Polly Peck

1. Discuss the advantages and disadvantages of allowing one individual to act as both
chairman and chief executive officer of a quoted company.

The chairman of the board of directors and chief executive officer of every organization has
both different responsibilities and importance. The chief executive officer is the highest-ranking
executive in a company, whose primary responsibilities include major corporate decisions,
managing the overall operations and resources of a company and acts as the main point of
communication between the board of directors and the corporate operations. The chairman of the
board, on the other hand, is the one responsible for taking the chair at general and board
meetings. The chairman is expected to act as the company’s leading representative which will
involve the presentation of the company’s aim and policies to the outside world. There are
advantages and disadvantages if these two position will be given to only one person.

Advantages:

 Ensures strong and central leadership. It provides an efficient leadership by increasing

the probability that expectations of the board and management intersects.
 This can provide superior knowledge to the board and increase the information
available to it as it is given that CEO has the best knowledge about the operations of
the business.
 It prevents potential rivalry between the CEO and the Chairman of the Board which
increases leadership during crises.
 It prevents the confusion as a result of the existence of two public spokesmen, the
CEO and the Chairperson.
 It encourage entrepreneurship and innovation through improving the competencies of
the corporation in an industry.

Disadvantages:
  Concentration of too much power in the hands of one individual may have meant that
important decisions were not fully discussed by board of directors. The other
directors will not have the information necessary to make an informed judgement.
 It leads to a lack of oversight and diminishes the independence of a board.
 Duality of the CEO and Chairman do not create an opportunity for the board to
effectively address any abuses that may occur as well as in addressing any concerns
about the performance of the CEO.
 This creates potential opportunities for abuse and conflict of interest. The chairman f
the board that also works as the CEO can abuse his position and conceal from the
board potential problems and any issues created by his management.
 It lacks control in preventing fraudulent activities

2. Should the banks have been more cautious in lending to Polly Peck and to Asil Nadir?

Yes, banks should have been more cautious in lending to Polly Peck and Asil Nadir.
For most banks, loans are the largest and most obvious source of credit risk. Those banks that
have transacted with Polly Peck and Asil Nadir should have considered studying deeply
some situations that makes lending to this company doubtful. One reason that the bank
should have considered and should have make them speculative is the fact that Asil Nadir is
holding the position of both the Chief Executive Officer and the Chairman of the Board. This
fact should have made them skeptic if whether the company has enough control and proper
oversight to give reliability to the financial statements. They should also have given critical
considerations to the fact that Asil Nadir owns a wide variety of businesses in different
countries. They failed to contemplate that this fact brought Nadir management inefficiency
and difficulty. It also did not appear to be a good policy that Polly Peck was raising a loan
finance in Swiss Franc to make investment in weak countries. These various facts that banks
failed to consider is critical as banks should have done careful examination and verification
before lending money to Polly Peck and Asil Nadir.

3. What do you believe are the main lessons that can be drawn from the collapse of Polly
Peck?
 Polly Peck collapsed with debts estimated at 1.3 billion lira. Imagine the huge drop of
their share price that happened in just under two months following the announcement of Asil
Nadir regarding his plan of privatization that he subsequently dropped. We can gather some
lessons from this event that happened to Polly Peck that we can reflect and use as a basis for
the future.

 In the case, it is noted that Asil Nadir have acquired multiple takeovers and it
brought about inefficiency in control and supervision. From that, we can learn that
having so much variety in a business doesn't always mean growth and success.
 It is also cited in the case that Asil Nadir holds the position of both the CEO and
Chairman of the Board. This gave Nadir the opportunity to use his position as an
advantage to decide without any proper approval of other members of the
organization for his own advantage. Critical to a company's success is the value of
external perspective. This case provides a clear interpretation of the importance of
having separate CEO and Chairman. This separation of power and authority
distinguishes the roles between the role and the management.
 Another lesson that can be drawn from the case is the proper application of
business entity concept. In the case, Asil Nadir uses his power to acquire funds
using the name of the company in order to invest in many diverse companies
without proper examination and approval of those people that make informed
judgment. The business and the people around it are separate and distinct from
each other and that business and personal affairs should not be influenced and
affected by it.