After decades' dramatically expansion, the Loewen Group Inc, the second largest death care company in North America, went downhill abruptly in 1998. Compared with those in 1997, its net income decreased from $42.7 million to $599 million in deficit, meanwhile, its long-term debt due in one year increased by more than 2000%, from $43.5 million to $874.1 million, and total liabilities exceeded the total assets by $326.8 million (in US dollar). Because Loewen could not get out of its financial crises, in June 1999 the company had to file for bankruptcy protect.
As to the causes of the company's bankruptcy, different cause could be accounting principle the company used; the business failure to the risky expansion strategy the company adopted, Company's management should take the lion's share of blame, however, the board of directors and shareholders should take the other shares. That is, the company's bad corporate governance made Loewen out of the business.
In Corporate governance is the system by which corporations are directed and controlled.
Three participants involve in this system, the board, managers and shareholders. The system distributes rights and responsibilities among the participants in the corporation, regulates and monitors their conducts as per standard principles and procedures. Corporate governance arise whenever a company's ownership separates from management, because managers, cannot well expected to watch over shareholders interests as serious as over their own.
As such, the board is introduced to make sure the management works on the best interests of the company in the long run by monitoring and regulating managers' performance on behalf of shareholders. If the board does not response or only wants to be pacifist in case the management does wrong, the shareholders' interests will be inevitably damaged as what happened in Loewen's case.
There are some examples we can take from