Corporate Governance and Social Responsibility: A Case Study of AMP Limited

This paper analyses the case of AMP Limited, a company that has been on the spotlight regarding the issue of deducting premiums from the superannuation accounts of the deceased. It looks at corporate governance, CSR, CSV, and Corporate Social Performance, stakeholders, ASX principles, and ethics. The paper provides recommendations on the best way the company can deal with the issue of ethics.

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Corporate governance and social responsibility
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Executive summary
Unethical malpractices have been rampant in the financial sector in Australia, despite
many regulations and various bodies being in place to control unethical behaviour. This paper
strives to look at AMP Limited, a company that has been on the spotlight regarding the issue
of deducting premiums from the superannuation accounts of the deceased. The paper starts by
introducing the company’s background, then analysing the corporate governance and moves
on toCSR, CSV, and Corporate Social Performance. There is also an analysis of the
stakeholders, ASX principles and ethics. After that, a recommendation is provided in the best
way which the company can deal with the issue of ethics.
Background and ethical question
Banking royal commission, also known as the commission into misconduct in the
banking, superannuation, and financial service industry is tasked with the role of inquiring
and reporting misconduct in the superannuation, banking and financial sector. One of the
latest reports that have caused ripples in the market is the case AMP, which has been
charging dead customers in unethical ways (Moir, 2018). . The AMP limited company has
found itself in the spotlight after it was discovered that the company has been deducting
insurance premiums despite being notified about the concerned member’s death. According
to the company’s customer and wealth executive, Mr. Paul Sainsbury, AMP has continued to
deduct premiums from the superannuation accounts since 2016 despite being notified of the
customer’s death (Derick, 2017). However, Paul emphasized that the company intended to
refund the amount when paying out the death benefits. The pay out, according to Mr.
Sainsbury did not; include any additional money that would have been earned if the premium
were not deducted from the superannuation account.
The investigations into the case commenced in April when it was discovered that after
several complaints regarding the premium charges on the superannuation accounts of dead
customers (Farrar, and Hanrahan, 2014). Further investigations revealed that premiums were
incorrectly refunded and at times not refunded at all. Moreover, it was identified that more
than 4,645 dead customers were owed $1.3 million on premiums and lost earnings that were
not refunded. Despite this, the investigations are still ongoing to determine whether there
were other fees that have been charged apart from the premiums (Filatotchev and Nakajima,
2014).

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It has been discovered that the practice of financial advisors churning customers using
life insurance policies has been rampant and the insurance companies are ignoring the issue
and failed to take reasonable measures to deal with the issue. The practice has left the
customers exposed to less cover as well as the extended waiting period for the cover.
Corporate Governance, CSR, CSV and Corporate Social Performance
Corporate social governance
According to the AMP corporate governance policy, the company is committed to
excellence which is essential for the long-term performance and sustainability of the
company as well as the delivery of the company’s strategy.
The company’s corporate governance statement is issued each year and sets out the
corporate governance framework which outlines the company’s governance arrangements for
the previous financial year (Filatotchev and Nakajima, 2014).
The corporate governance charter is designed to promote high standards of corporate
governance by outlining the roles and responsibilities of the management team and those of
the directors in conjunction with the AMP constitution.
Theories of corporate governance
The agency theory strives to explain the relationship between the principal business
and the agent as well as address the problems. The theory is based due to the interests of the
agent, which are not in line with the interest on the principal. This prompted by the actions
taken by the agent in which the principal is not aware. In such a case, the AMP Company has
been delivering financial reports that portray high profits to impress the shareholders. On the
other hand, the management has been unethically deducting premiums from superannuation
accounts of deceased clients, hence the increased profits. The principal or shareholder was
not aware of the agents or management actions until it was too late. The shareholders have
appointed the management to create assets and make profits. The agent, on the other hand,
wishes to ensure that they have a job security (Fordham and Robinson, 2018). For instance,
the management may wish to ensure that the company grows and stabilizes by expanding its
operations. However, the shareholders might be against the growth and expansion as the
process means decreased profits in the short term. AMP struggled to balance the interest of

Corporate governance and social responsibility 4
the two parties, which eventually led to using unethical means to earn an extra margin(Staff,
2018).
In the same case, the management may create various levels of risks between them
and the shareholders. Given that the agent acts in the position of the principal, the agent
makes independent decisions. However, as the decisions are made the principal is responsible
for providing all the resources. This means the principal faces the risks because of the
decisions made by the agent. This creates uneven risk tolerance between the agent and the
principal (Masoud, 2017).
The decision-making powers bestowed on the agent, the agent represents the
principal, while dealing with the third party. This result in problems such as that in AMP as
the agent wants to please the principal while the same time oppressing the third party.
Corporate social responsibility at AMP
The AMP Limited is committed to managing its business in a sustainable manner to
ensure the future, as well as the present, is well looked after through building the community,
customer and the shareholders’ value (Mildred, 2018).
The company has a commitment to supporting its clients and ensure that the business
endures sustainably as well as the community being served. The company acknowledges
long-term business success that is brought about by social impact, the organization's
environment and customer support as well as corporate governance. The company ensures all
the above is achieved through (Fordham and Robinson, 2018),
Ensuring that the customer gets the best quality investment product, advice, informing
and educating the community on matters related to investment decisions. Moreover, the
company strives to improve on its resource efficiency and minimize the environmental
impact, encourage responsible investing and invest in the community through AMP
foundation. The company gets involved in the community through fundraising, payroll giving
program, mentoring and team volunteering (Harjoto, 2017).
The company ensures inclusivity at the workplace by accommodating the wide range
of employees, regardless of identity, cultural background, age, and gender. Moreover, taking
care of the environment is one of the company's priorities as it strives to support
environmental initiatives, minimize carbon footprint and improve on resource efficiency
(Masoud, 2017).

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Creating shared value
Most businesses have neglected the practice of creating shared value and are caught in
the vicious cycle due to an outdated approach to value creation. Various companies including
AMP have focused on creating short-term cash flow at the expense of the unmet needs in the
market as well as their future influence in their business success. With such an approach,
companies have ignored the well-being of their customers, natural resources, suppliers as
well as the community in which they operate (Michaels and Grüning, 2018).
According to Porter and Kramer (2018), this is not how things should run. They argue that
business has an opportunity to bring the society and their businesses together y redefining
their purpose in creating shared value and generating economic value to favour the society
through addressing its challenges. Companies can redefine their approach in three distinct
ways (Olszewska and Piwoni-Krzeszowska, 2014).
First, companies should strive to work with the local people in the community.
Second, they should support initiatives that take place in the communities they are operating.
The third way is to train their stakeholders to adopt a new way of viewing things rather than
the hard-nosed approach.
Moreover, the concept of shared value could go a long way in redefining the way
capitalism is viewed. However, getting to such levels will require managers to learn a new set
of skills and knowledge as well as to compel the government to form regulations that allow
shared value.
Though this can be viewed as an alien at AMP, the company needs to consider
adopting the new way and approach to shared value creation. By doing things in such a way,
it will be easier to value inclusivity whereby all the stakeholders are treated fairly, unlike the
case cited at AMP relating to some of the stakeholders being oppressed (Trong Tuan, 2012).
Corporate social performance
According to Cube Group (2018), corporate social responsibility goes beyond
donating money and printing papers double-sided to save trees. It involves a company being
responsible for its decisions they make as well as the impacts on all aspects of the society,

Corporate governance and social responsibility 6
including the environment and the community to ensure the health and wealth of the society
as well as operate transparently and ethically.
On the other hand, looking at the AMP recent disclosure, the company seems to be
violating most of its policies and beliefs. The company claims to offer the best to its
customers yet looking at how it does this is through milking profits from the clients.
Deducting premiums from the superannuation fund after the client has passed away is
unethical since they had already been served with the notice.
The organization has failed to follow its own policies as well as those of the corporate
performance cube. The policies of the organization relating to CSR claim to support its
clients and ensure that the business endures sustainably as well as the community being
served. However, they seem to cripple the community deducting the premiums of the
deceased and not accounting for the time value of money (Shimeld, Williams and Shimeld,
2017). Moreover, the performance cube advocates that CSR is about ensuring the welfare of
the society through transparency and ethics, yet the company lacks ethics as deducts the
premiums. Moreover, there is a lack of transparency since there are cases where the
premiums are under-refunded and at times not refunded at all.
On the other side of things, the agent, or management was working towards
increasing the company value as well as the shareholder's return. Viewing from the
shareholder's point, the measures were necessary to ensure that the company capitalizes on
any cash inflow. This is seen as the company claims that the premiums will be refunded but
not the amount that would have seen generated if the premium were not deducted.
AMP stakeholder analysis
The aim of the stakeholder analysis is to identify the actors who play in the success of
AMP Limited. The stakeholders will show the relationship between stakeholders and power
balance, as well as other dependencies (Rosa, Izan and Lin, 2014). During the analysis, a
matrix approach is considered the best in delivering answers to the required questions. A
matrix represents the various dimensions of the stakeholders such as the attitude, interest,
influence, and paper.
Stake holder’s analysis as the following questions
 What are the various activities that the management can perform to meet the interests
of the various stakeholders?

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 What are conflicts likely to arise among the stakeholders as well as the management?
 Who requires protection from management interventions?
 Who will benefit from the management interventions?
 Which are the responsibilities held by the groups in relation to the organization?
 What are the resources provided by the group in relation to the problem concerning
the problem?
 How are the stakeholders being affected by the problem?
 What are the various interests of the stakeholders relating to the problem?
 Which stakeholders are to be directly affected by the problem?
The benefit of stakeholder analysis is to help determine the various stakeholders who
need to be considered and characterized in relation to their respective interests as well as the
interactions that relate to power. The analysis also helps to promote transparency as wells
predict the outcome of a policy(Safari, 2017).
Using the matrix method there are four steps involved, the steps are as follows’
 Determination of the attributes to be mapped
 Applying the attributes to the stakeholders
 Mapping the attributes and
 Analysing and discussing the maps.
Determination of the attributes to be mapped
This step determines the role of the stakeholders during the process of making a
policy, their level of contribution as well as their interest and power as well as the power of
the stakeholder to influence others and how they are linked to others.
Applying the attributes to the stakeholders
Once the attribute of the various stakeholders has been determined, their attributes are
then strategically applied to ensure the success of the policy implementation.
Mapping the attributes
The process of mapping the attributes can be done manually or using specific
computer software such as the Cmap tools Software

Corporate governance and social responsibility 8
Analysis and discussion of the maps
The mapping provides a foundation on which an analysis concerning how
stakeholders interact and relate to the problem in question (Miles, 2012).
The advantages of stakeholder analysis include
 Pedigree in which it helps to start conversations with stakeholders
 Synergy, which helps to identify the key factors and actors who can contribute to the
delimiteddiction-making context
 Cost is loweredbecause of the analysis. However, the cost varies depending on the
size and number of the stakeholders to be considered.
 Capacity, whereby the previous analysis is used to build on the present analysis
 The time range is short, usually a few days, although it might take months under
special circumstances.
Looking at the case of AMP Limited it is clear that they did not adequately map their
stakeholder analysis process. This is evident as some of the stakeholders had to file their
complaints to the relevant authorities as the company failed to address them. This shows how
misrepresentation of the actor during the analysis can lead to dire consequences. Since the
discovery of the ethical malpractice that saw deceased clients being ripped off, the share price
has significantly dropped from 4.82AUD to 3.08 AUD (Lee, 2016). Though the management
wanted to create wealth for the shareholders, they went to extreme ends of deducting
premiums from the deceased, which in return has become a liability to the company’s image.
The shareholder value has been decreased because of the discovery and the company is now
obligated to pay up to $ 1.3 million of premiums and unclaimed earnings.
The policymakers should ensure that all the stakeholders have been involved as it
will be possible to point out the various potholes that the company might encounter. Such
potholes are crucial to identifying as they may dent the future of the organization such as the
case of AMP. Apart from the decrease in the company's value, the company is likely to lose
customers as well as scare away prospective customer hence further ringing the business of
the company down.Moreover, the consultation helps to smoothen the policy implementation
process by ensuring the concerned stakeholders are on board and those who are exposed
negatively have been shielded to avoid embarrassment.

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ASX 2010 Principles and recommendations
The development of ASX corporate governance principles has done a great deal in
raising standards of corporate behaviour and accountability. These principles include, among
others, the recruitment of the accounting board. However, the new AMP chairperson David
Murray seems to question the continued process of introducing other principles. The
chairperson argues that the principles have reached a point of diminishing returns. The
chairperson acknowledges that good governance and good practice go hand in hand with
good performance, but he also points out that it is not a holy grailand will not prevent
companies to experience cases such as the premium deduction on the superannuation for the
deceased.
Murray suggests that it has come a time where companies should depart from old
ways of governance and depart from the obstacles that hinder better outcomes. He continues
to suggest that proxy advisory firms should undertake the process of such a migration.
Though the chairperson seems to have a futurist view of redefining the way companies
operate, it is evident that more work needs to be done at a company management level rather
than introducing new regulations or forming proxy firms (Carrett, 2018).
AMP Ethical analysis
Ethics in the current economic set does not only revolve on how genuine the profits
were made. On a broader scope, ethics relate to making a positive impact on the environment,
animals, and people. This shows that the financial service sector should not only deal with an
issue relating to money it should also strive to ensure that they look after all variables that
helps generate the money. Ethical issues tend to be a challenge as a company cannot control
the actions of each individual despite laying out the policies (Hansson, 2018). However, the
management can work on training the staff on the benefits of ethics to secure the business
future success. Failure to do so, cases such as that of AMP may arise which may lead to loss
of money through legal action or even a bad reputation causing the company value to drop in
terms of price shares.

Corporate governance and social responsibility 10
Recommendations
The current economy has evolved to a level that it operates globally due to
technological advancements. Companies nowadays are able to share information globally in a
matter of seconds. The same way bad news regarding a company is able to travel to the
customers. Trending on bad news especially related to ethics is a detrimental issue on the
company's business. Therefore companies should do the following to curb unethical
behaviours
 Embrace the creation of shared value
This will ensure that the company’s value is shared with the community that it is
serving and thereby promote transparency and accountability that help to curb
unethical behaviour
 Equip the management and the employees with skills and knowledge that support
inclusivity of the stakeholders
 Ensure that the ethical standards are maintained in line with the policies and
regulations provided by the ASX
 Do a thorough audit of the firms
 External auditors may be useful in providing reliable information that can help a
company determine areas that need improvements. Auditors unearth the underlying
issues, which would have caused an embarrassment in the future.
Conclusion
Ethical issues are a crucial part in the company performance; companies should
ensure that their ethical standards are observed to ensure good performance as well as future
success. AMP has failed to acknowledge the fact that ethics determine the success and
decided to rip off its clients. The result is a failing company with frantic efforts to save its
image, which begs the question agent's interests in agency theory. By damaging the image of
the company, the agent risks losing his/her job which in the first place was fighting to protect.
On the other hand, the issuing of policies and regulations has proven not to work anymore
and just like the AMP chairperson, it is time for a paradigm shift, which will see capitalism
beredefined and perhaps require fewer regulations.

Corporate governance and social responsibility 11
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