Essay
The past decade corporate governance has been the subject of increasing stakeholder attention and scrutiny. In response to the collapse of One. Tel in 2001, shareholder and media attention has proven the need for companies to revise and reform their corporate governance policies and practices.
February 28 1995, introduced Australia to a new telecommunications company, One. Tel Limited. Displaying outstanding performance in its early years One. Tel was soon to become the investor’s hot trade. Unfortunately, May 30, 2001 One. Tel’s staggering growth became the shareholders sudden nightmare bringing both director’s Murdoch and Packer to the front publicity page.
The words “how” and “why” have been two immediate questions asked and investigated following One. Tel’s collapse. Poor business practice, greed and uncontrolled debt to creditors were recognised as One. Tel’s, recipe to an end.
Almost every business analyst could agree that One. Tel’s business plan where they built and owned a telephone network and deployed a poorly managed billing system was the major cause of the collapse. The company’s business model was that One. Tel would build and own a telephone network rather than being a telephony reseller. This decision was “driven by the greed of its joint managing directors, Jodee Rich and Brad Keeling” (Ferguson 2001, p.47). The management ability and experience was not available for One. Tel to become a successful network operator (Ferguson 2001, p.47). As for One. Tel’s billing system, it was not helping the organisations journey to becoming a major force in telecommunication. Failure to notice that the billing system was inadequate, contributed to the downfall of one tel. “The directors of One. Tel, led by James Packer and Lachlan Murdoch, would pour over the cash projection for the company. What they should have done was walk into one of the call centres and talk to the operators. They would have discovered that the billing system did not work and that One. Tel, which had the potential to transform the Packer and Murdoch empires, was in deep trouble” (Gottliebsen 2003, p. 238).
Although One. Tel was to blame for the billing system, however Telstra did not help. Gottliebsen (2003, p.246) discusses the difficulty caused by Telstra. The selling of One. Tel’s fixed line calls were booked through the Telstra network. One. Tel receives the call details from Telstra six weeks late. Once the details are put into the billing system it takes a further six weeks to process the information and bill the customer because of the inadequate billing system. Therefore a twelve week delay between the time the calls are made and when the bill is sent. Customers took a long time to pay bills that were delayed that long and many disputes arose. The billing system caused great disorder in the call centres, due to the late billing of the fixed line business in Australia. The fixed line calls in theory produced approximately $300 million a year in revenue, so due to the billing delay the company needed at least $120 million extra in working capital (Gottliebsen 2003, pp. 246-247)
Investors and owners of an organisation are affected by almost everything the organisation does (Davidson and Griffin 2003, p.119). A major issue of One. Tel was the accounting standards. They disclosed inaccurate information to the public. Every listed organisation has a responsibility to provide accurate information of its financial performance to it investors and owners. Disclosing false information can lead to investigations by the Australian Securities and Investments Commission (ASIC). For example, throughout the trial of One. Tel’s case it was evident that One. Tel’s accounting practices did not comply with the ASIC rules and regulations. Former One. Tel general manager, Steve Hodgson said in court “one tells accounting practices, which allowed the company to turn a $7 million loss into a $25 million profit in 1999 and to conceal expenses of at least $173 million up to April 2000” (Barry 2002).
Another example was the concealing of the $14.2 million bonus payouts to Keeling and Rich. Barry observed the following (2002), former One. Tel general manger, Steve Hodgson said that the bonuses that were received by Rich and Keeling between July 1999 and February 2000 were not shown in the profit and loss account at the time they were paid. Alternatively, the bonuses were thought of as assets of the company. As result, boost in One. Tel’s profit in 1999 by $3 million and lessened the company’s loss for the first six months of 2000 by approximately $8 million. By treating the bonuses as an asset it gave One. Tel a reason for not disclosing bonuses to shareholders until 15 months after first tranche payment was made.
Corporate governance is a major issue world wide and must be reinforced to protect consumer faith. Without corporate governance the organisation will have no guidelines to be governed by. Renton (1998, p.514) states one of the guidelines as follows:
“Listed companies have to immediately notify ASX of (and thus effectively publish to world) any information on their possession at any time which is likely to materially affect the price of their securities or which is necessary in order to avoid establishment or continuation of false market in those securities”.
This guideline was overlooked by One. Tel when the bonuses to Rich and Keeling were not made public immediately. Acts like these prevent investors from being confident and having faith in the organisation in which they are investing in. It was also overlooked when the company’s poor performance became apparent before administrators came in. One Tel did not abide by its responsibilities, as a consequence the directors of One. Tel could become legally responsible for the debts incurred during the bankrupt period, which could be more than $600 million (Ferguson 2001, p.45).
A recent study showed that more two thirds of 20,000 consumers across 20 countries had a strong opinion “that large companies should do more than focus on making a profit, paying taxes, providing employment and obeying laws” (BSR). This shows that corporate governance behaviour is in demand. Without it a company cannot function effectively, and grow. It is now evident that One Tel did not comply within corporate governance and accounting standards. Therefore an organisation will not succeed if it does not adhere to the guidelines of corporate governance, and comply within accounting standards. This along with an appropriate business plan is a recipe of a successful company. The reliability of information disclosed by an organisation is questionable. The result of One. Tel was poor business planning, greed, unmanageable debt repayments, and failure to comply within the corporate governance. All of these were very important factors in determining the success of the company, but failure to acknowledge and ignore these factors will lead to a collapse of a company.
Bibliography
BARRY, P., 2002. One. Tel’s cash SOS, then it all fell apart. The Sydney Morning Herald, 1 August.
DAVIDSON, P AND GRIFFIN R.W., 2003. Management An Australasian Perspective. 2nd ed. Australia: John Wiley & Sons Australia, Ltd.
FERGUSON, A., 2001. Dial T for tyrant. Business Review Weekly, June 8, 45
FERGUSON, A., 2001. The Seven Deadly Sins of Business. Business Review Weekly, December 13-19, 47.
GOTTLIEBSEN, R., 2003. 10 Best and 10 Worst Decisions of Australian CEO’s. Australia: Penguin Books Australia Limited.
RENTON, N.E., 1998. Renton’s Understanding the Stock Exchange. 3rd ed. Australia: Information Australia.