The Case of Robbins Communications Write-Up

The Case of Robbins Communications Write-up

This case addressed the corporate governance problems of Robbins Communications (RC) during its financing process. Jack Robbins, the founder of RC invited outside investors to invest in the company and promote its business. Before the investment, the investors hired an accounting firm to audit the financial status of the company. Also, Jack actively engaged in promoting the code and governance of the company. The company showed a positive trend in its business and received the investment. However, it went bankruptcy only six months after the new fund arrived.

Before analyzing the reason of insolvent of Robbins Communications, one question being asked is that to who were boards of this type of organizations accountable. From my point of view, since the company was not a public company, the board of this company did not have the responsibility to disclose the company’s operation to the public. The board should be accountable for the shareholders, creditors and government. The shareholders, who invested in company, had the right to know the operation of the company and asked for disclosure. Also, the creditors, who lent money to the company, should receive reports on the activities and management of the company to avoid potential default. The board was also answerable to the government for its performance, especially on aspects that required abidance of government laws and regulations. The board might be accountable for its employees, collaborates and customers. Since they had stake in the company, contributed to the progress of the company and would be influenced by the operation of the company. However, the board might choose to be partly accountable or not accountable to them depend on its code and regulations.

I hold that Jack had made a right decision to invite the new investors and improve the governance of RC. As it was stated in the case, RC was going to face crisis since two large clients of long standing planned to cancel their contracts. Though Jack could leave the company and earn more money in else companies, as the founder of RC, he must view the company as his child and wanted the company to continue growing. So finding some investors to finance the company and make it bigger would be a good decision. Several things he accepted were appreciated. He accepted an independent auditor to review the financial performance of the company. He separated the CEO and Chairman to two people. Also, the chairman and the two new investors could outvote him at the board meeting. All this conditions made him under higher risk, yet they would be beneficial for the company’s long term development. However, there were something that I would have done differently. I would pay more emphasis to the strategy of the company in its future development instead of just inviting new investors. Since Jack was going to retire very soon, he needed to make sure that the new investors, especially those who were going to decide the future management of the company, had a right business strategy to make the company profit in long run. Otherwise, though the company was going to have money, it might fail after a few years. Another thing is that I would not focus too much on improving the detailed procedures of corporate governance, because it was a small company. Instead, I would review if RC’s past procedures in corporate governance were correct, and how to eliminate internal risk in the future.