Maxwell Scandal

Maxwell
1. Do you believe that, following the DTI reports of the early 1970’s, the city should have
been more skeptical of Maxwell’s business activities?
- Department of Trade and Industry reports of the early 1970’s that “We are also convinced
that Mr Maxwell regarded his stewardship duties fulfilled by showing the maximum
profits which any transaction could be devised to show. Furthermore, in reporting to
shareholders and investors he had a reckless and unjustified optimism which enabled him
on some occasions to disregard unpalatable facts and on others to state what he must have
known to be untrue. We regret having to conclude that, notwithstanding Mr Maxwell’s
acknowledged abilities and energy, he is not in our opinion a person who can be relied on
to exercise proper stewardship of a publicly quoted company.” Maxwell did attempt to
argue to the courts because according to him they didn't give a fair hearing and he was
not consulted with the conclusion. Maxwell’s attempt was unsuccessful. If they consider
the report of DTI, the city should have been more skeptical of Maxwell’ business
activities. But it was not possible because: First, Maxwell was legendary for his attempts
to settle disputes through the courts and he began many legal actions against his business.
Second, Maxwell was keen to succeed in the political life and was adopted as the Labor
Party candidate for North Buckinghamshire and he is elected to Parliament. Lastly, it is
quite possible that the fear of being sued in the courts made journalists and financial
analysts reluctant to write critically in public about Maxwell and his business affairs.
2. Contrast Robert Maxwell’s viewpoint of the role of the board of directors and the role of
non-executive director with recent guidance on corporate governance.
- Robert Maxwell’s viewpoint of the role of the board of directors and the role of non-
executive director contrasts with the recent guidance on corporate governance. According
to the corporate governance guidelines’, board of directors’ role is to oversee the
management and governance of the company and to monitor senior’s management
performance. The board should include non-executive because they provides independent
view regarding business strategies, performances, appointments, resources and standard
of conduct. There are also core of good governance. In this case, Robert Maxwell was the
executive chairman and the independent directors had not been effective in exercising
control over the chairman. Also, Maxwell is not in favor with the non-executive director
in 1988 but later on when he was told that there should be appointed, then he eventually
agreed even though Maxwell was quite happy with that. He has a policy to have
‘luminaries’ on boards for some years. And he had given jobs to former ministers,
politicians, and officials because he had seen this as a way of exercising power in the
Labour Party and helping his friends who had lost office. Robert Maxwell only used the
name of non-executive directors in his company but they actually had no function in
Robert Maxwell’s world. In terms of reporting, it should be disclosed to the parties
concerned properly. But Maxwell window dressed the accounts related to the pensions
because he used those funds to made substantial investments in MMC without notifying
the trustees of funds.
3. What do you believe are the main lessons that can be drawn from the failure of
Maxwell’s business empire?
- The main lesson that can be drawn from the failure of Maxwell’s business empire is to
have high ethical and professional standards/behavior in every activities and decision that
a person will make. Possessing these will surely help the company to have a good
corporate governance. In Maxwell’s case, segregation of duties plays an important role
because Maxwell abuses his power being the chairman and chief executive at the same
time. He used it to easily defraud his companies. He manipulated the market in MCCs
shares by using the cash gained from pledging shares. These purchases were not
disclosed and he manipulated it in order for him to have a good personal standing. Also,
he intentionally misappropriate some funds. The lesson here is to use the funds or cash in
its specific purposes in order to prevent damage to the other activities of the business.
And disclose all the information that requires transparency. Mirror pension fund
investments had disappeared because it had been pledged as collateral for additional loan
taken out by Maxwell and fund assets of MGN was invested in MGN and MCC, whose
share prices had fallen drastically. Pension funds should not be used in other purposes
because it should be treated as an entity separate and distinct from the company that
employs the workers who contribute to the pension fund. And this fund is the assurance
of the employees that their retirement funds are protected in case of the liquidation of the
employer. Employees trust is important because they are the human capital of the
business so that businesses/companies should value them, give what they deserve and
their rights.
4. . Who were the main losers when Maxwell empire crashed?

- Robert Maxwell is one of those businessman who starts their business from scratch to an
empire. Only if he wasn’t blinded by greed and hunger for much more power then he
would still have been a leading businessman even today. He was successful in the start
but then he wanted more and from this he lost everything. But the one who suffered the
most or can be considered as the main losers are his company’s employees. As stated in
the case, Maxwell pledged his employees pension fund as a collateral for his debts.
Maxwell managed in an fairly obscene way to get round the pension rules. He took
advantage of the regulations that allowed the employer effectively to take a holiday from
making employer’s contribution. He did this to save his company from going bankrupt
but it’s already to late. Apart from potentially losing their job because of bankruptcy, the
employees will also lost their pension fund since Maxwell was not able to repay his debt.
Other losers in this incident are the banks whom Maxwell got his billion worth of loans
and now suffering substantial losses. It was also mentioned in the case that
PricewaterhouseaCoopers (PwC) had to pay a fine and suffered potential damage of
reputation.
5. Is it likely that problems of the type and scale of Maxwell’s financial dealings could be
repeated in a quoted company in the future?
- The possibility of this kind of situation happening again is quite unlikely mainly because
after the scandal many changes took place. In today’s time, businesses are getting more
and more complex. The law became stricter and there are more rules to follow. After the
scandal, the law enforcement authority become more active in dealing and preventing this
kind of incident. A number of regulations has been promulgated to ensure good corporate
governance. Even the accountancy profession became more rigid when it comes to
auditing of private companies. Because of this, Accounting Standards Committee was
established to create unified reporting standards. Another measure to make sure that the
same won’t happen again is promoting decentralization. This is to prevent a single person
to rule and dominate the whole company. Moreover, having non-executive directors in
the board is being encourage so they can give independent opinion and judgement. The
board shall include qualified non-executive directors to get their views on certain issues
to carry out significant weight in the board’s decision. Division of responsibility also has
been brought up so that no individual can enjoy absolute power of decision.

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Maxwell

4. . Who were the main losers when Maxwell empire crashed?

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