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Failings of Senior Management at TAFP

Question:

Verification Actions Taken By Senior Management Australis Financial Planning?

The senior management of Terra Australis Financial Planning Limited (TAFP) failed to display professionalism in their actions and behaviors throughout this saga. They, for example, ignored the concern forwarded to them by Joe Bloe about Donald (Don) Vanvo. Bloe’s Financial Planning Manager disregarded the issue because Don was a top earner with a total of 13000 clients. This, therefore, gave him immunity from the top management even though the Australian Securities and Investment Commission (ASIC) had a classified Don as one of the. The sales driven strategy employed by the top management was also a bad culture that they were nurturing as the employee's main focus was always their volume of sales and not how they made the sales or their levels of customer satisfaction. Reinstatement of Don one month after his dismissal was also a mistake the top management did. Furthermore, the senior management went as far as promoting him to a Senior Financial Planner apart from covering up for Don’s wrongdoings that had made clients very frustrated. These inactions were not only uncouth but also very risky. They made the situation worse and worse over time as the harm done by the 38 “critical risk” employees grew bigger and bigger.

Reinstatement of Don to an even superior position surely drove a message to other employees that in TAFP, one can freely engage in fraudulent acts and even get rewarded if you are too good at it. Senior management also formed an arrangement with the legal department to stop various documents from being obtained in the likely occurrence of a client lawsuit. If I were in Sam Venus' position, I would ensure that all the fraudulent financial planners were repaid all the cash they amerced before firing them. I would also reconstitute the senior management of TAFP as they had failed to perform their jobs diligently. To avoid a similar occurrence of the crisis in future, I would establish a strong and efficient whistleblower protection policy to ensure employees have a channel to air their issues concerning misconducts at the workplace.

Incentives such as bonuses formed more than half of the total annual remuneration of financial planners at Terra Australis Bank (TAB). The riskier the investment portfolio one got from their clients, the higher the commission one got. This culture and the sales-driven one greatly influenced the actions and behaviors of employees at TAB. The short-term remuneration incentive pressurized the employees to focus on getting bonuses by hand or crook. The unforgiving sale-targets intended to motivate employees to make sales was too harsh and inconsiderate of the extent it would push employees to. The dishonest means employed by the workers such as Don were the beginning of the company's downfall. To minimize agency conflicts, I would make sure the company adopts favorable cultures. I would first ensure that they are paid well, therefore, motivating them always to give their best in their jobs.

Incentives and Culture at TAFP

I would also encourage employees to always put customer satisfaction first above all things as compared to a sales-driven scheme of TAB. Also, I would also ensure the top management employees are well trained on management skills so that instead of setting unforgiving sales targets to realize sales, they would adopt better methods. For example, planning interactive workshops between different branches to exchange ideas, adequately motivated employees would, without any doubt, prioritize satisfaction of employees any not allow themselves to be driven by personal selfish interests. This would, in turn, lead to a steady growth of the company as clients receiving the best quality services become loyal to the company.

The Australian Securities and Investment Commission (ASIC) issued a warning to TAFP in February 2008.  This regulatory body highlighted that 38 of TAFP’s financial planners had been categorized as a “critical risk” as a result of their failure to comply with advice protocols related to financial planning. On October 30, 2008, Boe and two of his long-serving colleagues sent a report to ASIC relaying the acute necessity of looking into Don’s actions. This was after realizing that the management was in no way going to resolve the issue. ASIC seemed not to take any actions to get evidence from TAFP months later in-spite of the forewarning by “The Three Musketeers” that customers’ records were being cleaned. Additionally, ASIC failed to provide adequate whistleblower protection policy and went forth to blow the covers of Bloe and his two colleagues. According to Bloe, many people in the finance industry agree that ASIC is not a regulator that can be trusted. ASIC finally took action against TAFP by ordering them to submit client files going through investigations within two weeks. It also required TAB to come up with a compensation scheme placate customers who had been affected. As per the case study, it is hard to establish difficulties that ASIC might have faced during its investigations. However, I tend to think it was just negligence.

The media plays a very big role in the promotion of good governance. As the Fourth Estate, it has a societal role of being the voice of the voiceless. That is, the media acts as a watchdog to all institutions and is expected to unearth any malpractices that affect the public in one way or another, (Van Hoorn, 2014). However, there are various factors that limit its effectiveness such as corruption, interference by the government, media house policies, conflict of interest and sensationalism, (Ali, 2014). Corrupt journalists engage in what is commonly known as ‘brown envelope journalism' from subjects whose wrongdoings have been unearthed. They accept to take money so as not to let the public know these inactions. In so doing, they promote the continuity of bad governance.

The government may restrict the freedom of the media in case it perceives that it is going ‘too far’ than it wishes in bringing to light the inadequacy of the government, (Stewart, 2010). Media House policies are determined by many factors such as advertisers and shareholders. For example, if TBA were an advertiser earning Gotham Investor the highest amount of revenue, there would be a high likelihood that the story forwarded to Clarke Kent by ‘The Three Musketeers.' In this advanced technological era, social media is capable of playing an enormous role in promoting good governance. By sharing information on their rights as consumers and employees, employers have no choice but to become accountable for their governance, (Otley, 2009). The growing number of active users on social media means that a whistleblower does not necessarily have taken issues to mainstream media. They can just share the information concerning the issue with the public on social media, therefore, creating a public debate that will ultimately promote good governance, (Meijer, 2009).

Role of ASIC in Uncovering Wrongdoing

Most, if not all, organizations yearn for integrity amongst and from its employees. The existence of integrity promotes devotion to the company's goals, missions, and visions. A whistleblowing culture encourages transparency, and effective communication, However, employees are many at times unwilling to report suspected malpractice due to the fear of victimization from those engaged in the misdoing, (Nayoni, 2011). This, in turn, hampers organizations from uncovering misconduct in the workplace. A safe route should, therefore, be established where employees can register grievances and issues of malpractice within the company, (Taylor, 2010). Such whistleblower protection policies promote early reporting as well as enabling early discovery of misconduct consequently lessening the potential loss.

Besides, external complaints made by employees will be less likely. I don’t think the regulator had a sufficient and reliable whistleblower policy that prompted Bloe to gather all the evidence he needed against Don’s misconduct before submitting a report to ASIC. The formation of an efficient and independent protection policy would go a long way in encouraging employees who are aware of malpractices in a company to move the issue forward rather than being silent, (Van den Berghe, 2014).

Big companies have various challenges in promoting good governance, ethical behavior or compliance throughout its branches as opposed to small companies, (Wredge, 2008). They, for example, have the task to cultivate a culture that is going to be adopted by all employees of the company since they all share the company's goals, missions, and vision, (Tsutsui, 2013). Therefore, failure of one branch/department leads to the failure of the whole company. In case the CEO does not have efficient senior management teams, there is a high likelihood crisis occurring more than often since the managers are the ones who are more in touch with the employees as compared to the CEO. Managers in such organizations also have a lot of freedom that is not healthy corporate-wise, (Wu, 2009). They can, therefore, do whatever they want without being questioned most of the times. A lot of bureaucracies also act as a hindrance in the achievement of compliance, good ethical behaviors of employees and good governance.

References

Ali, S..&.K.M., 2014. Business Ethics and Culture. Society and Culture, 2, pp.116-27.

Meijer, m., 2009. Understanding modern transparency. International Review of Administrative Sciences, 75(2), pp.255-69.

Nayoni, K., 2011. Corporate culture . [Online] Available at: https://knowledge.wpcarey.asu.edu/article.cfm?aid=31 [Accessed 5 May 2017].

Otley, D., 2009. Performance management. Management accounting research, 10(4), pp.363-82.

Stewart, C.a.J., 2010. Corporate governance and company performance in Australia. Australian Accounting Review, 20(4), pp.372-86.

Taylor, B., 2010. What is Organizational Culture? And Why Should We Care? [Online] Available at: https://blogs.hbr.org/2013/05/what-is-organizational-culture/ [Accessed 27 April 2017].

Tsutsui, Y..&.Y.K., 2013. Using cultural models for changing corporate culture. [Online] Available at https://www.changefactory.com.au/articles/change-management/using-cultural-models-for-changing-corporate-culture/.

Van den Berghe, L.A.a.L., 2014. Corporate Governance: Role of the Media. Corporate Governance: an International review, 12(4), pp.461-78.

Van Hoorn, J..N.P.M..S.B.a.A.K.R.., 2014. Whistleblower Protection. Pearson Higher Ed.

Wredge, C.D.a.S.A.M., 2008. Corporate management. Academy of Management Review, 32(4), pp.736-49.

Wu, D.D.a.O.D.L., 2009. Enterprise risk management. Production Planning and Control, 20(4), pp.362-69.

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