COLLAPSE OF STORM FINANCIAL

Collapse of Storm Financial



Collapse of Storm Financial

This paper is based on a case study that highlights the factors behind the collapse of Storm Financial - Australia is leading financial firm- This paper is divided into three sections. The first section highlights the internal and external environmental factors that triggered the collapse. The second section covers the managerial ethics regarding this issue of collapse, while the third section provides an overview of the social corporate responsibility.

Part A: The internal and external environment

The disintegrate of Townsville-based financial planning assembly Storm economic has put a dark shaded over the savings of 13,000 Storm purchasers, who had bought into more than $4 billion with the business (www.smartbusiness.com.au). Townsville-based financial planning group Storm Financial is placed in voluntary administration after key lender Commonwealth Bank called in a $10 million loan.

Organisational crisis is a difficult concept to define. Consensus among researchers on a definition has been illusive for a number of reasons. First, researchers coming from multiple disciplines have contributed to crisis theory. In psychology, for example, a crisis is defined as “an acute disruption of psychological homeostasis in which one's usual coping mechanisms fail and there exists evidence of distress and functional impairment”. It is a traumatic event, which creates stress for members of the organisation (www.brisbanetimes.com.au). Employees become defensive, deny the severity of the situation, and begin to question deeply held beliefs. Their ability to make sound decisions is impaired by cognitive biases. The crisis also leads to a breakdown of cultural norms and a lack of faith in leadership.

The potential for a crisis is increased if an organisation employs “high-risk” technologies (e.g., nuclear power). If one or two of the components fail, they interact in unexpected ways and cause the entire system to collapse. Storm Financial was left with no choice but to enter administration after Commonwealth Bank issued a notice to the group on 8 January, demanding that a loan - believed to be around $10 million - be repaid with 24 hours. Storm's collapse places the savings of the company's 13,000 clients in doubt (www.smartcompany.com.au). The business has grown quickly in the last five years and asserted to have round $4.5 billion in funds under advice. It also had planned a $500 million share market float in 2007, although this was abandoned due to a lack of support from institutional investors. However, the crisis on financial markets hit the company hard, and late last year fund manager Colonial First State (which is owned by CBA) terminated its four Storm-branded index funds and began hitting Storm clients with margin calls.

The relationship between Storm and CBA has worsened in recent weeks. On 24 December, Storm went to the government Court to apply for an injunction stopping Commonwealth Bank from farther communicating with its clients. gale contended that notes the bank sent to gale clients in early December were misleading and may have exacerbated client losses. Storm Financial's submission furthermore included an submission for mandatory corrective advocating, ...