Corporate Negligence And Impact On Barclays Bank - A Case Study Essay.

1.Identify the financial and ICT issues for key business functions.

2. Appraise and recognise use of Corporate governance and ethics within a business context.

Brief Description of Company

The report is developed for demonstrating the importance of corporate recklessness and negligence on the corporate performance. The corporate negligence can be stated as the irresponsible behavior of the corporate that causes the use of unethical and illegal practices for carrying out business activities. The corporate negligence can be caused due to absence of adequate corporate governance guidelines that is necessary for maintaining ethical guidelines for carrying out business operations. The report has demonstrated the result of corporate negligence through specially referring to the global financial crisis of 2007-08 that caused the collapse of world’s largest financial institutions. As such, the report has specifically emphasized on the impact of the corporate recklessness and negligence on the shareholders, employees, share price and financial performance of the Barclays bank.

Barclays PLC is the multinational company that works in providing the financial services to the people all over the world. It is the British multinational bank and its headquarter is located in London, United Kingdom. Barclays Bank has the global reach through offices in all the major states of most of the countries. It offers products and services that includes corporate and investment banking, various types of card including debit and credit cards, wealth maximization services, portfolio management, and other banking services (Barclay Home, 2017). As per the recent annual report of the company there are approx 120000 people working for the company in order to provide services over 40 countries. As per the information from the corporate website of the company, the company is organized into four major business areas. These business areas include personal & corporate banking (corporate banking, personal banking and investment management), Investment banking, Barclaycard and other core services. The origin of the Barclays was seen in year 1690 with first impressions as the Goldsmith Banking Business. It was first established in city of London and in year 1736 bank has begun its expansion through opening many branches in city of London as well in many states of the country (Barclays Annual Report, 2016).

As per OECD, a good corporate governance practices helps in proving the assurance that organizations use their capital very effectively. The good practices of corporate governance helps in ensuring that organizations keeps the interests of the wide range of the constituencies as well as it also ensures that interests of the communities in which corporation operates has been take care of. OECD has provided some principles of the corporate governance. These principles are meant to assist members and non-members governments in the efforts that analyse and aims to improve the legal, regulatory and institutional framework of corporate governance in their respective countries (OECD, 1999). These principles also helps the members through providing guidance and suggestions for stock exchanges, investors, corporations and other parties that plays important role in process of developing the good corporate governance. The description of the various principles of corporate governance is as under:

Rights of Shareholders: Corporate governance framework should ensure shareholder’s rights. Some of the shareholder right are proper methods of registration, transfer or convey the shares in proper manner, provide all the relevant information regarding the organization on the timely manner and on regular basis, vote in the annual meetings of the shareholders, and provide dividend as per the policy (OECD, 1999). As per OECD shareholders have the right to participate in and also informed about the fundamental changes that took place in the organizations. Shareholders must be provided the opportunity to effective participate and vote in the annual general meeting. Shareholders must be informed about the procedure of voting and other important things at the time of the annual general meeting. Capital structure of the organization must be disclosed to the shareholders in order to obtain the degree of control disproportionate to their equity shareholding.

Corporate Governance (Principles of Corporate Governance given by OECD)

Equitable treatment of the shareholders:  The principles of corporate governance framework ensures the equal treatment of the all the shareholders. The shareholders include minority and foreign shareholders. So as per this principle all the shareholders must be provided with equal opportunity to get the effective redress of their violation in relation to their rights. As per this principle, insider trading and abusive self dealing must be strictly avoided (OECD, 1999).

Role of the stakeholders in the corporate governance: The corporate governance of every organization must recognize the rights of the stakeholders as mentioned in the law. Corporate governance must also encourage the active co-operations between the stakeholders and organizations while providing jobs, wealth maximization and sustainability. All these steps help in ensuring the financial viability of the sound financial organization (Wooller, 2014).

Disclosure and Transparency: The effective corporate governance framework must provide sufficient guarantee that accurate and timely disclosures are made in respect to all the matter that are related to organization. Some of the matter includes financial situation, overall performance, governance at all level and complete ownership details of each and every shareholder. These disclosures must include but are limited to information related to financial results of the company, objectives of the company, all the major shareholders and percentage of voting rights, risk associated with the business, and governance structure. All these disclosures must be properly audited and must ensure the requirements defined in the accounting standard and other standard related to the disclosures (OECD, 1999). As per this principle of corporate governance the annual audit of the company must be done from the independent auditor as it helps in providing the external and objective assurance of the preparation of the annual accounts and disclosures made with that. It provides the certainty that financial information must be prepared with due diligence and are free from any biasness and other integrity issues (Plunkett, 2008).

Responsibilities of the Board Members: The effective corporate governance ensures the proper accountability of the board directors to the shareholder of the company so that effective monitoring of the company can be done. As per this principle board member must act with proper diligence, care and in the best interest of the company and shareholders of the company. Where the decisions of the board members impact the shareholder group differently than board members should treat the shareholders on the fair basis. This principle has provided key functions of the board members and such functions should be strictly followed in order to ensure the effective governance of the organization (Collins, 2012). In order to ensure that board members should make the purposeful decisions and can act with proper responsibilities, they must have access to the accurate, relevant and timely information. All the board members must check that they have compliance with the applicable laws while taking the interests of the stakeholders in making the decisions. The major functions of the board members includes reviewing and making the corporate strategies, plans of actions for each period, risk mitigations policies, regulations to evaluate the performance objectives and also the employees, and implementation of control at all levels of structure of organization (OECD, 1999).

Impact of Corporate Recklessness and Negligence on the Shareholders, Employees, Share Price and the Finance of Barclays Bank

The global financial crisis of the year 2008-2009 has illustrated the impact of the unethical and illegal practices on the corporate performances. The financial crisis occurred mainly due to the lack of adequate control on the financial practices of businesses through the adoption of the strict laws and legislations. The financial crisis is mainly attributed to the reckless behaviors of the banking sector companies of the developed nations such as the UK, US and Germany. The crisis occurred due to deregulation in the financial industry that allowed banks to involve in hedge funding activities with derivatives. The banks have incorporated the use of mortgage lending for supporting the profitable sales of the derivatives leading to the occurrence of the financial crisis (Edelbacher, Kratcoski and Theil, 2012).

The financial crisis is mainly caused due to incompetence of the major financial institutions to prevent the occurrence of corrupt practices in the financial market. Thus, the negligence behavior from the financial institution has caused the occurrence of such financial crisis in the year 200802009. The global financial crisis can be referred to as a situation where the financial assets of the major institutions around the world become undervalued as contrary to their predicted value. The situation is mainly developed due to negligence behavior of corporate that gives rise to ethical practices within the financial markets such as insider trading. The occurrence of the financial crisis in the US impacted the performance of the major financial institutions around the world. The crisis has major impact on the Barclays bank as well, a major bank of the UK. The bank was also alleged to be involved in the use of derivatives for driving the profitability (Rusche, 2011).

The bank was held responsible for manipulating the energy markets in the US for making profits through the use of financial instruments of derivatives. The bank was involved in betting the price of the oil and gas commodities through the use of speculating activities supported by the derivatives financial instruments. The use of the derivatives by the bank has also lead to its financial crisis during the period of 2008-2009. The Barclay bank contributes to about £ 43 trillion of the GDP of the UK and such the financial crisis of the bank caused the total collapse of the financial market of the country. The banking group was also fined with £50m for the reckless behavior for its unethical practices during the year of 2009. The Barclays has also admitted that the use of corrupt practices has lead to its downfall during the period of global financial crisis. The bank was fined for distorting the financial data and thus hiking the interest rates (Mathiason, 2013).

The collapse of the banking sector of the UK due to the negligence behavior of the banks has negatively impacted the shareholder’s wealth and employee’s growth. The bank has incorporated the use of unethical practices to drive its profits for gaining a top-most position in the banking sector. The company brand image was largely impacted after the global financial crisis illustrates the use of corrupt practices in the bank with the aim of profit maximization. This caused an atmosphere of stress for the employees and shareholders who were worried about their fate. The employers were mainly worried due to the safety of the jobs with the bank turning to be a bankrupt. The employees have lost their trust in the business practices of the bank and therefore resulting in their demoralized behavior. The harsh economic time requires he development of innovative ideas for meeting the business challenges but the employees due to lack of motivation were reluctant to participate in eth decision-making. The sudden loss of jobs of many employees due to downsizing by the banks for meeting the financial challenges of the crisis have left the employees awestruck. Thus, the employees have suffered a lot due to mis-management practices of the bank due to downsizing (Treanor, 2013).

The impact of the crisis was long-term on the employees who are left demoralized negatively impacting their job performance for a long-term. The company has received negative attention due to its fraudulent remuneration practices. The annual report of the bank has also not provided adequate information regarding the pay package of its executive employees.  As such, the mis-management practices of the bank have caused the loss of confidence and trust of the employees resulting in their less organizational commitment. This would negatively impact the sustainability of the bank. The sudden loss in the value of stocks after the crisis that was predicted to be of higher value has also caused the loss for the stockholders. The shareholders of the bank had to suffer heavy losses due to sudden collapse of the banking group of Barclays. The people having their investment banks had to encounter huge losses due to sudden collapse of the bank. The shareholders have also left their confidence in the banking sector and this would result in negatively impact the performance of the bank to a large extent (Rusche, 2011).

The share price of the bank has declined by more than 10% after the occurrence of the corporate scandal during the period of financial crisis. The sudden loss in share price of the bank after it admitted to manipulate the interest rates and the criminal investigation by the Financial Conduct Authority. The reckless behavior of the banking group during the period of 2008-2009 has violated its corporate governance practices through involving in the advisory services agreement. The main purpose of the bank was to make additional payments for its participation in the capital raising investment programs of Qatar. The bank acted reluctantly and completely ignored the fact that there should be some value to be raelsied from such an agreement (Bankers must be made to bear the cost of their reckless risk-taking, 2012). The lack of control of the UK banking authorities over the banking system has caused the occurrence of such corporate scandals. The loss in the investor confidence with the reporting of fraudulent activities in the bank has caused a major drop in its financial performance during the period of 2008-2009.  This is evident from a sharp decline in the share price of the bank during the respective financial period. The bank faced a loss of hundreds of billions due to loss of confidence of the shareholders due to its toxic investment. The bank has not provided details about the fess structure due to Qatar Holdings that backed its fund rising during the period of financial crisis. Therefore, the occurrence of such corporate scandals have illustrated the importance of maintaining and complying with the Code of Conduct by the banking sector to avoid the occurrence of such crisis in the future (Treanor, 2013).

Conclusion

Thus, it can be stated from the overall discussion held in the report that there is need for developing a string corporate governance system within the banking sector. This is essential for establishing the Code of Conduct for carrying out the banking operations and ensuring the transparency within the banking system. This is essential for avoiding the negligence behaviors of financial institutions as that occurred during the period of financial crisis of 2007-08.The collapse of the Barclays bank during the period has illustrated the impact of the lack of control on the business practices by the supervising authorities on the overall financial sector.

References

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Barclay Home. 2017. Products and Services. [Online]. Available at: https://www.home.barclays/products-services.html  [Accessed on: 12 December, 2017].

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Rusche, D. 2011. Financial crisis was caused by corporate mismanagement, says US government. [Online]. Available at: https://www.theguardian.com/business/2011/jan/26/financial-crisis-us-commission [Accessed on: 12 December 2017].

Treanor, J. 2013. Barclays fined £50m for 'reckless' behaviour during 2008 fundraisings. [Online]. Available at: https://www.theguardian.com/business/2013/sep/16/barclays-fined-reckless-2008-fundraisings [Accessed on: 12 December 2017].

Wooller, J. 2014. The Finance and Funding Directory 2014/15: A comprehensive guide to the best sources of finance and funding. Harriman House Limited.