Essay: Corporate Governance Of The Commonwealth Bank Of Australia.

A. Choose a company that is currently listed on the Australian Stock Exchange and whose conduct is being considered by the Royal Commission mentioned above. Discuss whether your chosen company adheres to the principles of good corporate governance. Give reasons for your answer, including examples of good or poor corporate governance exhibited by your chosen company.

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B Discuss the possible legal, social, economic and political consequences that may follow where those making decisions on behalf of the company you have chosen above fail to observe good corporate governance principles. In your response you must identify and discuss two theories that drive views on corporate governance

Introduction to Corporate Governance

This report aims is to discuss the corporate governance of The Commonwealth Bank of Australia. Corporate governance is the set of rules, process and regulations that are formulated to govern a corporation. The Royal Commission conducted an enquiry in that Commonwealth Bank scandals had been reported. The Royal Commission has been appointed by the crown on the recommendation of the government. The Australia Stock Exchange (ASX) had laid down some principles that are required to be followed by the companies who are listed in the ASX. The companies if failed to apply the ASX principles that can lead to a legal, social, economic and political implication. At the end of this report, the two theories will drive the views on corporate governance and the bank had how the bank had not complies with these theories.

The Commonwealth Bank of Australia (Bank) has been committed to creating long-term value by improving the economic well-being of their customers. The bank focus is to give strength to their governance for achieving better customer and for minimizing the risk. The bank policies play an important role for the bank in making the right decisions and the expectations relating to the conduct (Commonwealth Bank of Australia, 2018). The Commonwealth Bank is strengthening the governance of their policies by making it simpler and easier to understand. The governance of the bank must be necessary from the code of conduct view that governs the behaviour of the organisation staff that includes the directors, senior executives and employees of the organisation. The director has the duties towards the corporation and that duties are governed by the Corporations Act, 2001. The culture adopted by the bank that encourages the staff to speak about their concern on the issues they faces. The Whistle-blower policy that protects the victimisation that also includes protection from being terminated from the employment, discrimination and the harassment. The bank is committed for the zero-tolerance culture for the bribery and the corruption. The anti-bribery and the corruption policy identify the corruption risks within their operations. To control the corruption risks for that certain ways has been implemented (Commonwealth Bank of Australia, 2018). The Commonwealth Bank has published the slavery and human trafficking statement that disclosed the action that is required to taken to protect from the slavery and human trafficking in their business and the supply chain. The bank had provided the high standard of governance by implementing the risk management policies to protect from the financial and the non-financial risks. The governance policy of the bank focuses to get better outcomes for the customers. The bank should time to time reward their employees and to deliver the long-term value to the shareholders. The bank knows the importance of the shareholders and for that the bank takes certain steps as a maximum of shareholders can attend the meeting for that the AGM is rotated between the capital cities of Australia (Commonwealth Bank of Australia, 2018).

The Commonwealth Bank's Focus on Governance

The Commonwealth bank is a listed company and it must comply with the continuous disclosure obligation in the Listing Rules and the Corporations Act. The Corporation bank is required to disclose the information that concerned with a related person that causes the material effect on the price or on the bank shares. The bank should be aware of the decisions taken by the director, company secretary that affects the business of the bank. The council has provided some exceptions that states that confidential information related to the management and the information that is incomplete proposal or negation is not required to be disclosed. The ASX has some disclosure policies that without the confirmation of the ASX the bank cannot disclose to the market and the bank in its governance policy has said to comply with these policies and the recommendations. The ASX has recommended certain principles to apply by the bank and the bank in their disclosure report has said that they had applied all the principles laid down by the ASX.

According to the Commonwealth Bank disclosure in their report about the corporate governance, it seems to be the good corporate governance in the bank but according to the recent case, the bank conduct has been found to be in question in the Banking Royal Commission (Knaus, 2018). There are certain acts of the bank that proves the bad governance. The financial advisers of the bank had been found to charged fees from the dead clients (Hutchens, 2018). The commission has given evidence from a 2015 document for CBA’s Count Financial business that has given certain evidence that the financial advisors are charged the fees from the dead clients from the several years. The corporation Bank has came into the spotlight when it accepts the unfair loan practices by its subsidiary Bankwest (Janda, 2018). The bank bad governance can be examined when the bank has conceded that their employees at five times found to be in the unconscionable conduct and for that, the bank had paid the penalty of $ 5 million, for the consumer protection, $ 15 million and the $ 5 million to the ASIC that costs total $ 25 million (Gopalan, S, 2018).  The financial planners of the Commonwealth Bank without the permission of the customers had overcharged fees, forged signature and created the unauthorised investment accounts. These are the examples from that it is proved that the bank has failed to comply with ASX recommendations and the policies. The Corporate governance of the Commonwealth Bank governance found to be poor and not adhere to their governance as they had stated (Bartholomeusz, 2018).

Disclosure Obligations

It is very important for any corporation that the management of it should comply with their duties honestly. The company has a dependence on its director for the strong foundation for any company. In the Royal Commission, the Consumer Action Law Centre had made the submission that urges to consider that whether the directors had breached their duties. From the recent submissions of the Commonwealth Bank that supported this submission that the directors had breached their duties. The director duties have been governed by the Corporations Act, 2001. Section 180, 181, 182 & 183 has been found to be in breach by the Commonwealth directors. Directors, manager and the officers of the bank had failed to work with due care and diligence. The directors had misused their position for their personal gain and not for the organisation by taking accepting funds from the dead clients by the financial advisers of the corporation.

There is a need to understand the meaning and the importance of the corporate governance. The corporate governance is a set of rules that are framed to guide the employees of the organisation. The corporate governance helps the companies to operate efficiently and it gives the transparency by disclosing accurate information about the operational, financial and other segments of the company. This will help the shareholders, investors and the regulators with the public to get the accurate information (Grindle, 2017). The stakeholders of the company are an important part of the organisation and their need should be put in priority by the art of directing and controlling the organisation. The principles that have laid by the Australian Stock Exchange and Australia Securities Investment Commission has its importance that all the organisations are required to follow and if they failed to follow that principle then the legal, social, economic and political issues can rise for the corporation. It is important for the corporation such as the Commonwealth Bank who had failed to comply with these principles.

The Commonwealth Bank is a listed company, had to follow the ASX principles and recommendation, and if they failed to comply with these and found to be in poor corporate governance then the legal issues can arise. The civil and criminal liability under the Corporations Act for the conduct been such lead to damage suffered by the public. ASIC can issue a notice of infringement on the reasonable grounds for its conduct. The directors, managers and the officer of the organisation can face the criminal liability, civil liability and the penalties found to be in the breach of the continuous disclosure obligations.  They will liable if they would be found in the decision-making process or for disclosing any sensitive information of the market then disciplinary action can be taken under the Corporation Act (Robertson, 2018).

Recent Poor Corporate Governance of The Commonwealth Bank

The Commonwealth Bank if lack to take some good decision and failed to comply with good governance that can lead to the downfall of the company goodwill in the market. The significant damage to the reputation and it can highly adverse publicity (Bobby Banerjee, 2014).

The Commonwealth Bank for their poor corporate governance had been already been penalized. In failure to follow, the principles can lead to the financial loss for the company. It is necessary for the organisation to follow the principles for the good governance. The ASX can suspend the Commonwealth Bank shares from trading if failed to comply with the disclosure obligations (Scherer, Rasche & Spicer, 2016).  

The Political issues can take rise if the bank does not follow the certain process in political donations as disclosed by the electoral laws. There is a need for transparency or it can lead to a bank into an inquiry. Thus, there is a need for the banks to make a distance or it can the damage the bank in a major way (Scherer, Rasche & Spicer, 2016).

The two theories of the corporate governance will drive the views on the good governance.

This theory suggests the relationship between the shareholders and the managers and the executives of the company. According to this theory, the manager and the executives are the agents of the shareholders. In other words, the shareholder is the principal and for the benefit of the shareholder, the executives and the managers work.  Agents such as managers and executives are hired by the principal such as shareholder. However, sometimes the principal-agent problem arises when their interest are in the conflict. The main motive of this theory is to make a separation between the control and the ownership. Since, it is required for the agents to provide good results, deliver to the extent of the requirement of the shareholder. Commonwealth Bank has failed to apply this theory as their management had failed to provide the good results for the company results the serious scandal they had caught in the Royal Commission, 2018. The cooperation between the shareholders and the agents has been required to fulfil the interest. Thus from this theory, the good governance can be fulfilled by the cooperation (Financial Management, 2018).

This theory is related to the stakeholder in the company as the name suggests. The company must focus on the stakeholder, as it should be taken as a preferred goal for the company. The company is required is not only to focus on the shareholders but also on the stakeholders. It is required for the company to run in a long way without considering the interest of the considering the interest of the stakeholders. The stakeholder is a wide term that includes customers, peoples, government and others. In making plan & policies of the company, the stakeholder interest should be taken in priority according to this theory. According to this theory, for the good governance with the interest of the shareholders, the interest of the Stakeholders is also be considered by the board of directors. The stakeholders can bring their claims if their interest will not be fulfilled and this will cause the serious consequences for the company. Commonwealth Bank has not fulfilled the interest of stakeholders as their financial advisors had been found to charge fees from the dead clients that give the evidence they had failed to comply with this theory. This theory is somewhere related to the director duties that is a part of the legislation (Heath, 2018). It can be concluded from the theory that the directors and the management of the company must work in the best interest of the stakeholders rather than only considering the interest of the shareholders.

Importance of Corporate Governance

Conclusion

It can be concluded from this for achieving success for any organisation it is necessary that their organisation must follow the good governance by the art of directing and controlling the organisation. The directors can achieve their goals through the good corporate governance in the organisation. The guidelines and recommendations given by the ASX and the ASIC should be followed or else it will result in the legal, social, economic and political issues. The Commonwealth has failed to achieve the corporate governance goal and not adhere to their corporate governance as they had stated in their corporate governance statement. It is concluded from both the question that corporate governance is an important part of the organisation and it can be said that behind every successful organisation is their corporate governance. Thus, in the end, the two theories of the corporate governance has driven the views on the corporate governance from that it can be said that corporate governance is somewhere related to the ethics. It is necessary that owners and the management work in the cooperation and the stakeholder interest should be taken on priority.

References 

Bartholomeusz, S. (2018). The scandals are starting to bite, CBA's latest result shows. Retrieved from: https://www.smh.com.au/business/banking-and-finance/the-scandals-are-starting-to-bite-cba-s-latest-result-shows-20180509-p4ze8c.html

Bobby Banerjee, S. (2014). A critical perspective on corporate social responsibility: Towards a global governance framework. Critical perspectives on international business, 10(1/2), 84-95.

Commonwealth Bank of Australia (2018) 2018 Corporate governance statement. Retrieve from: https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/corporate-profile/corporate-governance/CBA-2018-Corporate-Governance-Statement.pdf

Commonwealth Bank of Australia. (2018). Continuous Disclosure Policy. Retrieved from: https://www.commbank.com.au/about-us/shareholders/corporate-profile/corporate-governance.html

Commonwealth bank of Australia. (2018). Corporate Governance. Retrieved From:  https://www.commbank.com.au/about-us/shareholders/corporate-profile/corporate-governance.html

Finacial Management. (2018). Agency Theory in Corporate Governance. Retrieved from: https://efinancemanagement.com/financial-management/agency-theory

Gopalan, S. (2018). Commonwealth Bank’s $700 million fine will end up punishing its customer. Retrieved from: https://theconversation.com/commonwealth-banks-700-million-fine-will-end-up-punishing-its-customers-97918

Grindle, M. S. (2017). Good governance, RIP: A critique and an alternative. Governance, 30(1), 17-22.

Heath, J. (2018) Stakeholder Theory, Corporate Governance, and Public Management. Retrieved from: https://www.oxfordscholarship.com/view/10.1093/acprof:osobl/9780199990481.001.0001/acprof-9780199990481-chapter-3

Hutchens, G. (2018). Commonwealth Bank charged fees to dead clients, royal commission hears. Retrieved from: https://www.theguardian.com/australia-news/2018/apr/19/commonwealth-bank-charged-fees-to-dead-clients-royal-commission-hears

Janda, M. (2018). Banking royal commission: Commonwealth Bank admits 'unfair' loan practices by Bankwest. Retrieved from: https://www.abc.net.au/news/2018-05-30/banking-royal-commission-continues-small-business-hearings/9815132

Knaus, C. (2018). Commonwealth Bank board 'asleep at the wheel' during scandals, advocates say. Retrieved from: https://www.theguardian.com/australia-news/2018/may/04/commonwealth-bank-board-asleep-at-the-wheel-during-scandals-advocates-say

Robertson, A. (2018) Banking royal commission: ASIC should cancel big banks' operating licences if they behave badly, experts say. Retrieved from: https://www.abc.net.au/news/2018-06-29/banking-royal-commission-asic-should-cancel-operating-licences/9921210

Scherer, A. G., Rasche, A., Palazzo, G., & Spicer, A. (2016). Managing for political corporate social responsibility: New challenges and directions for PCSR 2.0. Journal of Management Studies, 53(3), 273-298.