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International Cases of
Corporate Governance
Jean Jinghan Chen
International Cases of Corporate Governance
“This book of corporate governance case studies provides a nice complement

to existing courses or modules covering the topics of corporate governance,
business ethics, and/or corporate social responsibility. There are several well
established corporate governance textbooks in existence that included some
cases, but this is one of the first stand-alone case books of which I am
aware other than Mallin’s casebook published back in 2006. Many of us
in the field of comparative corporate governance have our own conceptual
framework from which we describe and explain corporate governance behavior
and outcomes. This book provides the instructor with quite a bit of freedom to
frame the issues around their own personal perspective. Furthermore, in these
days of inflated book prices, students should benefit from a text that is fully
utilized. I especially liked the relative recency of these cases—all case studies
are less than ten years old. Given the turmoil within the global economy and
deglobalization trends during the past decade, this book is timely. I also liked
that fact that there was a wide range of geographic contexts captured in these
cases given the Western bias in previous texts and case studies. Finally, the
range of issues is impressive, ranging from dealing with accounting scandals,
to ownership and control rights conflicts, to business ethics and corporate
social responsibility challenges. If you are looking for a timely casebook on
comparative corporate governance, this text should serve you well.”
—William Q. Judge, Old Dominion University, USA; Dean of International
Corporate Governance Society Fellows.
“The release of Professor Chen’s new book of international corporate gover-

nance cases comes at a time when these new challenges are still defining the
new business landscape. Companies are now expected to be more transparent
and accountable to their stakeholders. This book not only provides us the
insight of how and why corporate scandals occur, but also provides insight
into the recurrence of corporate governance failures, offers practical guidance
for remedying options. Practitioners and policy-makers will certainly learn,
share and benefit from the critical thinking this book has provided.”
—Qin Zou, Vice President, Stanley Black and Decker, USA
Jean Jinghan Chen
International Cases
of Corporate
Governance
Jean Jinghan Chen
University of Macao
Macao, China
ISBN 978-981-19-3237-3 ISBN 978-981-19-3238-0 (eBook)

https://doi.org/10.1007/978-981-19-3238-0
© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature
Singapore Pte Ltd. 2022
This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher,
whether the whole or part of the material is concerned, specifically the rights of translation,
reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other
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The use of general descriptive names, registered names, trademarks, service marks, etc. in this
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The publisher, the authors, and the editors are safe to assume that the advice and information in
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The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721,
Singapore
Preface
Corporate governance cases and their ramifications have been in the

public eye over the last 30 years. However, although significant atten-
tion has been given to corporate governance failure, corporate scandals
have continued to occur as a result of poor corporate governance. It
can be argued that there is no ‘one size fits all’ corporate governance
approach in reality. This aspect makes corporate governance an intriguing
area for study. Therefore, up-to-date case studies play a valuable role
in affording a deeper understanding of corporate governance issues in
different circumstances. Case-study analysis can also assist social scien-
tists in the development of theories and hypotheses, which can then be
subject to more rigorous scientific investigation.
This book intends to provide insights into current issues in corpo-
rate governance by examining twelve international cases where corporate
governance is seen to be an issue. The cases are designed to introduce
the reader to a factual ‘real life’ episode that has corporate governance
implications. They also reinforce the reader’s understanding of ‘good
corporate governance’ in each institutional setting, although there are not
always ‘right’ and ‘wrong’ answers. The case studies also seek to shed light
v
vi Preface
on why there are continuing incidences of corporate scandals, to what

extent these are a corporate governance failure, and in which ways corpo-
rate governance—and the behaviour of those involved in ensuring good
governance and an ethical culture in their business—may be improved
in the future.
The book can be thought of as a supplementary source of mate-
rial, which encourages discussion of various issues identified in the case
studies in seminars and classes. It is hoped the cases will stimulate interest
and motivate discussion on the reasons why corporate governance failed
or was seen to be inadequate.
Macao, China Jean Jinghan Chen

Acknowledgments
I would like to thank everyone who has encouraged and supported me

in writing this book.
First, my appreciation goes to Dennis Fai Lim Loi, Paying Song,
Xinxian Chen, Lingyu Huang, Shiqiang Chen and Ling Yang for
providing excellent research support in data collection and preparation
of the cases. I am also grateful for the financial support of the University
of Macau (CPG-2022-00022).
Thanks also go to Palgrave Macmillan Press, who contributed to the
publication of this book.
A heartfelt thanks to family and friends who have always been there
for me. A special thank you to my husband, Professor Zhili Sun, who has
accompanied me during the pandemic outbreak period and has always
been a source of power throughout my professional career and family
life. I have always felt your love, patience and devotion at all times.
vii
Contents
1 Introduction 1
References 8
2 Carillion PLC 11
John McDonough 13
Carillion’s Initial Problems 14
Carillion’s Corporate Governance Issues 15
The Cost of Carillion’s Collapse 22
Lessons Learnt from Carillion 23
Discussion Questions 25
References 25
3 Tesco Plc 27
A Brief History of Tesco 28
Retailer Competition 31
References 42
ix
x Contents
4 Volkswagen 45
Background 46
Volkswagen’s Corporate Government Issues 55
Lessons Learnt from Volkswagen’s Scandal 61
References 64
5 Wirecard 67
Wirecard’s Rise and Fall 68
Wirecard’s Corporate Governance Failure 72
Lessons Learnt from Wirecard’s Corporate Governance
Failure 78
References 81
6 Stora Enso 83
Stora Enso’s History and Early CSR Practices 84
Mistreatment of Local Landowners in China 86
Child Labour in Joint Venture in Pakistan 87
Improvement of CSR Practices After the Ethical Crisis 89
Lessons Learnt from Stora Enso’s Corporate Governance
Issues 91
References 95
7 Wells Fargo 97
The Scandal 99
Wells Fargo’s Corporate Governance Failure 104
Lessons Learnt from Wells Fargo’s Corporate
Governance Failure 112
References 114
8 CommInsure 117
The Scandal 120
CommInsure’s Corporate Governance Issue 122
Lessons Learnt from CommInsure 130
Contents xi

References 132
9 Toshiba (Japan) 135
The Scandal 137
Toshiba’s Corporate Governance Issues 140
Lessons Learnt from Toshiba’s Corporate Governance
Failure 152
References 155
10 Gome 157
GOME Proxy Contest 158
Damage Caused by the Proxy Contest 162
Lessons Learnt from GOME’s Proxy Contest 170
References 175
11 Alibaba 179
Alibaba’s Expansion Strategy and Business Model 180
Alibaba’s Ownership and Control 183
Discussion on the Impact of Alibaba’s Partnership
System 191
References 197
12 Lee Kum Kee 201
History of LKK 202
LKK’s Governance Challenges 206
LKK’s Performance Reward and Succession 212
LKK’s Family Governance vs. Business Governance 213
References 217
13 Yunnan Baiyao 219
History of the Company 220
Mixed Ownership Reform (2016–2019) 223
xii Contents
Performance Improvement Driver: Corporate

Governance 229
Yunnan Baiyao’s Corporate Governance Evolution 235
References 238
14 Conclusion 241
Common Causes of Corporate Governance Failure 242
Three Special Cases of Ownership and Control 244
Concluding Remarks 244
Index 245
Abbreviations
APRA Australian Prudential Regulatory Authority

ASAC Assets Supervision and Administration Commission
ASG Automotive Systems Group
ASIC Australian Securities and Investments Commission
B2B Business-to-Business
B2C Business-to-Consumer
BDO BDO Unibank Inc.
BPI Bank of the Philippine Islands
BSP Bulleh Shah Packaging
C2C Consumer-to-Consumer
CAM Critical Audit Matters
CARB California Air Resources Board
CBA Commonwealth Bank of Australia
CCP Chinese Communist Party
CDP Census Designated Place
CEBS Committee of European Banking Supervisors
CEO Chief Executive Officer
CFO Chief Financial Officer
CFPB Consumer Financial Protection
CFPS Consumer Financial Protection Bureau
xiii
xiv Abbreviations
CIO Credit and Investment Ombudsman

CMA Competition and Markets Authority
COO Chief Operating Officer
CSR Corporate Social Responsibility
CSRC China Securities Regulatory Committee
DJSI Dow Jones Sustainability World Index
DPA Deferred Prosecution Agreement
EDR External Dispute Resolution
EPA Environmental Protection Agency
EPS Earnings Per Share
ERM Enterprise Risk Management
ESG Environmental, Social and Governance
FCA Financial Conduct Authority
FLDC Family Learning & Development Centre
FRC Financial Reporting Council
FSB Financial Stability Board
GLT Group Leadership Team
GMV Gross Merchandise Volume
HHI Herfindahl–Hirschman Index
HKEX Hong Kong Stock Exchange
ICA Insurance Contracts Act
ICCT International Council on Clean Transportation
ICGN International Corporate Governance Network
IPO Initial Public Offering
KPF Kunming Pharmaceutical Factory
KPI Key Performance Indicator
LKK Lee Kum Kee
LTI Long-Term Incentives
NED Nonexecutive Director
NYSE New York Stock Exchange
OCC Office of the Comptroller of the Currency
ODM Original Design Manufacturers
OECD Organisation for Economic Co-operation and Development
PCAOB Public Company Accounting Oversight Board
PCS Personal and Client Solutions
PE Private Equity
PRA Prudential Regulation Authority
R&D Research and Development
RMB Renminbi
Abbreviations xv
ROA Return on Assets

ROE Return on Equity
SEC Securities Exchange Commission
SFO Serious Fraud Office
SKU Stock Keeping Units
SLA Standard Life Award
SME Small Medium-Sized Enterprise
SOE State-Owned Enterprise
STI Short-Term Incentives
TDF Technology Development Fund
TSR Total Shareholder Return
TTIPC Taiwan Toshiba International Procurement Corporation
UN United Nations
VC Venture Capital
List of Figures
Fig. 2.1 Carillion’s Share Price, February 2017–January 2018

(Source Datastream) 12
Fig. 2.2 Carillion dividend pay-out, December 1999–December
2016 (Source Datastream) 17
Fig. 3.1 Total number of Tesco stores worldwide (Source Tesco’s
annual reports from 2009 to 2020) 30
Fig. 3.2 Grocery market share in the UK (in percentages)
(Source Kantar UK grocery market share) 33
Fig. 4.1 The function of engine control software devices
(Source volkswagenag.com) 50
Fig. 4.2 Stock market reaction to Volkswagen’s emissions
scandal (Source marketwatch.com) 53
Fig. 4.3 Volkswagen’s annual net income, 2005–2020
(Source macrotrends.net) 54
Fig. 5.1 Wirecard’s share price (Source Compiled
from Bloomberg [2020]) 70
Fig. 5.2 Wirecard’s share price (Source Rubio [2020]) 71
Fig. 5.3 Wirecard’s stock plunge (Source Felsted [2014]) 71
xvii
xviii List of Figures
Fig. 7.1 The stock price of Wells Fargo’s share price

(Source http://yahoofinance.com) 103
Fig. 7.2 Board committee structure of Wells Fargo 106
Fig. 8.1 CBA’s Executive Compensation Structure (2015)
(Source CBA’s 2015 Annual Report) 126
Fig. 9.1 Toshiba’s share price, November 2014 to September
2015 (Source NASDAQ) 140
Fig. 10.1 GOME’s share price (HK$) (Source Yahoo finance) 168
Fig. 12.1 Family tree of LKK (Source Ward [2016]) 203
Fig. 12.2 LKK’s Governance Structure (Source Ward [2016]) 208
Fig. 13.1 Yunnan Baiyao’s ownership structure
before and after listing (Source Change Consulting
[2020]) 222
Fig. 13.2 Baiyao Group’s revenue and profit before the mixed
ownership reform (Source Compiled from Yunnan
Baiyao’s Annual Reports [2012–2016]) 224
Fig. 13.3 Change in ownership structure in the first-stage mixed
ownership reform (Source Change Consulting [2020]) 225
Fig. 13.4 Baiyao Group’s ownership structure
before and after the merger (Source Change
Consulting [2020]) 226
Fig. 13.5 Process of the second-stage mixed ownership reform
(Source Change Consulting [2020]) 227
Fig. 13.6 Structure of the Board of Directors after the two-stage
mixed ownership reform (July 2019) (Source Change
Consulting [2020]) 231
Fig. 13.7 Total Compensation of the management team of Baiyao
Group (Million RMB) (Source Compiled from Yunnan
Baiyao’s Annual Reports [2011–2018]) 234
List of Tables
Table 2.1 Carillion’s nonexecutive directors 19

Table 2.2 Carillion: Key events 24
Table 3.1 Tesco’s Audit Committee 37
Table 3.2 Tesco: Key events 41
Table 4.1 Volkswagen’s deliveries to customers by market (e
thousand units) 48
Table 4.2 Volkswagen’s board of directors 56
Table 4.3 Ranking of automobile manufacturers by vehicle
production 57
Table 4.4 Volkswagen: Key events 63
Table 5.1 Wirecard’s key financial metrics (in e Million,
except for EPS and percentages) 70
Table 5.2 Wirecard: key events 80
Table 6.1 Governance bodies/members involved in CSR
activities at Stora Enso in 2002 85
Table 6.2 Stora Enso: key events 94
Table 7.1 Board of directors of Wells Fargo (2014) 105
Table 7.2 Wells Fargo: Key events 113
Table 8.1 CBA’s financial highlights, 2014–2021 (AU$ million) 118
Table 8.2 Insurance revenue, 2014–2021 (in AU$ million) 119
xix
xx List of Tables
Table 8.3 Discontinued operations in 2018 (in AU$ million) 120

Table 9.1 Key Financial Indicators of Toshiba (2019–2021).
(100 Million Yen) 136
Table 9.2 Toshiba’s financial review before the 2008 financial
crisis 138
Table 9.3 Restatement of financial results (2008–2014Q3)
(100 Million Yen) 140
Table 9.4 Adjustments for revenue and profit before tax
under the percentage of completion method (Unit:
100 Million Yen) 142
Table 9.5 Profit and loss adjustments involved in Toshiba’s PC
business (Unit: 100 Million Yen) 144
Table 9.6 Profit and loss adjustments related to PC parts
transactions (Unit: 100 Million Yen) 146
Table 9.7 Toshiba’s board members and their positions 146
Table 9.8 Toshiba’s executive compensation (Unit: 100 Million
Yen) 151
Table 10.1 Development of GOME’s proxy contest 163
Table 10.2 GOME’s board of directors 166
Table 11.1 Alibaba’s ownership structure after the first three
rounds of financing 184
Table 11.2 Alibaba’s shareholder structure after the fourth round
of financing 185
Table 11.3 Alibaba’s voting rights in October 2010 186
Table 11.4 Change in Alibaba’s equity concentration 190
Table 12.1 LKK: Key events 202
Table 12.2 Information about the LKK business 206
Table 13.1 Performance before and after the two-stage mixed
ownership reform 228
Table 13.2 Change in ownership before and after the two-stage
mixed ownership reform 229
Table 13.3 Supervisory board of Baiyao Group after the reform 231
Table 13.4 Baiyao Group’s management team after the reform 232
Table 13.5 Compensation of top executives of Baiyao Group
and Fosun Pharma 233
Table 13.6 Yunnan Baiyao Group: key events 237
1
Introduction
Corporate governance has quickly become a topic of interest over the last
two decades, particularly since the collapse of Enron in 2001 and the
financial problems faced by companies in various countries during the
2008 subprime mortgage crisis, especially in the US and the UK. These
cases of corporate collapse have had an adverse effect on investors and an
economic impact on the local and international communities in which
the failed companies operated. What were the causes of these collapses?
What can be done to prevent such collapses from happening again?
How can investor confidence be restored? The answers to these questions
are all linked to corporate governance. Effective corporate governance
can prevent such events from happening again and restore investor
confidence by improving corporate accountability and implementing
responsible and efficient management.
The development of corporate governance has attracted the atten-
tion of governments, nonprofit organisations, industry and academia.
The last 20 years have seen the continued development of corporate
governance codes and principles by governments in individual coun-
tries, such as the Cadbury Report (Cadbury, 1992) and the Sarbanes–
Oxley Act (2002), and by international nongovernmental organisations,
© The Author(s), under exclusive license to Springer Nature 1
J. J. Chen, International Cases of Corporate Governance,
https://doi.org/10.1007/978-981-19-3238-0_1
2 J. J. Chen
such as the OECD Principles of Corporate Governance set by the

Organisation for Economic Co-operation and Development (OECD)
(OECD, 1999, 2009, 2015) and the International Corporate Gover-
nance Network (ICGN) (ICGN, 2008, 2009, 2010). Regulators in
different countries, such as the Financial Conduct Authority [FCA] and
the Prudential Regulation Authority [PRA]1 and the Financial Reporting
Council (FRC) in the UK, the Securities Exchange Commission (SEC)
and the Public Company Accounting Oversight Board (PCAOB) in the
US and the China Securities Regulatory Committee (CSRC) in China,
have significantly improved the monitoring and regulation of securities
markets in their respective countries and have imposed stricter public
listing requirements, especially since the global financial crisis of 2008.
Their aim is to strengthen external corporate governance mechanisms
to make them more effective. In academia, corporate governance theo-
ries have been established, dominated by agency theory, transaction cost
economics, stakeholder theory and stewardship theory. Many studies
have also been published in top accounting, finance and management
journals with the aim of improving current theories or providing empir-
ical evidence of how corporate governance affects firm operations and
stock markets.
However, despite the considerable attention given to corporate gover-
nance, corporate scandals continue to emerge due to weak corporate
governance, especially scandals related to ownership structure, trans-
parency and disclosure, control and accountability. Furthermore, it is
also argued that the most appropriate form of board structure should
be in place that can prevent such scandals from occurring in the
future. Robust corporate governance mechanisms are important for all
businesses, large and small, private and public. As mentioned, major
corporate collapses have occurred over the last 20 years, such as Baring
Bank and Polly Peck in the 1990s, Enron, WorldCom and Parmalat in
the early 2000s, Lehman Brothers, Northern Rock and AIG in the late
2000s, especially during and after the 2008 global financial crisis, and
Olympus, GOME, Tesco, Volkswagen and Carillion in the 2010s. This
1 The Financial Conduct Authority [FCA] and the Prudential Regulation Authority [PRA]
replaced the Financial Service Authority [FSA] in 2013.
1 Introduction 3
suggests that most national corporate governance guidelines and regula-

tory frameworks and agencies offer a ‘one size fits all’ approach, which
is not effective. This approach may promote good governance, but it
does not guarantee that a company’s governance mechanism will work
effectively and prevent poor management.
This book presents 12 international corporate governance scandals
that occurred in the 2010s, including 5 European cases, 1 American
case, 1 Australian case, 1 Far Eastern case and 4 Chinese cases (including
Hong Kong). They cover a wide range of industries and both public
and private (family) companies. The majority of the cases studied expe-
rienced problems with their corporate governance mechanism, although
not all of them collapsed. This book has three main objectives. First, it
seeks to provide insight into the recurrence of corporate governance fail-
ures. Second, it aims to offer practical guidance for remedying failures of
corporate governance. Third, it intends to provide new and instructive
suggestions for further theoretical and empirical research.
The book is divided into 14 chapters, with this chapter presenting the
introduction to the book, followed by 12 case studies (Chapters 2–13)
and a final chapter (Chapter 14) offering a synthesis of the conclusions.
Chapter 2 discusses the case of Carillion Plc. Carillion is a British
multinational facilities management and construction services company.
Its facilities management services include areas such as hospital main-
tenance and cleaning services, engineering design and project manage-
ment services. Its construction activities cover a wide range of sectors,
including healthcare (such as new hospitals), education, government
(central and local), defence, and commerce. Carillion struggled finan-
cially and filed for bankruptcy on 15 January 2018 due to its inability
to repay its debt, leaving hundreds of projects in doubt and thousands
of private sector workers at risk of losing their jobs and pensions. Several
stakeholder groups were severely affected by the collapse of Carillion,
including (current and former) employees (its pension scheme was also
badly affected); subcontractors, including small firms; other creditors;
and those who use its buildings, such as people awaiting treatment at
the new hospitals whose completion has been delayed.
Chapter 3 discusses the issues arising from the false accounts of Tesco
Plc. In 2017, Tesco, the British multinational grocery and retail giant
4 J. J. Chen
headquartered in England, admitted that it had overstated its 2014 profit

by £326 million. This accounting fraud sent shock waves through various
industries and caused an immediate drop in the market value of Tesco
shares and bonds, estimated at £2 billion. It reveals that Tesco’s corporate
governance failure was one of the key factors that sparked its accounting
scandal.
Chapter 4 addresses the unethical behaviour of Volkswagen, one of
the world’s leading automobile manufacturers and the largest in Europe.
In September 2015, Volkswagen was exposed by the International
Council on Clean Transportation (ICCT), the California Air Resources
Board (CARB) and the US Environmental Protection Agency (EPA) for
its long-term violation of professional ethics and the illegal pollution
behaviour of its management team. Volkswagen agreed to plead guilty
to the emissions charge and pay a US$4.3 billion fine; six Volkswagen
executives were charged on 11 January 2017. The scandal revealed the
ineffective supervision and control management of Volkswagen’s two-tier
board structure, as well as the company’s lack of ethical culture, environ-
mental awareness and corporate social responsibility (CSR). This scandal
shocked the entire auto industry, and Volkswagen’s unethical behaviour
damaged its global brand image.
Chapter 5 addresses the financial scandal of Wirecard AG, a German
financial technology giant. Wirecard filed for insolvency in June 2020
after revealing that e1.9 billion in cash was missing from its balance
sheet. This event followed more than a decade of lies and systematic
fraud, which finally caught up with the company’s senior manage-
ment in 2020. Wirecard’s chief executive officer (CEO) Markus Braun
announced his resignation on 19 June 2020 and was arrested on 23
June on suspicion of false accounting and market manipulation. The
company’s chief operating officer (CFO), Jan Marsalek, disappeared and
remains a fugitive wanted by the German police. Institutional investors
and syndicated lenders experienced huge losses, and people’s confidence
in FinTech investments was hit hard. The media refer to the Wirecard
scandal as the ‘German Enron’.
Chapter 6 examines the relationship between the strategic decision-
making and CSR practice of Stora Enso Plc. Headquartered in Helsinki,
Finland, Stora Enso was established in 1998 through the merger of
1 Introduction 5
the Swedish mining and forestry products company Stora AB and the
Finnish forestry products company Enso Oyj. Stora Enso is a leading
renewable materials company that provides renewable solutions in pack-
aging, biomaterials, wood construction and paper for a wide range of
industries. However, despite its steady progress in sustainable devel-
opment and environmental protection, during the 2012–2014 period,
Stora Enso was accused of human rights and business ethics violations,
including mistreatment of local landowners in China and child labour
in a joint venture company in Pakistan. These ethical issues forced
Stora Enso to adopt a more responsive and more involved corporate
governance approach to CSR communication and behaviour.
Chapter 7 discusses the case of Wells Fargo, an American multi-
national financial services company headquartered in San Francisco,
California. It was the world’s largest commercial bank by market value
in 2015 and ranked 30th in Fortune 500’s 2015 rankings of America’s
largest corporations. However, in September 2016, Wells Fargo was
exposed by the media and legal authorities after an investigation into
the bank’s long-term illegal sales practices. Employees had opened up to
2 million unauthorised accounts without customers’ consent and then
charged fees to unknowing customers. The bank’s aggressive goal setting
was blamed for creating a climate in which employees felt pressured
to engage in unethical sales practices. Government authorities imposed
heavy fines on the company between 2016 and 2018, resulting in the
closure of more than 400 of its approximately 6000 branches by the end
of 2018. Many employees lost their jobs, and the company lost a large
amount of investments due to the loss of trust of investors.
Chapter 8 discusses the case of CommInsure, which is one of
Australia’s largest life insurance companies. CommInsure is an insurance
arm of the Commonwealth Bank of Australia (CBA), the largest bank
in Australia. In March 2016, a whist-leblower at CommInsure disclosed
to the media the unethical behaviour of the company, which had altered
health assessments or medical opinions to avoid life insurance payments
and destroyed client files. CommInsure experienced a significant drop
in its insurance revenue and was classified as a discontinued operation
in 2018. CommInsure was eventually sold to Fuwei in 2018 and to the
Hollard Group in 2021.
6 J. J. Chen
Chapter 9 examines the case of Toshiba, which was founded in Tokyo,

Japan, in 1939 by the merger of the Tokyo Electric Power Company and
the Shibaura Engineering Company. As one of Japan’s giants, Toshiba
was long admired by the public. However, in 2015, an Independent
Investigation Committee discovered that Toshiba had committed finan-
cial fraud, including overstating its net income and false accounting
treatment from 2008 to 2015 induced by unrealistic growth and profit
targets set by the company’s presidents. Toshiba was delisted and was
forced into bankruptcy in 2017.
Chapter 10 discusses the case of GOME, a Chinese household appli-
ance retailer chain and one of the largest household appliance retailers in
mainland China. GOME opened its first store in 1987 and started oper-
ating in different regions in 1999. It was listed on the Hong Kong Stock
Exchange (HKEX) in 2004. In 2010, GOME had more than 1200 stores
in large and medium-sized cities in China, with an annual sales revenue
of 50.9 billion yuan. The fight over GOME’s control rights between the
company’s CEO, Chen Xiao, and its founder, Huang Guangyu, who was
imprisoned in 2008, had a major negative influence on the development
of the company. In particular, GOME’s proxy contest during the late
2000s and early 2010s obstructed its business operations and hindered
its development at the expense of shareholders. Key underlying corpo-
rate governance problems, such as an overpowered chairman of the board
and a lack of independent directors and representatives of institutional
shareholders, contributed to the situation.
Chapters 11–13 examine three cases that differ from the other cases:
Alibaba Group, a well-established Chinese Internet provider; Lee Kum
Kee (LKK), a Hong Kong family business; and Yunnan Baiyao Group
(Baiyao), originally established as a family business but corportised as an
SOE and then publicly listed in the Chinese Stock Market in mainland
China. Alibaba presents a case of using a partnership system to control
the company and raise funds. LKK established a family governance struc-
ture and family constitution to ensure its growth and succession. Finally,
the case of Baiyao illustrates the evolution of ownership structure from a
family business to a state-owned enterprise (SOE) and finally to a public
company.
1 Introduction 7
The Alibaba Group was established in Hangzhou, China, in 1999 by

Ma Yun (internationally known as Jack Ma). It was listed on HKEX
in November 2007 and the New York Stock Exchange (NYSE) in
September 2014. Core efforts in e-commerce, cloud computing, digital
media and entertainment and innovation constitute Alibaba’s business.
Furthermore, Ant Group, an unconsolidated related party and the
parent company of Alipay, provides payment and financial services to
Alibaba users and merchants. The gross merchandise volume (GMV)
transacted on Alibaba for fiscal year 2021 was RMB 8119 billion
(US$1280 billion), with an annual number of active consumers reaching
a milestone of more than 1 billion, including 891 million consumers
across China and approximately 240 million consumers outside China
(Alibaba Group, 2021). A distinctive feature of Alibaba’s ownership is
the partnership system adopted by Jack Ma to control the company and
raise funds. This partnership system has brought corporate governance
merits to Alibaba, such as a division of labour between management and
external investors, shared value and a shared corporate culture among
partners, thereby enhancing team cohesion and focusing on common
goals for Alibaba’s long-term development.
LKK was founded in 1888 and started as a small manufacturer of
oyster sauce. The enormous expansion and diversification of the business
in the 1980s and 1990s and the increasing complexity of the multi-
generational family tree in the 2000s led the Lee family to implement
a set of institutional and corporate governance measures for the busi-
ness’s growth and succession. The reforms included the development
of a family governance structure and the creation of a family constitu-
tion. This system is very different from a traditional family governance
structure, which depends on paternal authority. It puts more emphasis
on creating communication channels and building trust between family
members. This governance mechanism has laid a solid foundation for the
future development of the company and ownership succession for future
generations. In 2018, the LKK Group became the world’s largest manu-
facturer of oyster sauce. Forbes’ Hong Kong’s Richest 2021 revealed that
LKK’s current chairman, Man Tat, was among the top 10 richest people
in Hong Kong, with the Lee family’s wealth reaching US$17.4 billion
(Simpson, 2021).
8 J. J. Chen
Yunnan Baiyao was first established as a family business in 1933 in

Yunnan Province, China, and it became an SOE in the 1960s before
becoming a public company with the state as its majority shareholder
in 1993. This case examines each stage of ownership reform and the
problems associated with its status as an SOE and state-controlled
listed company. In particular, Yunnan Baiyao underwent a two-stage
mixed ownership reform between 2016 and 2019. This reform reduced
state control by sharing control with institutional investors. The shift
towards shared ownership triggered major changes in corporate gover-
nance, including an increase in the number of private representatives
on the board, the introduction of a professional management system
and the establishment of an incentive-based compensation system. These
changes provided a strong driving force for the continuous improvement
of Yunnan Baiyao’s performance.
Chapter 14 concludes the book by bringing together the arguments
and issues raised in the 12 cases.
References
Alibaba Group. (2021). 2021 Annual report. Alibaba Group. https://www.ali
babagroup.com/reports/fy2021/ar/ebook/en/index.html
Cadbury, A. (1992). Corporate governance overview. World Bank Report.
International Corporate Governance Network. (2008). Statement on the global
financial crisis. ICGN.
International Corporate Governance Network. (2009). Second statement on the
global financial crisis. ICGN.
International Finance Corporation. (2010). Navigating through crises: A hand-
book for boards. IFC.
Organisation for Economic Co-operation and Development. (1999). Principles
of corporate governance. OECD.
Organisation for Economic Co-operation and Development. (2009). Corporate
governance lessons from the financial crisis. OECD.
Organisation for Economic Co-operation and Development. (2015).
G20/OECD principles of corporate governance. OECD.
1 Introduction 9
Sarbanes–Oxley Act. (2002). Sarbanes-Oxley Compliance Professionals Associ-

ation. Available at https://sarbanes-oxley-act.com
Simpson, A. (2021). Hong Kong’s Richest 2021: 10 Billionaires who topped
the Forbes list. Tatler Asia. https://www.tatlerasia.com/power-purpose/wea
lth/hongkong-billionaires-2021-forbes
2
Carillion PLC
On 15 January 2018, the UK construction and services company Caril-

lion was legally forced to file for compulsory liquidation when banks
refused to provide additional financial support to pay off the company’s
debt, leaving hundreds of projects in doubt and thousands of private
sector workers at risk.
Carillion’s financial problems first became public on 10 July 2017,1
when the company issued its first profit warning in its trading update for
the first half of 2017 and announced a contract provision of £845 million
(including £375 million for the UK and £450 million for overseas
markets). In addition, it suspended its 2017 dividends to shareholders
to immediately reduce the level of net debt (Clarfelt, 2017). Mean-
while, Richard Howson stepped down as CEO and was replaced by Keith
Cochrane as an interim CEO in 2017. This series of bad news led to an
immediate drop in the market value of Carillion shares of almost 40%
(see Fig. 2.1).
1 See the Trading Updates in 2017. https://www.investegate.co.uk/carillion-plc--clln-/rns/trading-

statement/201707100700105229K/.

https://doi.org/10.1007/978-981-19-3238-0_2
12
J. J. Chen
Fig. 2.1 Carillion’s Share Price, February 2017–January 2018 ( Source Datastream)
2 Carillion PLC 13
According to Carillion’s annual report in 2016, Carillion was the

UK’s second largest construction and services company at its peak, with
43,000 employees worldwide and over 18,000 in the UK. The collapse
of Carillion sent shock waves through the industry, extending all the way
to the government, as the company held 420 UK public sector contracts
(Hopper, 2019), including the construction of hospitals, highways and
railways, the maintenance of army houses and the cleaning of schools
and prisons.
John McDonough
Carillion was founded in July 1999, following a split from Tarmac, the
UK construction and aggregates group established in 1903. The new
company aimed to focus on construction and facility management. John
McDonough was appointed CEO in 2000.2 He started his career at
Massey Ferguson in 1972 and joined Johnson Controls in 1991 as UK
Managing Director of Automotive Systems Group (ASG). His career
progressed well, and he became Vice President of Integrated Facilities
Management, Europe, the Middle East and Africa.
The founding of Carillion coincided with difficult times for the UK
construction industry. John McDonough aimed to develop activities
related to private finance, infrastructure management and integrated
facilities management while developing Carillion’s construction activi-
ties on a selective basis. Specifically, Carillion’s expansion was primarily
achieved through a series of acquisitions. The acquisition of competi-
tors such as Mowlem3 in 2006, Alfred McAlpine4 in 2008 and the
heating and renewable energy provider Eaga in 2011 limited competition
for major contracts. Therefore, in the early 2000s, Carillion expanded
rapidly, and its revenue peaked between 2007 and 2009, making the
2 Taken from Carillion’s annual report in 2000.

3 Movlem plc was one of the largest constructions and civil engineering companies in the UK.
It was bought by Carillion in February 2006.
4 Alfred McAlpine plc was a British construction firm headquartered in Hooton, Cheshire. It
specialised in road building, and constructed over 10% of Britain’s motorways. It was acquired
by Carillion in 2008.
14 J. J. Chen
company the second largest construction and services company in the

UK.
In 2014, Carillion attempted to become the UK’s largest construc-
tion company by entering into a merger deal with the country’s largest
existing construction company, Balfour Beatty. The proposed merger
involved an offer of £3 billion (Hoang, 2014). After several rounds
of negotiations, Balfour Beatty’s board of directors rejected Carillion’s
offer, arguing that the deal was not in the best interests of its share-
holders (Rankin, 2014). Further negotiations should have ensued after
Balfour Beatty’s rejection, but Carillion announced that it would no
longer pursue a merger with Balfour Beatty and rejected the idea of a
hostile takeover.
Carillion’s Initial Problems

Acquisition and Debt
Carillion’s problems can be attributed to its expansion strategy. Specif-

ically, most of its acquisitions were financed primarily by debt, and
the companies it acquired, such as Mowlem, McAlpine and Eaga, all
suffered losses after the takeover. Carillion’s rising debt and lack of
growth prompted investors to hold short positions or bet against Caril-
lion shares, reflected in the steady increase in short positions on Carillion
shares after 2012.
Excessive Outsourcing
In the 1990s, a number of economic and structural changes with a

profound impact on the UK construction industry, in particular the
recession of the early 1990s, led to an imbalance between supply and
demand in the industry. Specifically, too many firms were competing
for too few contracts, so large firms started to adopt the lowest cost bid
strategy and shifted the associated risks to their subcontractors to stay in
the market.
2 Carillion PLC 15
Carillion’s overreliance on subcontracting allowed the company to

manage less capital, such as fixed assets and working capital for wages and
materials, as the prime contractor. In this way, Carillion could increase its
return on capital, with more revenue and less capital at stake, presenting
a prosperous image to its shareholders. However, this increased return
on capital had a detrimental effect, as Carillion’s reduced capital was
insufficient to cover unforeseen risks arising from the subcontracted
work.
Carillion’s Corporate Governance Issues

Carillion’s huge debt and engagement in low-margin, unprofitable
projects were directly responsible for its collapse. Carillion purposely
secured low-cost jobs that barely covered its total cost and then subcon-
tracted a substantial portion of the work to subcontractors to give the
impression of a growing business with good prospects, hiding its cash
flow problem with upfront payments. However, this strategy created
inherent risk that its board of directors, investors and auditors seem to
have been oblivious to. Moreover, the UK’s corporate governance code
is based on shareholder primacy,5 and Carillion’s directors decided to
increase dividends every year, with investors receiving high dividends and
directors receiving high bonuses. From 2012 to 2016, Carillion’s oper-
ating cash flow was £313 million, and the total amount of dividends
paid was £376 million (Mor, 2018). It is clear that Carillion used debt to
pay dividends and failed to create a board environment in which execu-
tive decision-making was carefully scrutinised. As a result, the company’s
directors drove Carillion to the point of collapse. Further investigation
by the Parliamentary Select Committee in 2018 revealed that Carillion’s
management lacked the basic financial knowledge required to do their
job well and that the board was either negligently ignorant of Carillion’s
corrupt culture or complicit in it. As stated in the government report on
5 Shareholder primacy is a shareholder-centric form of corporate governance that focuses on

maximising the value of shareholders before considering the interests of other parties.
16 J. J. Chen
Carillion,6 ‘Carillion’s board are both responsible and culpable for the
company’s failure’.
Executive Remuneration
Despite Carillion’s financial issues, the board of directors decided to

increase dividends each year since 1999 to camouflage the company’s
low investment levels, declining cash flow, rising debt and growing
pension deficit and thereby create an image of a healthy and successful
company. Figure 2.2 shows Carillion’s dividend scheme since 1999.
Carillion’s dividend scheme appears to have little to do with its volatile
performance.
Nevertheless, the upwards trend in dividend payouts raised serious
concerns among institutional investors such as Kiltearn and Standard
Life Aberdeen (SLA). Investors began to withdraw their investment after
realising that the continued increase in dividends meant that Carillion
was neglecting its rising debt levels. SLA wrote a letter to Carillion
explaining that the decision to divest was due to concerns over a
number of issues, including strategy, financial management and corpo-
rate governance issues (Shoaib, 2018). SLA’s main concerns were as
follows.7
● High levels of on- and off-balance sheet debt were unlikely to be

reduced in the short term because of acquisitions and high dividends.
● A widening pension deficit (from £317 million to £663 million in
2016).
● Downwards pressure on earnings despite revenue growth thanks to
narrow margins on new businesses.
● Low cash generation.
● Unwillingness of the board of directors to change the strategic direc-
tion of the company.
6See https://publications.parliament.uk/pa/cm201719/cmselect/cmworpen/769/76903.htm.
7See the letter by Standard Life Aberdeen (SLA), https://www.parliament.uk/globalassets/doc
uments/commons-committees/work-and-pensions/Carillion/Letter-from-Standard-Life-to-the-
Chairs-regarding-Carillion-2-February-2018.pdf/.
Fig. 2.2 Carillion dividend pay-out, December 1999–December 2016 (Source Datastream)
2 Carillion PLC
17
18 J. J. Chen
Despite growing shareholder concerns about Carillion’s executive

compensation, the Remuneration Committee continuously sought to
increase bonuses while weakening clawback provisions – an arrangement
for recovering executive rewards in the event of poor performance after
payment of a bonus. ‘Carillion’s directors took huge salaries and bonuses
which, for all their professed contrition in evidence before us, they show
no sign of relinquishing’ (Select Committee, 2018).
Consider, for example, Richard Howson, who was Carillion’s CEO
from 2012 to July 2017. His annual salary and bonus in 2016 amounted
to £1.5 million, including a cash bonus of £122,612 and £231,000 in
pension contributions (Partington, 2018). Rather than aligning with the
interests of shareholders, Carillion increased the maximum bonus level
to 150% of its salary in 2016, although it was forced to lower that level
to 100% after the shareholders’ revolt (Partington, 2018).
Nonexecutive Directors (NEDs)
The collapse of Carillion also raised concerns about the duties of nonex-
ecutive directors (NEDs), as they play a crucial role on the board of
directors to protect a company and its stakeholders. Although there is
no doubt that Carillion’s NEDs were market experts, they all served
on the five subcommittees as reported in Carillion’s 2015 annual
report (see Table 2.1): the Remuneration Committee, the Nomina-
tion Committee, the Business Integrity Committee, the Sustainability
Committee and the Audit Committee.
However, Carillion’s NEDs also played important roles in other
companies, making it difficult for them to devote enough time to
fulfilling their responsibilities on each committee. For instance, Alison
Horner, Chair of the Remuneration Committee, was also Chief People
Officer at Tesco. Andrew Dougal, Chair of the Audit Committee, was
also an NED for several firms, such as Victrex Plc (2015–2018), Creston
Plc (2006–2015) and Premier Farnell Plc (2006–2015). Ceri Powell,
Chair of the Sustainability committee, was also the Vice President of
Global Exploration for Royal Dutch Shell. Finally, Keith Cochrane
2 Carillion PLC 19
Table 2.1 Carillion’s nonexecutive directors

Name of NEDs Other Roles
Alison Horner Pensions expert, Chief People of Tesco. Appointed from
December 2013. Chair in the remuneration committee
Andrew Dougal Scottish Chartered Accountant, former chief executive of
Hanson plc. Appointed from October 2011. Chair in the
audit committee
Ceri Powell Vice-President of Royal Dutch Shell. Appointed from April
2014. Serve on the audit, remuneration, nomination and
business committees, and chair in the sustainability
committee
Keith Cochrane Scottish Chartered Accountant, former chief executive of
the Weir Group and the Stagecoach Group. Appointed
from July 2015 to July 2017, then became the CEO
Source Carillion’s Annual report in 2015
was the former CEO of Weir Group and Stagecoach Group and was
appointed as an interim CEO of Carillion in July 2017.
NEDs are vital to a company because they are hired to challenge the
company’s risk management and business strategies and scrutinise reck-
less executives. They bring objective and independent perspectives and
experiences through careers in different business environments. However,
there is a fundamental paradox in the position of NEDs: if they have too
many responsibilities in a firm, they will become part of the management
team and find it difficult to provide the desired independent opinions
and monitoring. However, if they have too few responsibilities, they may
exercise insufficient control to challenge the thinking of management.
Considering that all NEDs occupied important positions in other
companies, Murdo Murchison, Chairman of Kiltearn Partners, met
Philip Green in 2014 and 2015 and doubted that Carillion’s NEDs exer-
cised effective control over the top management team. He concluded
that Carillion’s NEDs could not provide convincing evidence of their
obligations to challenge the management team.
20 J. J. Chen
Carillion’s Auditors
External Auditor
KPMG was first appointed Carillion’s external auditor in 1999. The

firm audited Carillion’s 2016 accounts, the last to be issued before
its collapse. Notably, KPMG raised concerns about Carillion’s risk of
material misstatement, including the following:
● Recognition of contract revenue

● A lease agreement of £200 million
● The value of goodwill
The items cited above by KPMG were major concerns for Caril-
lion; however, KPMG made the wrong decision to accept Carillion’s
accounting treatment on revenue recognition, which was later found to
be misstated. Peter Meehan, who led Carillion’s external audit by KPMG,
said that KPMG had previously visited the construction sites in the UK,
the Middle East and Canada and inspected progress, concluding that
KPMG had taken adequate measures to deal with revenue recognition.
However, four months after signing the audit report, KPMG was
hired to conduct a full review of Carillion’s construction projects and
concluded that they were overvalued by £845 million, which contra-
dicted the information contained in the audit report. From the above
analysis, we can see that KPMG failed to identify Carillion’s consoli-
dated financial statements and therefore its real situation. As a result,
Carillion hinted that it could file a claim worth hundreds of millions of
pounds against KPMG (Fenn, 2020). According to the report published
by AccountancyAge in 2018, KPMG received £29 million in audit fees
from Carillion over 19 years,8 which led Rachel Reeves, Chair of the
Business, Energy, and Industrial Strategy (BEIS) Committee, to suggest
8See https://www.accountancyage.com/2018/05/16/auditors-in-the-dock-over-carillion-as-rep
ort-calls-for-big-four-break-up/.
2 Carillion PLC 21
that the audit ‘appears to be a colossal waste of time and money, fit only
to provide false assurance to investors, workers, and the public’.9
Internal Auditor
Carillion’s internal auditor was another Big Four firm, Deloitte, hired
to provide independent assurance of the efficacy and functioning of the
company’s governance, risk management and internal control processes
since 2009. According to a report published by AccountancyAge,
Deloitte received £11 million audit fees in total. Michael Jones, an inter-
national audit partner at Deloitte, was also heavily criticised for the
construction giant’s downfall. When asked whether Deloitte should also
take some responsibility for Carillion’s collapse, Jones said it was not
the auditor’s job to become involved in strategic decision-making and
that Deloitte was not responsible for verifying the figures presented by
Carillion (Marriage, 2018). However, the report of the Select Committee
concluded that Deloitte had failed in its risk management and financial
control role and had no knowledge of major issues with the company,
such as the contract disputes in Qatar:
Although Deloitte made a number of recommendations in its internal audit

reports, it rarely identified them as high priority. Only 15 of 309 recommen-
dations between 2012 and 2016 were deemed as such. Likewise, across 61
internal audit reports in 2015 and 2016, only a single report in 2016 found
inadequate controls. They were responsible for advising on financial controls
such as debt recovery but were unaware of the dispute with Msheireb over who
owed whom £200 million. They also did not appear to have expressed concern
over the high risk to the business of a small number of contracts not being met.
Deloitte was responsible for advising Carillion’s board on risk management
and financial controls, failings in the business that proved terminal. Deloitte
were either unable to identify effectively to the board the risks associated with
their business practices, unwilling to do so, or too readily ignored them. (Select
Committee, 2018)
9See the report released by Commons Select Committee in 2018. https://publications.parlia

ment.uk/pa/cm201719/cmselect/cmworpen/769/769.pdf/.
22 J. J. Chen
After this series of scandals, auditors and the audit profession and
the regulator were in the line of fire. Specifically, KPMG and Deloitte
were lambasted for missing red flags at Carillion, and the UK’s Financial
Reporting Council (FRC) was criticised for failing to address concerns
over the construction giant’s accounts.10
The Cost of Carillion’s Collapse

As the UK’s second largest construction company, the collapse of Caril-
lion inevitably negatively affected the country’s economy. In terms
of cost, the collapse created nearly £1 billion in debt and over
£500 million in pension deficit, leaving approximately 30,000 subcon-
tractors unpaid (Colley, 2018). According to Carillion’s 2016 annual
report, Carillion had approximately 43,000 employees worldwide,
including over 18,000 employees in the UK. Although the govern-
ment announced that employees who worked on public projects, such as
Midland Metropolitan University Hospital and Royal Liverpool Univer-
sity Hospital, would be protected, this essentially involved the transfer of
these workers to other firms in the industry; as a result, approximately
400 backoffice workers employed at the Wolverhampton headquarters
risked losing their jobs.
Carillion’s collapse also affected other firms. For example, the work of
subcontractors on public and private contracts was suspended until they
were assured of being paid. The construction industry in the UK consists
of a small number of large firms (primarily Balfour Beatty, Kier Group,
Interserve, Morgan Sinall and Amey) and a large number of contractors.
Carillion treated its suppliers as a source of funding prior to its collapse.
It relied heavily on its suppliers to provide materials, services and support
across its contracts, but it treated them with contempt. Late payments,
quibbling over invoices and extended delays across reporting periods
were common practices (Selected Committee, 2018). Some suppliers
reported that they had to wait over 120 days to be paid, although they
could be paid in 45 days if they agreed to take a cut for the privilege.
10 See https://www.ft.lk/Financial-Services/FRC-The-watchdog-that-barked-too-late/42-658866.
2 Carillion PLC 23
Two months after Carillion’s collapse, the engineering company Vaughan

Engineering filed for administration in March 2018. Its contractors were
owed £650,000 for projects already completed for Carillion, and the
company had been hired for £1.1 million of additional work in the first
three months of 2018. Vaughan Engineering was not the only firm that
struggled after Carillion’s collapse. More than 700 Carillion-related local
firms filed for bankruptcy in the first quarter of 2018, which represents
an increase of 20% compared with 2017.
As Carillion relied on loans, the company had over £1 billion in
bad debt. By the end of the first quarter of 2018, Santander declared
£203 million in bad debt related to Carillion and admitted that approx-
imately 21% of its drop in profits was due to Carillion’s collapse.
Likewise, Lloyds was hit by the collapse, with impairment charges of
£270 million and a 5% drop in profits.
Lessons Learnt from Carillion

The problems revealed by the collapse of Carillion were not new. The
company’s expansion strategy, based on huge debt levels and low-margin,
unprofitable projects, was the main reason for its collapse. As Amra
Balic, Managing Director of Blackrock, argued, Carillion’s board of
directors focused more on remunerating its executives and increasing
dividends than on running the business, which also contributed to its
collapse (Selected Committee, 2018). Moreover, Carillion’s NEDs did
not effectively oversee the management team, raising questions about
their independence.
Carillion’s aggressive accounting was also not discovered by its internal
or external auditors when they signed their audit reports. KPMG
(external auditor) claimed that Carillion’s 2016 accounts presented a ‘true
and fair’ picture. This raises the question of how accountants understood
the words ‘true’ and ‘fair’ given that the company’s assets were misstated
by £845 million four months after KPMG signed its audit report (see
Table 2.2). To avoid failure, it is necessary to reassess the purpose of
an audit because investors (not only current shareholders), employees,
24 J. J. Chen
Table 2.2 Carillion: Key events

Year Description
1999 Carillion is established after splitting from Tarmac
2000 John McDonough is appointed CEO
2005 Acquisition of Planned Maintenance Group Ltd. (PMG)
February 2006 Acquisition of Mowlem Plc for £350 million
April 2007 Richard Adam is appointed to the board of directors as
Finance Director
February 2008 Acquisition of Alfred McAlpine for £565 million
April 2011 Acquisition of Eaga (renamed Carillion Energy Services)
for £298 million
January 2012 Richard Howson is appointed CEO
December 2016 Richard Adam retires as Finance Director
January 2017 Zafar Khan is appointed to the board of directors as
Finance Director
March 2017 Carillion’s 2016 annual report and accounts are signed
and published. Richard Adam sells his entire existing
shareholding for £543,000
May 2017 KPMG reviews Carillion’s accounting treatment and
concludes that the company’s assets have been
misclassified but that there has been no misstatement
of revenue
June 2017 Final dividends for 2016 are paid for a value of £55
million
9 July 2017 Richard Howson steps down as CEO. He is replaced by
Keith Cochrane as interim CEO; the board of directors
accepts the inclusion of a contract provision of £845
million in their interim 2017 financial results
10 July 2017 Carillion announces the contract provision of £845
million and a full review of the Group’s business and
capital structure
29 September 2017 The half-year results include a further write-down of
£200 million
17 November 2017 Third profit warning issued, alongside the
announcement that the company is heading towards
a breach of its debt covenants
14 January 2018 The board of directors concludes that the company is
insolvent
15 January 2018 The directors present a petition to the Court for the
company’s compulsory winding up because of its
inability to pay its debt
suppliers, subcontractors and the general public have a legitimate interest

in being fully informed of a company’s true financial position. A close
relationship between management and auditors may compromise the
2 Carillion PLC 25
independence of auditors; therefore, major reform is needed to strike a

balance between auditors’ familiarity with the company they are auditing
and their ability to remain independent (McLoughlin, 2019).
Discussion Questions
1. Did Carillion expect too much from its NEDs before the collapse?
2. Discuss Carillion’s business model.
3. Since Arthur Andersen’s implosion in 2002, the Big Four accounting
firms (PwC, KPMG, Deloitte and Ernst & Young) have dominated
audits of major UK companies. Do you think that the economy needs
a competitive market for auditing and professional services to generate
trust for the public?
4. How would you divide the blame between the parties involved in
Carillion’s collapse? Should we blame Carillion’s board of directors
rather than KPMG and Deloitte and their advisers?
5. Discuss the effectiveness of Carillion’s Audit Committee.
6. Discuss the role of Carillion’s NEDs before the collapse.
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the pension deficit. Accountancy Age. www.accountancyage.com/2018/02/
26/carillion-inquiry-missed-red-lights-aggressive-accounting-pension-def
icit/
Selected Committee. (2018). House of Commons—Carillion. P. 24.
3
Tesco Plc
Tesco Plc, the British multinational grocery and retail giant headquar-
tered in England, announced that its profits for the six months through
24 August 2014 were expected to be approximately £1.1 billion. On
22 September 2014, Tesco issued a correction stating that its previous
announcement had overstated its profits by approximately £250 million,
which was later revised to £326 million (Martin, 2016). This announce-
ment sent shock waves through various industries and caused an imme-
diate drop in the market value of Tesco’s shares and bonds estimated at
£2 billion (Bergin, 2014). In addition, government authorities such as
the Financial Reporting Council (FRC), the Serious Fraud Office (SFO)
and the Financial Conduct Authority (FCA) launched a full investigation
into Tesco’s false accounts.
In March 2017, Tesco agreed with the SFO to pay a fine of
£129 million to overstate its profits in 2014. In addition, the retailer
entered into a Deferred Prosecution Agreement (DPA) covering criminal
liability. Under the terms of the DPA, Tesco would not be prosecuted for
activities related to the false accounting charge if it fulfilled certain condi-
tions as to its future behaviour. Furthermore, Tesco agreed with the FCA
to compensate investors who had purchased Tesco’s securities between 29
https://doi.org/10.1007/978-981-19-3238-0_3
28 J. J. Chen
August 2017 (when the false interim accounts were published) and 22
September 2017 (when the correction was published) for a total amount
payable of £85 million to avoid further sanctions. To cover the penalty
(i.e., the fine of £129 million and £85 million for shareholder compen-
sation), the Tesco Group took an exceptional charge of £235 million in
fiscal year 2017 (Ruddick & Kollewe, 2017).
Tesco’s corporate governance failure was one of the key factors that
sparked its accounting scandal. Specifically, Tesco’s financial statements
were found to have significantly misrepresented its profits and assets over
a period of at least two years. Therefore, it is interesting to examine which
part of Tesco’s corporate governance system holds the most responsibility:
its board of directors, its audit committee or its auditors.
A Brief History of Tesco

Jack Cohen left the Royal Flying Corp at the end of the Great War and
began selling surplus groceries at a stall in London’s East End in 1919.
The Tesco brand did not appear until 1924, when Jack Cohen bought
a shipment of tea from a trader called TE Stockwell. Jack Cohen then
repackaged it in small bags as his first own-brand product, with a new
label created from the supplier’s initials (TES) and the first two letters of
Jack’s surname (CO), forming the brand name Tesco.1 In 1929, the first
Tesco store opened in Burnt Oak, Edgware, north London, which sold
high dry goods and its own-brand product, Tesco Tea.
In the 1930s, Jack Cohen built a modern food warehouse and
new headquarters in Angel Road, Edmonton, north London, and then
expanded across London and neighbouring counties. In 1947, Tesco
Stores (Holdings) went public at a share price of 25 pence. Tesco’s rapid
expansion began in the 1950s, when the company purchased over 500
new stores across the UK.
Tesco’s global expansion started in the early 1990s, with operations in
11 countries around the world. Its rapid growth and the introduction
of the Tesco Clubcard in 1995 overtook Sainsbury’s in terms of market
1 See https://tesco-bst.com/tescoshistory/.
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series of operations or accidents that should deprive the earth
entirely of its forests would leave the atmosphere without a source
for its regeneration.
The use of the foliage of trees in renovating the atmosphere is not,
I believe, denied by any man of science. This theory has been proved
to be true by experiments in vital chemistry. The same chemical
appropriation of gases and transpiration of oxygen is performed by
all classes of vegetables; but any work in the economy of nature
assigned to vegetation is the most effectually accomplished by trees.
The property of foliage that requires carbonic-acid gas for its
breathing purposes, and causes it to give out oxygen, is of vital
importance; and it is hardly to be doubted that a close room well
lighted by the sun would sustain its healthful atmosphere a longer
time, if it were filled with plants in leaf, but not in flower, and
occupied by breathing animals, than if the animals occupied it
without the plants.
But there is another function performed by the foliage of trees and
herbs in which no chemical process is involved,—that of exhaling
moisture into the atmosphere after it has been absorbed by the roots.
Hence the humidity of this element is greatly dependent on foliage. A
few simple experiments will show how much more rapidly and
abundantly this evaporation takes place when the soil is covered with
growing plants than when the surface is bare. Take two teacups of
equal size and fill them with water. Place them on a table, and insert
into one of them cuttings of growing plants with their leaves, and let
the other stand with water only. In a few hours the water will
disappear from the cup containing the plants, while that in the other
cup will not be sensibly diminished. Indeed, there is reason to believe
that gallons of water might be evaporated into the air by keeping the
cup containing the cuttings always full, before the single gill
contained in the other cup would disappear. If a few cuttings will
evaporate a half-pint of water in twelve hours, we can imagine the
vast quantity constantly exhaled into the atmosphere by a single tree.
The largest steam-boiler in use, kept constantly boiling, would not
probably evaporate more water than one large elm in the same time.
We may judge, from our experiment with the cuttings, that a vastly
greater proportion of moisture would be exhaled into the atmosphere
from any given surface of ground when covered with vegetation, than
from the same amount of uncovered surface, or even of standing
water. Plants are indeed the most important existing agents of nature
for conveying the moisture of the earth into the air. The quantity of
transpiring foliage from a dense assemblage of trees must be
immense. The evaporation of water from the vast ocean itself is
probably small compared with that from the land which it surrounds.
And there is reason to believe that the water evaporated from the
ocean would not produce rain enough to sustain vegetation, if by any
accident every continent and island were deprived of its trees. The
whole earth would soon become a desert. I would remark, in this
place, that trees are the agents by which the superfluous waters of
the ocean, as they are supplied by rivers emptying into it, are
restored to the atmosphere and thence again to the surface of the
earth. Trees pump up from great depths the waters as they ooze into
the soil from millions of subterranean ducts ramifying in all
directions from the bed of the ocean.
LEAF OF HOLLY.
THE HOLLY.
As the hawthorn is consecrated to vernal festivities, the Holly is

sacred to those of winter, and the yew to those attending the burial of
the dead. In Europe, from the earliest ages, the Holly has been
employed for the decoration of churches during Christmas. The poets
have made it a symbol of forethought, because its leaves are saved
from the browsing of animals by the thorns that surround them; and
the berries, concealed by its prickly foliage, are preserved for the use
of the winter birds. The Holly is found only in the southern parts of
New England. In Connecticut it is common, and in the Middle and
Southern States it is a tree of third magnitude. The leaves of the
Holly are slightly sinuate or scalloped, and furnished at each point
with short spines. It not only retains its foliage in the winter, but it
loses none of that brilliancy of verdure that distinguishes it at other
seasons.
There seems to be no very notable difference between the
American and European Holly. Selby says of the latter: “The size
which the Holly frequently attains in a state of nature, as well as
when under cultivation, its beauty and importance in forest and
woodland scenery, either as a secondary tree or merely as an
underwood shrub, justify our placing it among the British forest trees
of the second rank.” He adds: “As an ornamental evergreen, whether
in the form of a tree or as an undergrowth, the Holly is one of the
most beautiful we possess. The deep green glittering foliage contrasts
admirably with the rich coral hue of its berries.”
THE SPIRÆA.
In the month of July the wooded pastures are variegated with little
groups of shrubbery full of delicate white blossoms in compound
pyramidal clusters, attracting more attention from a certain downy
softness in their appearance than from their beauty. These plants
have received the name of Spiræa from the spiry arrangement of
their flowers. The larger species among our wild plants, commonly
known as the Meadow-Sweet, in some places as Bridewort, is very
frequent on little tussocks and elevations rising out of wet soil. It is a
slender branching shrub, bearing a profusion of small, finely serrate
and elegant leaves, extending down almost to the roots, and a
compound panicle of white impurpled flowers at the ends of the
branches. It is well known to all who are familiar with the wood-
scenery of New England, and is seen growing abundantly in
whortleberry pastures, in company with the small kalmia and the
swamp rose. It is a very free bloomer, lasting from June till
September, often blending a few solitary spikes of delicate flowers
with the tinted foliage of autumn.
THE HARDHACK.
The flowers of the purple Spiræa, or Hardhack, are conspicuous by
roadsides, especially where they pass over wet grounds. It delights in
the borders of rustic wood-paths, in lanes that conduct from the
enclosures of some farm cottage to the pasture, growing all along
under the loose stone-wall, where its crimson spikes may be seen
waving in the wind with the nodding plumes of the golden-rod and
the blue spikes of the vervain, well known as the “Simpler’s Joy.” The
Hardhack affords no less pleasure to the simpler, who has used its
flowers from immemorial time as an astringent anodyne. There is no
beauty in any part of this plant, except its pale crimson flowers,
which are always partially faded at the extremity or unopened at the
base, so that a perfect cluster cannot be found. The leaves are of a
pale imperfect green on the upper surface and almost white beneath,
and without any beauty. The uprightness of this plant, and the spiry
form of its floral clusters, has gained it the name of “Steeplebush,”
from our church-going ancestors.
THE HAWTHORN.
Few trees have received a greater tribute of praise from poets and
poetical writers than the Hawthorn, which in England especially is
consecrated to the pastoral muse and to all lovers of rural life. The
Hawthorn is also a tree of classical celebrity. Its flowers and
branches were used by the ancient Greeks at wedding festivities, and
laid upon the altar of Hymen in the floral games of May, with which
from the earliest times it has been associated. In England it is almost
as celebrated as the rose, and constitutes the most admired hedge
plant of that country. It is, indeed, the beauty of this shrub that
forms the chief attraction of the English hedge-rows, which are not
generally clipped, but allowed to run up and bear flowers. These are
the principal beauties of the plant; for its leaves are neither luxuriant
nor flowing.
The Hawthorn in this country is not associated with hedge-rows,
which with us are only matters of pride and fancy, not of necessity,
and their formal clipping causes them to resemble nature only as a
wooden post resembles a tree. Our admiration of the Hawthorn,
therefore, comes from a pleasant tradition derived from England,
through the literature of that country, where it is known by the name
of May-bush, from its connection with the floral festivities of May.
The May-pole of the south of England is always garlanded with its
flowers, as crosses are with holly at Christmas. The Hawthorn is well
known in this country, though unassociated with any of our rural
customs. Many of its species are indigenous in America, and surpass
those of Europe in the beauty of their flowers and fruit. They are
considered the most ornamental of the small trees in English
gardens.
The flowers of the Hawthorn are mostly white, varying in different
species through all the shades of pink, from a delicate blush-color to
a pale crimson. The fruit varies from yellow to scarlet. The leaves are
slightly cleft, like those of the oak and the holly. The flowers are
produced in great abundance, and emit an agreeable odor, which is
supposed by the peasants of Europe to be an antidote to poison.
SUMMER WOOD-SCENERY.
I have alluded to a beneficent law of Nature, that causes her to

waste no displays of sublimity or beauty by making them either
lasting or common. Before the light of morn is sufficient to make any
objects distinctly visible, it displays a beauty of its own, beginning
with a faint violet, and melting through a succession of hues into the
splendor of meridian day. It remains through the day mere white
transparent light, disclosing the infinite forms and colors of the
landscape, being itself only the cause that renders everything visible.
When at the decline of day it fades, just in the same ratio as
substantial objects grow dim and undiscernible, this unsubstantial
light once more becomes beautiful, painting itself in soft, tender, and
glowing tints upon the clouds and the atmosphere. Similar
phenomena attend both the opening and the decline of the year.
Morning is the spring, with its pale and delicate tints that gradually
change into the universal green that marks the landscape in summer,
when the characterless brilliancy of noonday is represented on the
face of the land. Autumn is emblemized by the departing tints of
sunset; and thus the day and the year equally display the beneficence
of Nature in the gradual approach and decline of the beauty and the
splendor that distinguish them.
The flowering of the forest is the conclusion of the beautiful
phenomena of spring, and summer cannot be said to begin until we
witness the full expansion of its foliage. In the early part of the
season each tree displays modifications of verdure peculiar, not only
to the species, but to the individual and the situation, and hardly two
trees in the wood are shaded alike. As the foliage ripens, the different
shades of green become more thoroughly blended into one universal
hue; and this uniformity, when perfected, distinguishes the true
summer phase of vegetation. As summer advances, this monotony
increases until near its close. The only trees that variegate the
prospect are the evergreens, by their darker and more imperfect
verdure, and one or two rare species, like the catalpa and ailantus,
which display a lighter and more lively green, resembling the verdure
of early summer.
It may be said, however, in behalf of summer, that no other season
affords so good an opportunity to note the different effects of sun
and shade in the foliage of the woods and fields. The leaves of the
trees and grass are never so beautiful in their summer dress as they
appear during the hour preceding sunset, when we view them with
the sun shining obliquely toward us. All foliage is more or less
transparent, and the rays of the sun, made slightly golden by the
refraction of the atmosphere, communicate a brilliant yellow tinge to
the leaves, as they shine through them. The same effects are not
produced by reflection; for if we look away from the sun, the foliage
and grass present a much less attractive appearance. A few hours
after noonday, before the sunlight is yellowed by refraction, we may
study these phenomena more minutely. When we look in the
direction of the light, as I have just remarked, we see the least variety
of light and shade; for as every leaf is an imperfect mirror, the
surface of the forest presents a glitter that throws a glazed and
whitish appearance over the green of the foliage. The whole is a mere
glare, so that the landscape is almost without expression when
viewed in this manner, and all the tiresome uniformity of summer
verdure is aggravated. The only relief for the eye comes from the
shadows of isolated trees and small forest groups as they are cast
upon the ground.
Now let us turn our eyes in an opposite direction. To obtain the
best view, we should look obliquely toward the sun. Then do we
behold a magnificent blending of light and shade; for every mass of
foliage has a dark shadow beneath it, forming a more appreciable
contrast on account of the intense brilliancy, without glitter, caused
by the illumination of every leaf by the sunlight shining through it.
Under these circumstances we can once more distinguish species, to
some extent, by their colors. We shall soon discover that trees which
have a thin corrugated leaf, without gloss, make the most brilliant
spectacle when viewed in this manner. Nothing can surpass the
foliage of the elm, the lime, the maple, and the birch in this peculiar
splendor. But trees like the poplar, the tulip-tree, the oak, and the
willow, having a leaf of a firmer texture and less diaphanous, look
comparatively dull under the same circumstances.
I would repeat that the true summer phase of wood-scenery is that
which succeeds the flowering of the forest, when all the different
greens have faded into one dark shade of verdure. There is no longer
that marked and beautiful variety which is displayed before the
maturity of the leaves. Summer is not, therefore, the painter’s
season. It is dull and tame compared even with winter, when
regarded as a subject for the brush or the pencil, and especially when
compared with spring and autumn. Summer is the time for the
observations of the botanist, not for those of the picturesque
rambler; for beneath this sylvan mass of monotonous verdure the
sods are covered with an endless variety of herbs and flowers,
surpassing in beauty those of any other season.
CATKIN OF OAK.
OAK LEAVES.
THE OAK.
If the willow be the most poetical of trees, the Oak is certainly the
most useful; though, indeed, it is far from being unattended with
poetic interest, since the ancient superstitions associated with it have
given it an important place in legendary lore. It is not surprising,
when we remember the numerous benefits conferred on mankind by
the Oak, that this tree has always been regarded with veneration,
that the ancients held it sacred to Jupiter, and that divine honors
were paid to it by our Celtic ancestors. The Romans, who crowned
their heroes with green Oak leaves, entitled the “Civic Crown,” and
the Druids, who offered sacrifice under this tree, were actuated by
the same estimation of its pre-eminent utility to the human race.
When we consider the sturdy form of the Oak, the wide spread of its
lower branches, that symbolize protection; the value of its fruit for
the sustenance of certain animals; and the many purposes to which
the bark, the wood, and even the excrescences of this tree may be
applied,—we can easily understand why it is called the emblem of
hospitality. The ancient Romans planted it to overshadow the temple
of Jupiter; and in the adjoining grove of oaks,—the sacred grove of
Dodona,—they sought those oracular responses which were
prophetic of the result of any important adventure.
To American eyes, the Oak is far less familiar than the elm as a
wayside tree; but in England, where many
“... a cottage chimney smokes
From betwixt two aged oaks,”
this tree, formerly associated with the principal religious ceremonies

of that country, is now hardly less sacred in the eyes of the
inhabitants from their experience of its shelter and its shade, and
their ideas of its usefulness in all the arts. The history of the British
Isles is closely interwoven with incidents connected with it, and the
poetry of Great Britain has derived from it many a theme of
inspiration.
The Oak surpasses all other trees, not only in actual strength, but
also in that outward appearance by which this quality is manifested.
This expression is owing to the general horizontal tendency of its
principal boughs, the great angularity of the unions of its smaller
branches, the want of flexibility in its spray, and its great size
compared with its height, all manifesting power to resist the wind
and the storm. Hence it is called the monarch of trees, surpassing all
in the qualities of nobleness and capacity. It is the embodiment of
strength, dignity, and grandeur. The severest hurricane cannot
overthrow it, and, by destroying some of its principal branches,
leaves it only with more wonderful proof of its resistance. Like a rock
in mid-ocean, it becomes in old age a just symbol of fortitude,
parting with its limbs one by one, as they are withered by decay or
broken by the gale, but still retaining its many-centuried existence,
when, like an old patriarch, it has seen all its early companions
removed.
A remarkable habit of the Oak is that of putting forth its lower
branches at a wide angle from the central shaft, which rapidly
diminishes in size, but does not entirely disappear above the lower
junction. No other tree displays more irregularities in its
ramification. The beauty of its spray depends on a certain crinkling
of the small branches; yet the Oak, which, on account of these
angularities, is especially adapted to rude situations, is equally
attractive in an open cultivated plain. It forms a singularly noble and
majestic standard; and though surpassed by the elm in grace, beauty,
and variety of form, an Oak of full size and just proportions would
attract more admiration.
The foliage of the Oak may be readily distinguished at all seasons.
It comes out in spring in neatly plaited folds, displaying a variety of
hues, combined with a general cinereous tint. Hence it is very
beautiful when only half developed, having a silvery lustre,
intershaded with purple, crimson, and lilac. The leaves, when fully
expanded in all the typical oaks, are deeply scalloped in a way which
is peculiar to this genus of trees; their verdure is of more than
ordinary purity; they are of a firm texture, and glossy upon their
upper surface, like evergreen leaves. In midsummer few forest trees
surpass the Oak in the beauty of their foliage, or in its persistence
after the arrival of frost.
Oak woods possess characters almost as strongly marked as those
of a pine wood. They emit a fragrance which is agreeable, though not
sweet, and unlike that of other trees. They seldom grow as densely as
pines, poplars, and other trees that scatter a multitude of small
seeds, and, being soft-wooded, increase with greater rapidity. The
Oak is slow in its perpendicular growth, having an obstinate
inclination to spread. It has also a more abundant undergrowth than
many other woods, because it sends its roots downward into the soil,
instead of monopolizing the surface, like the beech. One thing that is
apparent on entering an Oak wood is the absence of that uniformity
which we observe in other woods. The irregular and contorted
growth of individual trees, twisting in many directions, and the want
of precision in their forms, are apparent at once. We do not see in a
forest of Oaks whole acres of tall slender trees sending upward a
smooth perpendicular shaft, as we observe in a wood of beech and
poplar. Every tree has more or less of a gnarled growth, and is
seldom entirely clear of branches. If the branch of an Oak in a dense
assemblage meets an obstruction, it bends itself around and upward
until it obtains light and space, or else ceases to grow without
decaying, while that of any soft-wooded tree would perish, leaving
the trunk smooth, or but slightly defaced.
TREES IN ASSEMBLAGES.
Open groves, fragments of forest, and inferior groups alone are

particularly interesting in landscape. An extensive and unbroken
wilderness of wood affords but a dreary prospect and an unattractive
journey. Its gloomy uniformity tires and saddens the spectator, after
some hours’ confinement to it. The primitive state of any densely
wooded continent, unmodified by the operations of civilized man, is
sadly wanting in those cheerful scenes which are now so common in
New England. Nature must be combined with art, or rather with the
works of man’s labor, and associated with human life, to be deeply
interesting. It is not necessary, however, that the artificial objects in
a landscape should possess a grand historical character to awaken
our sympathies. Humble objects, indeed, are the most consonant
with nature’s aspects, because they manifest no ludicrous endeavor
to rival them. A woodman’s hut in a clearing, a farmer’s cottage on
some half-cultivated slope, a saw-mill, or even a mere sheepfold,
awakens a sympathetic interest, and enlivens the scene with pastoral
and romantic images.
A great part of the territory of North America is still a wilderness;
but the forests have been so extensively invaded that we see the
original wood only in fragments, seldom forming unique
assemblages. Especially in the Western States, the woods are chiefly
sections of the forest, scattered in and around the spacious clearings,
without many natural groups of trees to please the eye with their
spontaneous beauty. They surround the clearing with palisades of
naked pillars, unrelieved by any foliage below their summits. They
remind me of city houses which have been cut asunder to widen an
avenue, leaving their interior walls exposed to sight. These fragments
of forest, and the acres of stumps in the recent clearings, are the
grand picturesque deformity of the newly settled parts of the
country. But when a wall of these forest palisades, a hundred feet in
height, bounds the plain for miles of prospect, it forms a scene of
unexceptionable grandeur.
It is chiefly in the old States that we see anything like a picturesque
grouping of trees. There the wood assumes the character of both
forest and grove, displaying a beautiful intermixture of them,
combined with groups of coppice and shrubbery. Thickets generally
occupy the low grounds, and coppice the elevations. The New
England system of farming has been more favorable to the
picturesque grouping of wood, and other objects, than that of any
other part of the country. At the South, where agriculture is carried
on in large plantations, we see spacious fields of tillage, and forest
groups of corresponding size. But the small, independent farming of
New England has produced a charming variety of wood, pasture, and
tillage, so agreeably intermixed that we are never weary of looking
upon it. The varied surface of the land has increased these
advantages, producing an endless succession of those limited views
which we call picturesque.
When a considerable space is covered with a dense growth of tall
trees, the assemblage represents overhead an immense canopy of
verdure, supported by innumerable pillars. No man could enter one
of these dark solitudes without a deep impression of sublimity,
especially during a general stillness of the winds. The voices of
solitary birds, and other sounds peculiar to the woods, exalt this
impression. Indeed, the grandeur and solemnity of a magnificent
wood are hardly surpassed by anything else in nature. A very slight
sound, during a calm, in one of these deep woods, has a distinctness
almost startling, like the ticking of a clock in a vast hall. These feeble
sounds afford us a more vivid sense of the magnitude of the place,
and of its deep solemnity, than louder sounds, which are attended
with a confused reverberation. The foliage, spread out in a
continuous mass over our heads, produces the effect of a ceiling, and
represents the roof of a vast temple.
In an open grove we experience different sensations. Here
pleasantness and cheerfulness are combined, though a sense of
grandeur may be excited by some noble trees. In a grove, the trees in
general are well developed, having room enough to expand to their
normal proportions. We often see their shadows cast separately upon
the ground, which is green beneath them as in an orchard. If we look
upon this assemblage from an adjoining eminence, we observe a
variety of outlines by which we may identify the different species. A
wild wood is sometimes converted into a grove by clearing it of its
undergrowth and removing the smaller trees. Such an assemblage
displays but few of the charms of a natural grove. A cleared wild
wood yields shade and coolness; but the individual trees always
retain their gaunt and imperfect shapes.
Artificial plantations display the characters of a grove; but all
spontaneous growths are bordered and more or less interspersed
with underwood. Hence a limited growth of forest, like a wooded
island, surrounded by water or by a meadow, surpasses any artificial
plantation as a picturesque and beautiful feature of landscape. The
painter finds in these spontaneous collections of wood an endless
variety of grouping and outline for the exercise of his art; and the
botanist discovers, in their glens and hollows, hundreds of species
that would perish in an open grove. Some woods are distinguished by
a superfluity, others, like fir and beech woods, by a deficiency of
undergrowth, and this differs in botanical characters as well as in
quantity, according to the predominant species in the wood. In all
woods, however, shrubbery is more abundant on the borders than in
the interior. This border-growth contributes more than anything else
to harmonize wood and field. It is the outside finish and native
embellishment of every spontaneous assemblage of trees.
A wood in a valley between two open hills does not darken the
prospect as if it covered the hills, though, if it be continuous, it hides
the form of the ground. But when it has come up in scattered groups
on a wide plain, without the interference of art, it surpasses every
other description of wood-scenery. An assemblage of trees on a
hillside is called a “hanging wood,” because it seems to overhang the
valley beneath it. Thus situated it forms oppositions of a very striking
sort, by lifting its summits into the sunshine while it deepens the
shadows that rest upon the valley. Wood on steep declivities is an
interesting sight, especially if an occasional opening reveals to us the
precipitous character of the ground, and shows the difficulties which
the trees have overcome in their struggle for life. Some of our
pleasure comes from the evident utility of such a wood. We see at
once that a rocky steep could not be occupied by any other
vegetation, except under the protection of the trees, and that trees
alone could resist the force of occasional torrents; that without them
the ground would be barren, ugly, and profitless, and difficult and
dangerous to those who should attempt to climb it.

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I would like to thank everyone who has encouraged and supported me

Discussion Questions 132

Performance Improvement Driver: Corporate

APRA Australian Prudential Regulatory Authority

CIO Credit and Investment Ombudsman

ROA Return on Assets

Fig. 2.1 Carillion’s Share Price, February 2017–January 2018

Fig. 7.1 The stock price of Wells Fargo’s share price

Table 2.1 Carillion’s nonexecutive directors 19

Table 8.3 Discontinued operations in 2018 (in AU$ million) 120

such as the OECD Principles of Corporate Governance set by the

suggests that most national corporate governance guidelines and regula-

headquartered in England, admitted that it had overstated its 2014 profit

Chapter 9 examines the case of Toshiba, which was founded in Tokyo,

The Alibaba Group was established in Hangzhou, China, in 1999 by

Yunnan Baiyao was first established as a family business in 1933 in

Sarbanes–Oxley Act. (2002). Sarbanes-Oxley Compliance Professionals Associ-

On 15 January 2018, the UK construction and services company Caril-

1 See the Trading Updates in 2017. https://www.investegate.co.uk/carillion-plc--clln-/rns/trading-

© The Author(s), under exclusive license to Springer Nature 11

According to Carillion’s annual report in 2016, Carillion was the

2 Taken from Carillion’s annual report in 2000.

company the second largest construction and services company in the

Carillion’s Initial Problems

Carillion’s problems can be attributed to its expansion strategy. Specif-

In the 1990s, a number of economic and structural changes with a

Carillion’s overreliance on subcontracting allowed the company to

Carillion’s Corporate Governance Issues

5 Shareholder primacy is a shareholder-centric form of corporate governance that focuses on

Despite Carillion’s financial issues, the board of directors decided to

● High levels of on- and off-balance sheet debt were unlikely to be

Despite growing shareholder concerns about Carillion’s executive

Nonexecutive Directors (NEDs)

Table 2.1 Carillion’s nonexecutive directors

KPMG was first appointed Carillion’s external auditor in 1999. The

● Recognition of contract revenue

Although Deloitte made a number of recommendations in its internal audit

9See the report released by Commons Select Committee in 2018. https://publications.parlia

The Cost of Carillion’s Collapse

Two months after Carillion’s collapse, the engineering company Vaughan

Lessons Learnt from Carillion

Table 2.2 Carillion: Key events

suppliers, subcontractors and the general public have a legitimate interest

independence of auditors; therefore, major reform is needed to strike a

Hoang, L. M. (2014). Carillion in talks with Balfour Beatty on 3 billion pound

A Brief History of Tesco

As the hawthorn is consecrated to vernal festivities, the Holly is

I have alluded to a beneficent law of Nature, that causes her to