Corporate Collapse – Board Learnings

For a year now the pandemic has dominated the political and corporate agenda and largely overwhelmed reporting of other news. With the seismic social, political and economic shifts created by Covid-19, extraordinary corporate events that would have dominated the headlines for weeks have gone almost unnoticed.

Corporate failures engender a broad range of emotions: anger, frustration, and the smugness of hindsight.  But there are always governance implications and Boards do well to reflect on what went wrong, and crucially on what was missed. To that end in this week’s Overture, Fidelio takes a look at the collapse of Wirecard – a major corporate governance failure, and Germany’s most significant financial scandal in many years.  Though the aftermath continues and the Wirecard story has not yet unfolded in its entirety, we thought it timely to take stock of some key observations.

Wirecard was a German company with a two-tier Board and subject to both German and EU regulation. But there is much of relevance for any Non-Executive Director or Supervisory Board Member. We have selected five key aspects and set out in this Overture some of the general implications for Boards:

  1. The Importance of Regulatory Clarity
  2. Audit Quality
  3. Board Oversight
  4. The Role of Investors – And Short Sellers
  5. The Board & The Role of the Press

The Wirecard story provides valuable lessons for all Board Members, particularly with regard to alertness to risks, constructive challenge of management and the value of listening to external sources.  It highlights the importance of Board composition and reinforces the need for independence, strategic perspective, and sound business judgement around the Boardroom table.

Though Wirecard was engaged in technology and financial services, both areas with an aura of technical complexity, the firm’s collapse was predicted by analysis of simple business concepts. Increasingly Board Members are expected to demonstrate that this level of analysis, questioning and challenge has indeed been undertaken.

Equally a key skill for those sitting on the Boards of public companies is being able to sift through the noise and to develop an antenna as to when criticism may well contain a grain of truth.

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