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management, its board, its shareholders and other stakeholders. It also provides the structure
through which the objectives of the company are set, and the means of attaining those objectives
and monitoring performance are determined. China Aviation Oil¶s (CAO) collapse brings to the
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The of director is to perform various activities that are aimed at improving
the overall performance of the corporation. In CAO¶s case, we have seen that the CEO is
involved in speculative trading which is no way in alignment with duty of director of protecting
the interest of stakeholders. The director has also failed in its which deals
with monitoring and evaluating the role of the management and board.
The !" # in the disclosure of financial statement is also under the scanner when we see
that the company was showing growth in the profit for last three years but in fact it has incurred
a loss of $550 million in speculative oil trading. The stakeholders were also kept in the dark
The directors are said to have a $# !%" to both the shareholders and the company
but the director of the company has breached the trust by engaging in options trading which was
not allowed by the State Coucil. The c& #principle recognizes the duty of the board
to oversee the professional managers who have been entrusted to run the company and who are
accountable to the board for the use of firm¶s assets. Thus the board acts as a mechanism for
minimizing the c' #! inherent in the separation of ownership and control, which is quite
high in this case as the management has pushed the company into bankruptcy.
On the other hand, we see a robust Corporate Governance exhibited by the Singapore
Government. The suspension of trading of company¶s stock and directing the company to
appoint an independent auditor to investigate the matter were the measures taken by Singapore
(
The problem arising out of the concentration of power and the need to segregate duties is one of
the primary lessons we can learn from this case. In CAO, Mr. Chen held both the post of MD as
well as of the CEO allowed him to obstruct the free flow of information to the Board, for them to
make meaningful and independent decisions. Therefore, it is very important to ensure that there
is a balance of power and authority and that controls are put in place to segregate key duties and
to guard against any fraud risks. The principal solution is to have a system of checks in place so
framework to check the trading activities and a clear trading limit or margin calls could be the
fundamental reason to explain why things went completely out of hand. Losses were not cut in
Good corporate governance is build within the culture of the company. Everyone from a junior
employee to the senior management should understand the importance of adhering to the code as