Greed and Corporate Failure – The Lessons from Recent Disasters

Abstract

Purpose

This paper aims to examine the use of project management practices in small high‐technology firms and to identify what contributes to project success.

Design/methodology/approach

The results presented in this paper are based on a survey of Irish high‐technology small‐to medium‐sized enterprises (SMEs). A questionnaire was distributed to over 200 organisations via e‐mail and a response rate of 20 per cent was achieved.

Findings

Results suggest that the existence of a project manager and the use of project planning significantly contribute to project success. Control for projects resides primarily with owner‐managers and achieving quality standards is a significant success criterion. Additionally, having clear goals/objectives and top management support are identified as the most important success factors in the firms surveyed.

Research limitations/implications

This paper presents the findings of an initial investigation into the management of projects within SMEs. The study has been limited by the number of respondents and also by the use of a survey as a research instrument. Further research to develop a deeper understanding of how projects are managed in SMEs and how project success can be improved would require a more varied research methodology.

Practical implications

Findings suggest that project management tools and techniques are being used to a limited extent by high‐technology SMEs. Analysis suggests that the employment of a project manager and the implementation of project planning techniques are likely to contribute to the overall success of projects. SMEs also strongly believe that past experiences are a vital factor in implementing effective management procedures and determining future success.

Originality/value

While most research into the use of project management has concentrated on practices within large firms, there has been a lack of investigation into project management in small firms as addressed by this paper.

Citation

Louie, J. (2007), "Greed and Corporate Failure – The Lessons from Recent Disasters", Management Research News, Vol. 30 No. 2, pp. 167-168. https://doi.org/10.1108/01409170710722982

The authors introduce this book by outlining the major reasons for corporate failure. The authors focus each chapter on a specific corporation and discuss how each firm has failed. This is a comprehensive book and is designed for those readers that are interested in gaining a better understanding of the reasons surrounding corporate failure. It is especially designed for investors, professionals and management; however, it is such easy reading that a layman will also find it interesting and intriguing. Each chapter can be read separately as a case study. The corporations included in the discussion of this book are Enron, Worldcom, Tyco, Marconi and Swissair. The reasons for corporate failure which are examined cover management strategy, corporate governance, auditing and investment banking and the misuse of accounting to cover fraud.

The authors keep the readers interested in following how each firm got into trouble and used fraud to cover their mistakes. In the case of Enron, the authors describe how the company was formed by taking up the opportunity raised from energy deregulation but expanded to unfamiliar territory such as broadband and investment in India and Brazil. For example in the case of Enron, high‐risk projects were undertaken that were outside the firm’ core competencies. When the problem was beginning to surface, instead of focusing on accounting controls to manage these issues, Enron decided to manage the accounting reports by hiding its debts and related assets. The authors also pointed out critical governance issues for any managers and board members. These issues include dramatic salary increase of the top 200 employees from $193 million collectively in 1998 to $1.4 billion in 2000, and internal audit functions that are outsourced to the external Auditor (the former Arthur Andersen).

Corporate and individual greed are often imbedded with business expansion into areas that are outside the firm’ core competence. Overseas business expansion creates problems when central control mechanisms are inadequate or just absent. Another problem occurs when integration with new acquisitions lacks strategic and operational planning. There is an agency cost that the firm needs to pay for hiring executives to take care of the firm. Therefore, a strong corporate governance mechanism is needed to address this issue. The authors point out inefficient corporate governance is a major downfall in corporate failures. Issues like board independence, CEO dominance, board members’ incompetence and executive remuneration packages were highlighted in examples of corporate failures discussed in the chapters. Much research has been done in the area of corporate governance recently and the results identify similar concerns raised in this book. However, research results normally give summarised findings on the companies studied or concentrate on a specific corporation’ issues. Therefore, it was a good approach using story telling to highlight the lessons learnt, contrasting to the clinical approach of most research. This style adds to the readability of their book.

The ultimate purpose of this book is to illustrate some of the lessons learnt from each of the corporate failure cases. Although this book is written on recent corporate failures, it will not be easily outdated for many years for as there are many timeless lessons that can be learned. For example, adequate control is essential within a company, especially in cash and project management. Share price can give the signal to investors that the company is doing well; but at the same time, in order to make sure that the company can match the public expectation, management may be under the pressure of performing, even using fraudulent actions to achieve its aim. Therefore, investors need to pay more attention to the firm’ pattern of performance and cash flow.

The suggestions given in this book are excellent in helping companies to prevent fraud. The authors also advise investors that they need to pay more attention to cash flow rather than earnings in investment. I would like to see more suggestions on how to detect fraud. Nevertheless, this may be beyond the scope of this book and the authors have provided us with many suggestions to prevent making similar mistakes in the future. The price of this book is £25.00 which is a reasonable for a book that helps the reader to understand some of the major reasons for recent corporate failures and leaves them with practical questions to consider.