Part II: A Tale of Management too Strong and IT too Weak
"Beware the ides of March." The soothsayer's words have become synonymous with unheeded warnings since they were penned by Shakespeare some 400 years ago. Caesar's response - "He is a dreamer; let us leave him: pass" - is less well known but equally apposite. These words sum up the life and times of HIH, and they resonated eerily throughout the inquiries I made.
So begins Commissioner Justice Neville Owen's report - post mortem indeed - into the death of HIH, a post mortem replete with useful lessons for CIOs keen to protect their careers and prevent their organisation's precipitous downfall. The major companies in the HIH Insurance group went into liquidation on March 15, 2001. By the time formal winding-up orders were made on August 27, 2001, the group was estimated to be somewhere between $3.6 billion and $5.3 billion in deficit. Even an illustrious soldier like Caesar would likely have been horrified at the collapse, but then again Caesar, a man who knew how to listen to his generals, would never have allowed such a thing to happen.
Justice Owen's report into what he describes as HIH's "shambling journey towards oblivion" paints a picture of a corporation plagued with management and IT problems; its mission thwarted by a group of strong, dominant men who clearly did not know nearly as much as they imagined they did about the things they needed to know. Geoff Stalley, who heads up BearingPoint's solutions area and has followed the HIH case closely, says this was a board that clearly did not understand how to manage a business.
"As they got into a million different things, they didn't keep close enough management on what was going on, which comes back to the blurring of governance and management. And the board was aloof and wasn't really in tune with the day-to-day issues of the business . . . it's a cold, hard picture of a board that didn't know what was going on in the business," says Stalley. "[The collapse] is sending a new wave of concern among the directors all around town, I would imagine. They are all realising that they had better know a bit more about what has been going on in the business."
The implications for CIOs are clear. Boards are likely to start asking tough questions. If they don't, CIOs may soon find themselves having to prompt the board to ask them.
Among other difficulties, Justice Owen found breakdowns of governance and oversight structures at every level of HIH. The numerous mechanisms in corporate regulation designed to detect danger signs and promote the financial health and longevity of commercial entities proved ineffectual against such problems. Justice Owen's reflections on these woes should be heeded by every CIO.
"While the media has focused on the commission's findings of potential wrongdoing by certain individuals and proceedings that may follow, its findings regarding corporate governance are likely to prove to be of most enduring importance to companies and their directors and executives," says Freehills partner Grant Marjoribanks. "The commission emphasised that it would be a mistake to dismiss HIH as simply a corporate aberration."
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