal control systems' independence and effectiveness. As argued by Hickman and Petrin, (2021), public companies are required to conduct external audits by independent auditors to ensure the accuracy of their financial statements.

Laying out vigorous CG rehearses is similarly significant for secretly held organisations, in spite of the way that they may not be dependent upon similar administrative necessities as open organisations. As discussed by Naciti et al. (2021), private companies should prioritise maintaining clear lines of accountability, effective risk management processes, and internal control mechanisms. This includes having strong internal audit functions, implementing ethical codes of conduct, and ensuring transparency in financial reporting.

Overall, the collapse of companies due to audit and CG failings underscores the need for effective governance structures and practices. Examples such as Wirecard and Greensill Capital highlight the consequences of inadequate audit procedures, lack of transparency, and conflicts of interest. As opined by Mäntymäki et al. (2022), CG requirements differ depending on the company structure, but the overarching principles of accountability, transparency, and independent oversight are crucial for all companies. By adhering to these requirements, companies can minimise the risk of collapse and protect the interests of stakeholders.

Some ways to meet CG requirements

The recognized instances of Wirecard and Greensill Capital give bits of knowledge into a portion of the critical corporate administration (CG) downfalls that added to their breakdowns. There are numerous CG flaws in these instances, but two significant failures stand out:

• Inadequate Independent Control: Independent oversight, an essential component of successful CG, was lacking in both Greensill Capital and Wirecard. Due to a lack of independence and scepticism on the part of the company's auditors, the accounting fraud in the case of Wirecard was not discovered (Alaali, 2021). The auditing process's integrity was harmed by the management of the company's relationship with the auditors. Likewise, in Greensill Capital's breakdown, concerns were raised about the cosy connections between the organisation's organiser and compelling government officials, which possibly impacted dynamic cycles and compromised autonomous oversight.
• Inadequate Internal Controls and Risk Management: In these examples, the failure to establish robust risk management procedures and internal controls is yet another significant CG flaw. The collapse of Wirecard revealed significant flaws in the company's internal control mechanisms, making it possible to commit massive accounting fraud. The absence of “compelling inward controls, including governing rules, permitted the control of fiscal reports” to go undetected for a drawn-out period (TRAN et al. 2020). In a similar vein, the failure of Greensill Capital to properly assess and manage counterparty risks and the excessive reliance on a single funding source highlighted weaknesses in risk management procedures.

CG is strong enough to prevent such failings

The evaluation of whether corporate governance (CG) was strong enough to prevent the failings in the identified examples reveals significant shortcomings. In both the Wirecard and Greensill Capital cases, CG proved to be inadequate in preventing collapses. The lack of independent oversight and the failure to establish robust risk management and internal controls demonstrate weaknesses in CG practices (Dignam, 2020). These failings highlight the need for stronger CG measures, including independent and sceptical auditing, diverse and independent boards, and effective risk management frameworks. The examples underscore the importance of continuous improvement and reinforcement of CG practices to ensure they are robust enough to prevent such failings in the future.

Ethics

Evaluation of 2 examples of companies that failed in their ethical behaviour, thus contributing to the subsequent failure

• Wirecard: In the Wirecard case, the deliberate and systematic manipulation of financial statements was one of the major ethical lapses. The organisation participated in bookkeeping misrepresentation, creating benefits, swelling its monetary record through imaginary exchanges and deceiving monetary revealing. This unethical behaviour deceived investors, regulators, and stakeholders, leading to a loss of trust and ultimately contributing to the company's collapse. The deliberate deception and lack of integrity in financial reporting violated ethical principles of honesty, transparency, and accuracy.
• Greensill Capital: Greensill Capital's collapse also involved ethical failures that contributed to its downfall. One prominent example was the company's close relationship with politicians, granting them special access and influence (Ltifi and Hichri, 2022). This raised concerns regarding potential power abuse, favouritism, and conflicts of interest. The impression of excessive political impact dissolved trust in the organisation's tasks and dynamic cycles. It highlighted a failure to maintain ethical boundaries, promote fairness, and ensure unbiased treatment of stakeholders.

Both examples demonstrate a disregard for ethical principles and a focus on short-term gains at the expense of long-term sustainability and stakeholder welfare. These ethical failures not only violated societal norms and legal requirements but also undermined trust, reputation, and the social licence to operate (Dignam, 2020). They emphasise the importance of fostering an ethical culture within organisations, adhering to ethical standards, promoting transparency, and upholding the interests of all stakeholders. Addressing ethical failures requires strong ethical leadership, robust ethical frameworks, and regular monitoring and enforcement to ensure compliance with ethical standards and principles.

Relevant ethical theories or models

Utilitarianism ethical theory

One ethical theory that can be applied is utilitarianism. Utilitarianism focuses on maximising overall happiness or utility for the greatest number of people. In the context of corporate collapses, the unethical behaviours of Wirecard and Greensill Capital prioritised short-term gains for a select few while disregarding the potential harm inflicted on a broader range of stakeholders (Tseng and Wang, 2021). From a utilitarian perspective, these actions were morally wrong as they failed to consider the overall well-being and happiness of stakeholders and society.

Figure 1: Utilitarianism ethical

Stakeholder theory

Another relevant ethical model is the stakeholder theory. This theory emphasises that organisations have a moral responsibility to consider the interests of all stakeholders, including employees, customers, suppliers, and the wider community, rather than solely focusing on maximising shareholder value. As argued by Dmytriyev et al. (2021), the ethical failures of Wirecard and Greensill Capital demonstrate a failure to fulfil this responsibility. Their activities focused on the interests of select partners, like leaders or legislators, while disregarding the freedoms and prosperity of different partners. These businesses' subsequent failures were caused by this violation of stakeholder theory principles.

Figure 2: Stakeholder theory

Kohlberg's theory of moral

Kohlberg's theory of moral development aligns with the above paragraphs as it provides a framework for understanding the ethical failings in corporate governance. As per Kohlberg, people progress through phases of moral thinking, from an emphasis on personal circumstance to a thought of more extensive moral standards. Wirecard and Greensill Capital's failures are evidence of a lack of moral development in which self-interest and short-term gains took precedence over ethical obligations (Hafeez et al. 2020). According to Kohlberg's theory, individuals and organizations must prioritize ethical principles and the welfare of all stakeholders in order to foster ethical decision-making at higher levels of moral reasoning.

Figure 3: Kohlberg's theory of moral

Are you looking forward to easily navigating through the intricacies of finance assignment by using Native Assignment Help! Do you want weekly tips for handling financial problems? Our team comprises financial experts who are qualified in this field. Our professionals will help you do your homework so that you can improve your grades and develop a better understanding.

Conclusion

Based on the above analysis it can conclude that, considered, the failures of Wirecard and Greensill Capital's businesses were caused by significant moral and corporate governance (CG) flaws. The breakdown of the wirecard came about because of accounting distortion and the shortfall of free oversight of spending plan reports. Moral failings regarding the misuse of political influence and anticipated irreconcilable situations led to Greensill Capital's demise. These models feature solid CG exercises like free inspection, distinct and autonomous sheets, and productive gamification of the executive’s structures.

It is evident that there are gaps and room for improvement when considering whether CG regulation is strong enough to prevent additional company collapses. Although CG standards and principles are established by regulations and frameworks, their effectiveness in being implemented and enforced varies. The cases analysed show the way that even with administrative necessities set up, organisations can in any case take part in exploitative practices and avoid oversight.

Reference

Alaali, N., Al Marzouqi, A., Albaqaeen, A., Dahabreh, F., Alshurideh, M., Mouzaek, E., Alrwashdh, S., Iyadeh, I., Salloum, S. and Aburayya, A., 2021. The impact of adopting corporate governance strategic performance in the tourism sector: A case study in the Kingdom of Bahrain.J. Legal Ethical & Regul. Isses,24, p.1.

Dignam, A., 2020. Artificial intelligence, tech corporate governance and the public interest regulatory response.Cambridge Journal of Regions, Economy and Society,13(1), pp.37-54.

Dmytriyev, S.D., Freeman, R.E. and Hörisch, J., 2021. The relationship between stakeholder theory and corporate social responsibility: Differences, similarities, and implications for social issues in management.Journal of Management Studies,58(6), pp.1441-1470.

Forbes, 2023: Three Early Lessons From The Wirecard Scandal Available at: https://www.forbes.com/sites/forbesfinancecouncil/2020/07/27/three-early-lessons-from-the-wirecard-scandal/?sh=4eacf566bee6 [Accessed on 9^Th May 2023]

Hafeez, M., Tahira, F., Kazmi, Q.A. and Hussain, M.Z., 2020. Analysis of moral reasoning of teachers and the students with respect to Kohlberg’s theory of moral development.International Journal of Business Strategy and Social Sciences,3(1), pp.11-29.

Hickman, E. and Petrin, M., 2021. Trustworthy AI and corporate governance: the EU’s ethics guidelines for trustworthy artificial intelligence from a company law perspective.European Business Organization Law Review,22, pp.593-625.

Ltifi, M. and Hichri, A., 2022. The effects of corporate governance on the customer’s recommendations: a study of the banking sector at the time of COVID-19.Journal of Knowledge Management,26(1), pp.165-191.

Mäntymäki, M., Minkkinen, M., Birkstedt, T. and Viljanen, M., 2022. Defining organizational AI governance.AI and Ethics,2(4), pp.603-609.

Naciti, V., Cesaroni, F. and Pulejo, L., 2021. Corporate governance and sustainability: A review of the existing literature.Journal of Management and Governance, pp.1-20.

Nytimes, 2023: The Swift Collapse of a Company Built on Debt, Greensill Capital promised a win-win for buyers and sellers, until it all fell apart, igniting concerns about opaque accounting practices. Available at: https://www.nytimes.com/2021/03/28/business/greensill-capital-collapse.html [Accessed on 9^Th May 2023]

TRAN, Q.T., LAM, T.T. and LUU, C.D., 2020. Effect of corporate governance on corporate social responsibility disclosure: empirical evidence from Vietse commercial banks.The Journal of Asian Finance, Economics and Business,7(11), pp.327-333.

Tseng, P.E. and Wang, Y.H., 2021. Deontological or utilitarian? An eternal ethical dilemma in Outbreak.International journal of environmental research and public health,18(16), p.8565.