Abc Learning Case Study free essay sample

ABC Learning Ltd relied heavily on government subsidies, declaring this as futures revenue, and essentially showing profitable business in centres that were in fact not profitable. Critics suggest that the rate of expansion was unsustainable, and that Mr Groves was â€Å"hell-bent on buying as many centres as he could, as quickly as he could [†¦] the price paid was not important – the key was to keep growing at all costs† (Thomson, 2008). Continued spending, from equity in international acquisitions meant that the company had an estimated debt of $1. Billion at the time of receivership. After the fact; courts have heard that Mr Groves ignored the directions of the board that â€Å"passed resolutions between November 2007 and February 2008 that no further centers were to be acquired† (Walsh, 2010), which has put the company founder in the spot light. Mr Groves’ corporate governance practices were poor, and is currently in legal proceedings regarding in terparty transactions, this was certainly news worthy, and damaged the company’s reputation and slowed investor confidence. Additionally, the price paid to companies was deemed to be above market norms, siphoning more money from the companies depleted coffers. Critics are focused on the â€Å"mess† of the books for ABC Learning Centres Ltd, specifically the complex way in which revenue and profits were accounted for, â€Å"particularly the way compensation payments from centre developers were counted as revenue† (Thompson 2008). The Financial position of ABC Learning centres was misrepresented and projected a positive image of the financials, until Auditors Ernst and Young were required to pour over the books after the collapse. All of these issues are summed up in Thompsons (2008) assertion that Groves was the right man to grow the business but not the right man to manage the business, had the right manager been in place then the organization may have been able to turn its fortunes around. The Ethical Issues of the case: Firstly there is a significant Ethical and morale lapse in a share floated company when the CEO engages in related party transactions. The moral issues arise when you consider that so many stakeholders have money invested in the company, they expect decisions to be made on a prudent business basis, whereas in this case the decision to award contracts was not on who provided the best service or the best price, but simply given to related parties, many of whom where owned or majority held by Mr Groves himself (allegedly). Was it morally questionable to ignore the directives of the Board? This is a relatively null question in its self, but considers the people affected by the decision, the impact on the company (as evident by the collapse). The fact is the basic principle here is to ignore the directives of the people whom are employed specifically to gauge the position of the company and take action for its preservation. It could be argued the Groves was following his own ethical and moral compass in his decisions, but the overall running of a company must take more than one man desires to account. Did the shareholders have relevant information about the company’s financial position; was warning of the impending collapse evident in the information provided? Essentially were the financials and position of the company transparent to stakeholders? In short no they were not. The complex account records, that took auditors months to unravel, projected a falsely positive image of the company to stakeholders. Additionally, shares in the company were frozen when the company failed to issue it financial reports on time, at the same time the company went into receivership. The ethical issue here revolves around the deception to shareholders, whom are investing money on false pretence, who could have sold share issues at a small loss, if the information were provided on time. What action has been taken (if any) to address the outcomes of the ethical and legal breaches? Eddy Groves has recently â€Å"pleaded not guilty to one charge of breaching the Corporations Act at the Brisbane Magistrates Court† (Thomson, 2011). The charges were brought by the commonwealth shortly after the collapse when the†ASIC and the companys liquidators began investigating ABCs affairs, unearthing claims of poor disclosure, related-party transactions and mis-management† (Thompson. 2011). The commonwealth government funded the centres during receivership, to ensure the services continued to the hundreds of thousands of children around Australia. Eventually the company was purchased by the not for profit organization ‘Good start’. I will point out that the senate enquiry by the education, employment workplace relations committee (2009) did acknowledge that the private ownership and investments by the company improved the national quality, conditions and service in the industry, as the competition continued to match the innovations of the once market leaders. What action would you take in this situation? Honestly I would not ever find myself in this position. Arrogance on overdrive I know. Groves is a very flamboyantly motivated individual, whose interest seemed to surround the growth of an empire more than the growth of a company. I understand that for every acquisition you borrow against the company assets, for every acquisition there are years before the site is truly owned, or profitable. And even if the sites you purchase are profitable, the company requires cash in its coffers to manager the debts payable (on purchases, stock, wages etc. ) should bad times strike, a safety net as you will. The related party transactions are just stupid. Yes as a person able to send money your family’s way, it is hard to resist, but the fact is – you have to! It’s your job. If you want to allocate the money to relate enterprise then you had best be able to show that the enterprise provided quotes and services better than competitors, without obviously insider trading the issue. Bibliography: Senate education, employment workplace relations committee. (2009). Provision of childcare. Commonwealth of Australia 2009. ISBN 978-1-74229-185-7 Thomson, J. (2008). Five lessons from the spectacular fall of Eddy Groves.