Another Maxwell could crop up in Hongkong

SEVERAL interesting, and sometimes not so interesting, periodicals have emerged on the back of the corporate governance debate that is now raging worldwide.

This debate was triggered by financial scandals on Wall Street and in the City of London during the excessive 1980s which called into question the ethical standards of many of the key figures in the controversies.

The Blackwell Business periodical Corporate Governance has published a concise review of the Maxwell corporate collapse, about which much has already been written.

Maxwell - The Failure of Corporate Governance provides a systematic analysis suggesting why Robert Maxwell was able to plunder as much as GBP763 million (about HK$8.92 billion) of retirement fund money in the United Kingdom before he died in November 1991.

The author indicates that even in the wake of the Cadbury Report on the reform of corporate governance, the new checks and balances now being proposed would probably not stop another Maxwell.

In the Hongkong context this is of great importance. The stock exchange is due to introduce important aspects of the Cadbury Report into the listing rules and retirement scheme legislation. Due to be implemented this summer, they are supposed to protect against a Maxwell in Hongkong.


Robert Maxwell was the chairman and chief executive of Maxwell Communication Corp (MCC) and Mirror Group Newspapers (MGN) in the UK.

However, final ownership was with key secretive Lichtenstein-domiciled operations through which public money was siphoned back and forth from public and private family companies.

Where did Maxwell break through? The regulatory checks and balances in place through the Department of Trade and Industry, the Occupational Pensions Board and the Investment Management Regulatory Organisation had been befuddled by the complexity of Maxwell's empire.

Unclear jurisdiction and legal support for official concerns about the goings-on inside Maxwellia stymied any determined probe by any of these bodies.


Even the London Stock Exchange did not act when it became clear Maxwell had an interest in 82 per cent of MCC shares, because 12 per cent of this was in in-house company-pooled retirement schemes.

The board structure was completely overrun by Maxwell's dominant style of leadership. Even when the board of MCC found out that at least GBP275 million of company cash had been transferred out of the public company into private Maxwell companies it took them three months to tell anyone about it.


The shareholders eventually read about it in the UK national press.

The Cadbury Report's reliance on non-executive directors to check another Maxwell would surely fail, as the MCC board had non-executive directors, namely Lord Silkin and Lord Havers, both former attorneys general.

In fact, the credibility attached to these people helped Maxwell carry off the fraud as it offered him an aura of respectability.


Corporate Governance also cites the failings of institutional investors to ask enough questions, of the auditors to probe deeply enough into what was happening at MCC and MGN, and of the pension fund trustees to adequately supervise what was happening tothe pension money at MCC.