Harvard Case - Samson Paper: Auditor's Findings Led to Joint Resignation of Independent Non-executive Directors and Non-executive Director
"Samson Paper: Auditor's Findings Led to Joint Resignation of Independent Non-executive Directors and Non-executive Director" Harvard business case study is written by Ramee Liu, Xu Li. It deals with the challenges in the field of Business Ethics. The case study is 19 page(s) long and it was first published on : Nov 17, 2021
At Fern Fort University, we recommend a comprehensive and multi-faceted approach to address the ethical and governance challenges facing Samson Paper. This involves a combination of leadership development, organizational change, transparency, and stakeholder engagement. The goal is to rebuild trust, restore the company's reputation, and ensure long-term sustainability.
2. Background
Samson Paper, a family-owned business, faces a crisis stemming from an auditor's report revealing financial irregularities and potential white-collar crime. This led to the joint resignation of the independent non-executive directors and a non-executive director, highlighting a breakdown in corporate governance and ethical leadership. The case study explores the impact of this crisis on the company's reputation, stakeholder relationships, and future prospects.
The main protagonists are:
- The Samson family: Owners and managers of the company, grappling with the fallout of the scandal and the need for a course correction.
- The board of directors: Facing a crisis of confidence and needing to demonstrate accountability and transparency.
- Employees: Concerned about the future of the company and their own job security.
- Investors: Seeking clarity on the situation and potential impact on their investments.
- Customers: Concerned about the ethical implications of the scandal and the company's future reliability.
3. Analysis of the Case Study
This case study highlights several critical issues:
- Ethical lapses: The auditor's findings suggest a systemic failure of ethical decision-making and corporate social responsibility. This raises concerns about the company's organizational values and its commitment to fair trade practices.
- Governance failures: The resignation of the independent directors points to a lack of oversight and accountability within the board. This underscores the importance of independent directors and robust corporate governance structures.
- Reputation damage: The scandal has severely damaged Samson Paper's reputation, impacting its brand image and customer trust. This emphasizes the need for crisis management and effective communication strategies.
- Stakeholder concerns: The crisis has triggered concerns among various stakeholders, including employees, investors, and customers. Addressing these concerns through transparency, open communication, and stakeholder engagement is crucial.
- Sustainability concerns: The case study raises questions about the company's commitment to environmental sustainability and its impact on the community. This highlights the need for a holistic approach to corporate responsibility that encompasses social and environmental factors.
4. Recommendations
Immediate Actions:
- Transparency and Accountability:
- Conduct a thorough internal investigation to determine the extent of the financial irregularities and identify those responsible.
- Publicly disclose the findings of the investigation and take appropriate disciplinary action against individuals involved.
- Appoint a new independent board of directors with strong ethical and governance expertise.
- Implement a comprehensive code of conduct and ethics training program for all employees.
- Stakeholder Engagement:
- Communicate openly and transparently with all stakeholders, including employees, investors, customers, and the public.
- Establish a dedicated communication channel to address concerns and provide updates on the situation.
- Engage with stakeholders to understand their concerns and incorporate their feedback into the company's recovery plan.
- Crisis Management:
- Develop a comprehensive crisis management plan to address future incidents and ensure a swift and effective response.
- Train key personnel on crisis communication and stakeholder engagement strategies.
- Establish a dedicated crisis communication team to manage media inquiries and public statements.
Long-Term Strategies:
- Ethical Leadership:
- Develop a strong ethical culture that emphasizes integrity, transparency, and accountability.
- Implement a robust whistleblowing system to encourage employees to report unethical behavior.
- Promote ethical leadership at all levels of the organization through training and mentoring programs.
- Corporate Governance:
- Strengthen corporate governance structures by implementing best practices for board composition, oversight, and accountability.
- Establish clear lines of responsibility and authority within the organization.
- Implement a robust risk management framework to identify and mitigate potential ethical and financial risks.
- Sustainability:
- Develop a comprehensive sustainability strategy that aligns with the company's values and addresses environmental, social, and governance issues.
- Implement green business practices to reduce the company's environmental footprint.
- Engage in corporate philanthropy and social responsibility initiatives to benefit the community.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations aim to restore the company's core values of integrity and responsibility, aligning with its mission to provide sustainable and ethical products.
- External customers and internal clients: The recommendations prioritize stakeholder engagement and transparency to rebuild trust and confidence among customers, employees, and investors.
- Competitors: The recommendations focus on strengthening the company's ethical and governance framework to differentiate itself from competitors and attract investors and customers who value responsible business practices.
- Attractiveness: The recommendations are expected to enhance the company's long-term financial performance by improving its reputation, attracting investment, and fostering a more sustainable business model.
6. Conclusion
Samson Paper faces a significant challenge in rebuilding trust and restoring its reputation. By taking immediate action to address the ethical and governance issues, engaging with stakeholders, and implementing long-term strategies for ethical leadership and sustainability, the company can navigate this crisis and emerge as a more responsible and resilient organization.
7. Discussion
Other alternatives not selected include:
- Ignoring the issue: This would only exacerbate the crisis and lead to further reputational damage and potential legal consequences.
- Minimalistic response: This would fail to address the root causes of the scandal and could be perceived as insincere by stakeholders.
- Selling the company: This could be a viable option in extreme cases, but it would involve significant financial and operational challenges.
Key assumptions of the recommendations include:
- The Samson family is committed to rebuilding the company's reputation and implementing ethical business practices.
- Stakeholders are willing to engage in a constructive dialogue and provide feedback on the company's recovery plan.
- The company has the resources and expertise to implement the recommended changes.
8. Next Steps
- Immediate: Conduct a thorough internal investigation and appoint a new independent board of directors within 30 days.
- Short-Term: Develop and implement a comprehensive communication plan for stakeholder engagement within 60 days.
- Long-Term: Implement a comprehensive ethics training program and develop a sustainability strategy within 90 days.
- Ongoing: Monitor progress, adapt strategies as needed, and continue to prioritize ethical leadership, transparency, and stakeholder engagement.
By taking these steps, Samson Paper can navigate this crisis, rebuild trust, and emerge as a more responsible and sustainable organization.
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Case Description
Samson Paper's 森信紙業 (SEHK: 731) main business was the manufacturing, trading, and marketing of paper products in China. After the company failed to file its year-end 31 March 2020 annual report before the deadline, the stock was suspended. Following the suspension, a board meeting was held on 11 July 2020, after which the board received resignation letters from one non-executive director (NED) and three independent non-executive directors (INEDs). In a public announcement on 14 July 2020, Samson declared that at the board meeting, Samson's auditors had advised: "There were substantial payments made to the company's connected party's suppliers. Such payments were booked to inter-company accounts rather than amounts due to the connected party." According to Samson's announcement, the NED, INEDs, and the auditor did not receive satisfactory replies from management on the commercial substance and intentions of these transactions during the meeting. The management denied any wrongdoing in relation to these transactions. On 18 July 2020, after the company had defaulted on a HKD780mn loan, it filed for voluntary liquidation.
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