HIH Insurance Group was Australia's largest insurer. When it collapsed in 2001, the 1.9 billion pounds loss left many policyholders and investors bereft. Some lost their homes. A royal commission questioned the founder and chief executive, Ray Williams.

Observers commented on a table of 'spectacular munificence' and that 'it was like the last days of Pompeii'. Mr Williams enjoyed a millionaire's lifestyle. His secretary travelled first class. A corporate adviser was given round-the-world ait tickets for himself, his wife, four children, and a nanny to compensate for working over Christmas. A director, Rodney Adler, whose FAI insurance company had been taken over by HIH for more than 200 million pounds, received a 2.3 million termination payment and a 350,000 pounds a year consultancy fee.

Mr Williams, a philanthropist who had donated millions to medical research, claimed that his own life savings were in the company and that he had not sold any shares. The problems, he claimed, were due to errors of judgement - in particular the failure to undertake a due diligence study on FAI, which was discovered to have gaping holes in its finances.

Questions.

1.What was the board doing while this saga was going on? What should it have done?

(20 marks)

2.Whose fault was it that FAI had been acquired without a due diligence study and with 'gaping holes in its finance?

(20 marks)

What is your opinion of the reward given to a corporate adviser (round-the-world air tickets for himself, his wife, four children, and a nanny to compensate for working over Christmas?