Dick Smith Failure Case Study
The Failure of Dick Smith Electronics Identify: How the latest edition (3rd) of the ASX Corporate Governance Principles plausibly halts the failure of Dick Smith Electronics (DSE) will be discussed in this essay. I argue that 3rd of ASX Corporate Governance Principles might not be the best corporate governance practices for the listed entities in Australia. As can be seen from the DSE case, it complied with the majority of the principles and recommendations, but the DSE’s collapse still happened. Therefore, the better application of this practices should be developed. The first section of this essay focuses on the possible causes of corporate failures, including dominant CEO, poor strategic decisions and the failure of internal control. …show more content…
In December 2013, it was floated into the Australian Stock Exchange for $520 million with roughly $370 million of profit (Mitchell, 2015). Six months later, Dick Smith reported that it had an excellent performance with net profit $42 million and the sales growth at 4.2 percent (Dick Smith Holdings Limited, 2014). Then, the company entered into the new loan facility $130m from NAB and HSBC in June 2015 (Durie, 2016). Next four months, DSE launched a new category of products which was small appliances in its 100 retail stores (Dick Smith Holdings Limited, 2015, p. 8). Moreover, private label brands had been increasingly extended during 2015 as they are one of the primary focuses of DSE’s sales target (Dick Smith Holdings Limited, 2015, p. …show more content…
Firstly, a dominant CEO could be one of the possible factors triggering the unexpected collapse of DSE. According to agency theory, CEO is considered as an agent of the board and shareholders (Gallagher & Bennie, 2015), thus his decision might not maximise the principles’ interest (Rankin, Stanton, McGowan, Ferlauto, & Tilling, 2012, p. 190). Nick Abboud had successfully operated the company as can be seen from the 2014’s results (Dick Smith Holdings Limited, 2014). At late 2015, the decision of excessive discounted price during Christmas sales was made in order to boost sales growth (Rose & Hatch, 2016), and this plan was unable to generate the needed cash (Papadakis, 2016). It could be explained by Hamilton (2006) that the board becomes complacent from being allured by CEO’s previous success; thus, Nick Abbound might become a major part of making-decision process and could lead the company to the
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