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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.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.

Meaning of Corporate Governance and its Importance

The need of corporate governance has risen because of developing concern regarding non-compliance of financial reporting standards and duties by BOD and management of the company. The corporate governance is considered as an essential factor. The corporate governance is the process of the polices the company itself. It is a process of regulating the corporation like an independent state, establishing its own customs, approaches and rules, regulations to its workers from the high to the low stages. The corporate governance of corporation is proposed to enhance the duty of the corporation and to ignore substantial tragedies before they happen.

In the following parts, the meaning of good corporate governance structure, principles of corporate governance, and various theories of corporate governance and consequences of poor corporate governance structure of common wealth bank is discussed.

Commonwealth Bank of Australia is chosen for the evaluation of the corporate governance.  Commonwealth Bank is multinational bank in Australia. The Commonwealth Bank is multinational bank with business across New Zealand, USA, `and UK. It gives various financial services, retail services, services related to banking, insurance, investment, management of funds, superannuation and services related to broking (Tricker, 2015). The Commonwealth Bank is  largest listed bank on the Australian security exchange as of August 2015 with brands such as  Bank west, ASB bank of New Zealand, Commonwealth Insurance and Commonwealth Security.

In year 2018, findings from the Royal Commission into misconduct in superannuation, banking and industries related to financial services have directed an adverse culture in the Bank, amid claims of scam, dishonesty, and money laundering, among many other crimes (Schwartz, 2011).

The corporate governance is tools, procedures and connections by which companies are organized and guided. The principles of corporate governance recognize dissemination of powers and duties among various members in the company such as BOD, managers, stakeholders, creditors, investors, auditors, and controllers. It also includes processes, rules and regulations for taking decisions in corporate affairs. The corporate governance involves the procedures by which objectives of company are set and followed in respect of the social environment, supervisory and market environment. The corporate governance mechanisms involve reviewing the activities, policies, approaches, and decisions of companies, their agents, and influences shareholders (Tricker & Tricker, 2015). The corporate governance practices are influenced by attempts to support the stakeholders’ interest. The good corporate governance refers to developing the structure of management in the company to develop relationship among BOD, management, workers, and the stakeholders to serve interest of shareholders of company.

The Principles of Corporate Governance

The corporate governance statement details key corporate governance engagements and approaches of the Commonwealth Bank of Australia. The Group is dedicated to high corporate governance norms. The Commonwealth bank has a corporate governance structure that supports the performance and sustainability. It secures and develop and increases shareholder and other stakeholder interests (Zientara, 2017). The Commonwealth Bank frequently monitors corporate governance provisions and policies to make sure that they show developments in regulation, practices of market and expectations of stakeholders. The Bank has followed the recommendations stated in  third edition of ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations in year 2017 (Neubauer & Lank, 2017).

The Statement of Commonwealth bank states the duties and independence of directors. The Board reflects all non-executive directors in reporting period to have been sovereign and its present non-executive directors to continue to be sovereign as at the date of statement. The Board assessed interest, position and relations of non-executive directors against those set out in independence guidelines and Recommendations (Klettner, Clarke & Boersma, 2014).

Following principles and recommendations are suggested for Commonwealth bank-

Principle 1 says that the corporation’s structure should be framed to make able board of company to render directions for board and the management of company. The framework of corporation must ensure the balance of authority. It is required by the board to adopt official statement of problems that states the board’s duties (Kraakman & Hansmann, 2017). The formal statement of delegated powers to board of corporation is other substitute. According to Principle 2, it requires that the board has good knowledge of, and capability to handle current and rising issues of the business. It is recommended to review the independence of directors of the corporation (Muller, 2017).

According to principle 3, the corporation should encourage appropriate moral decision-making. It is recommended to design code of conduct. The company should disclose the codes to develop faith in the integrity of company and to implement the individual’s obligations for reporting and inspecting report of unprincipled practices. Principle 4 says that company to put in place a framework of assessment and permission made to make sure the real and truthful representation of the financial position of corporation. The framework will involve assessment and consideration of accounts by audit committee and the procedure to make sure independence and ability of auditors of company. It is recommended that CEO and CFO should specify in writing to board that financial report show correct view in substantial aspects of economic position of corporation (Cranston, 2018).

Corporate Governance of Commonwealth Bank

In accordance with this principle 5, a company should promote the disclosure timely. A company should form written policies to make sure the compliance with requirements of ASX principles. It is stated by principle 6 that the corporation should respect rights and powers of shareholders of the corporation. The corporation must use the rights in proper way. It is recommended to the company to develop the policies for an effective communication with stakeholders of company (Morrison, 2015).

Further, according to this principle 7, the company is required to make the complete system of risk oversight and administration. It is recommended to board of company to disclose the effectiveness of management of great business risk. Furthermore, The principle 8 says that the company should make sure the level of remuneration in proper manner. It should be proper to establish positive relations. It is recommended that company should make remuneration committee. The remuneration committee is to be structured by majority of independent directors of company. It is also recommended that a company should make differences between the compensation of executive directors and compensation of non-executive directors (Moon, 2014).

In 2003, after implementation of the Australian Securities Exchange (ASX) Principles of Good Corporate Governance, the Commonwealth bank increased the efficiency. ASX Principles of good Corporate Governance aimed for developed governance mechanisms and thus good regulation on the management of bank. After the implementation of the ASX principles, the banking sectors of Australasia including Commonwealth bank performed good in increasing the complete revenue from advancing functions and non-advancing functions for selected level of borrowing and operational expenditures. The outcomes showed that the Commonwealth Bank performed best in the banking sector in comparison of other competing local banks. It suggests that large board brings high knowledge in the process of decision and administration.

The Royal Commission proposes the people or companies to make public submission by the online modes. It is required by those, who need additional assistance by the email or telephone. The aim of submission was to identify causes of unproven misconduct, factors that led to occurrence of misconduct and actions to be taken to resolve the issues. Thus, Royal Commission conducts an inquiry in the proper manner. After conducting an inquiry, it makes a report on the misconduct in banks and financial industry. The Royal Commission has powers to induce witness and endorse the charges related to crime. The enquiry of Royal Commission meaningfully influences the employment of managers in banking sectors (Meagher & Goodwin, 2017).

Consequences of Poor Corporate Governance Structures

The Royal Commission focuses on getting facts whether there is any violation of the rules and regulations related to financial services and other relevant laws. The submission enables the Royal Commission to collect the information quickly in compare of the long procedure of convincing witness to act and produce documents. The intentional disclosure of secret or advantaged details to the Royal Commission may mean that there is an indirect disclaimer of confidentiality or legal privilege in respect of the information in following lawsuit.  Commonwealth Bank supports the Royal Commission in the banking sector or financial industry. The most important thing is  that the sufferers of scandals related to Commonwealth Bank are afforded a chance to make submissions and if suitable, provide evidence before the Royal Commission (Katamba, et. al, 2012).

There are many theories of the corporate governance. The most important theories are shareholders theory and stakeholders theory. The stakeholders theory is most important theory to make views on the corporate governance. The Stakeholder theory was introduced in the management discipline in 1970. It is made by Freeman integrating corporate responsibility to a broad range of shareholders. It is debated by various theorists that stakeholder theory is affected from an arrangement of the sociological and administrative disciplines. The stakeholder theory is less of formal mixed theory and more of an extensive research practise, integrating attitude, political theory, law, ethics, and structural science. The stakeholder theory contains all group such as investors, clients, staff, governance system, and community. It promotes ethics of cares, concept of fiduciary relationship, and the theory of property rights (Adams, 2018).

The stakeholder theory can be described as any person or community who can influence or is influenced by the accomplishment of the objects of company. Conflicting the agency theory where the managers are acting and helping for the stakeholders, it is suggested by stakeholder theorists that administrators in corporation have a linkage of relations to assist this include traders, workers and business partners. It was stated that the group of network is significant in comparison of owner-manager-staff relationship as defined in agency theory. The stakeholder theory states the stakeholders deserving and requiring the management’s attention. The theorists suggested that the firm is a system, where the object of the company is to create wealth for the company’s stakeholders (Bottomley, 2016).

The shareholder theory is considered as the important manner of conducting business with corporations realising that there are drawbacks to focus only on the interest of the shareholders. An attention on short-term strategy and bigger risk compelling are just two of the intrinsic risks included. The part of shareholder theory may be considered in the demise of companies, where uninterrupted pressure on managers to enhance the returns to shareholders led them to influence the accounts of company (Anginer, et. al, 2016).

The Stakeholder Theory

The stakeholder theory states that a company owes an accountability to a broader group of stakeholder, in the place of just shareholders. The stakeholder is described as person or group, which may influence or be d by the actions of a business of company. It comprises labours, customers, dealers, creditors and broader community and participants. These theories resolve the extrinsic requirements. The stakeholder theory is described as an important part of corporate social responsibility. This concept recognises the responsibilities of companies in the current time, whether they can be economic, legal, moral, or generous. In these days, the largest companies of the world claim to have corporate social responsibility at the central of their approaches related to corporation. Whereas there are numerous sincere cases of corporations with a morality, many others exploit corporate social responsibility as a good means of PR to advance their image but eventually flop to put their arguments in the action (Clarke, 2018).

The good corporate governance can have a good effect on the faith of shareholder by motivating them that the corporation is taking proper decisions related to business. The self-confident stakeholders are likely to made investment of huge amounts in structured corporation because a good return on the investment. It can lead to better market confidence in the company that may serve to enhance complete value of stock. When value of stock of corporation increases, so does its complete value (Beck & Paton, 2018).

A company with poor corporate governance approaches may have a adverse impact on the business market and economy. The lack of good corporate governance at the administrative and managing level may lead to poor business decisions, which may reduce the total value of the company and make it more difficult for the business to fulfil its financial duties. It was considered in the year 2009, when poor corporate decisions lead to flop in marketplaces, which in turn caused low economy. Further, the poor corporate governance of the corporation can lead poor political connection (Dixon & Finnane, 2018). The poor corporate governance increased the penalties for eliminating, fluctuating, or making records in central inquiries or for trying to mislead stakeholders of company. It also improved the accountability of audit firms to remain impartial and independent of their customers.


As per the above discussion, it can be said that the corporate governance is significant feature for the success of company. It is found that companies should have social duties. The corporate governance of company is soul of business. The corporate governance is used as shorthand for business contribution to future progress. Various issues related to growth or expansion such as health and scarcity are integrated around the corporate governance in company. The companies having social responsibilities earn extra benefits. It keeps honesty of ethical base of an organization


Thus, the good corporate governance has a significant role in business affairs of company. The corporate governance should not measure as action on the behalf of big companies but it is needed to be treated as moral responsibilities on their behalf. According to corporate social responsibility policy of Commonwealth Bank, it is found that good corporate governance helps in making image all around the world. On the other hand, the poor corporate governance ripples markets of Australia. The corporate governance issues are required to be resolved for effective assessment of the business.


Adams, M. A. (2018). Chartered secretary: Three pillars of corporate governance. Governance Directions, 70(6), 302.

Anginer, D., Demirguc-Kunt, A., Huizinga, H., & Ma, K. (2016). Corporate governance and bank capitalization strategies. Journal of Financial Intermediation, 26, 1-27.

Beck, J., & Paton, G. (2018). Corporate law: The Royal Commission: Corporate culture spotlight: Where is all this heading?. Governance Directions, 70(6), 351.

Bottomley, S. (2016). The constitutional corporation: Rethinking corporate governance. New York: Routledge.

Clarke, A. (2018). 'Culture'and its place in the corporate governance puzzle. Governance Directions, 70(1), 10.

Cranston, R. (2018). Principles of banking law. Oxford: Oxford University Press.

Dixon, K., & Finnane, G. (2018). S is for stakeholders, not shareholders: The shift in board responsibility. Governance Directions, 70(6), 322.

Katamba, D., Zipfel, C., Haag, D., & Kazooba, C. T. (2012). Principles of Corporate Social Responsibility (CSR): A Guide for students and practicing managers in developing and emerging countries. Houston: Strategic Book Publishing and Rights Co.

Klettner, A., Clarke, T., & Boersma, M. (2014). The governance of corporate sustainability: Empirical insights into the development, leadership and implementation of responsible business strategy. Journal of Business Ethics, 122(1), 145-165.

Kraakman, R., & Hansmann, H. (2017). The end of history for corporate law. In Corporate Governance, 39(5), 49-78.

Meagher G., & Goodwin, S. (2017) About the contributors and end pages. Australia: Sydney University Press.

Moon, J. (2014). Corporate Social Responsibility: A Very Short Introduction. New York: Oxford University Press.

Morrison, J. (2015). Business Ethics: New Challenges in a Globalised World. London: Palgrave Macmillan.

Muller, R. (2017). Project governance. Oxford: Routledge.

Neubauer, F., & Lank, A. (2017). The family business: Its governance for sustainability. New York: Springer.

Schwartz, M. S. (2011). Corporate Social Responsibility: An Ethical Approach. New York: Broadview Press.

Tricker, B. (2015). Corporate Governance: Principle, Policies and Practices. Oxford: Oxford University Press.

Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and practices. New York: Oxford University Press.

Zientara, P. (2017). Socio emotional Wealth and Corporate Social Responsibility: A Critical Analysis. Journal of Business Ethics, 144(1), 185–186.

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