Corporate Governance of Commonwealth Bank: Principles, Theories, and Impacts

This report discusses the corporate governance of Commonwealth Bank, including its principles, theories, and impacts. It covers the meaning of good corporate governance, the corporate governance statement of Commonwealth Bank, the Royal Commission into Misconduct in Commonwealth Bank, and the consequences of poor corporate governance.

Running head: REPORT 1
CORPORATE LAW
STUDENT DETAILS:
9/13/2018

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Contents
Background of company-................................................................................................................3
Meaning and concept of good corporate governance-.....................................................................4
The corporate Governance Principles and Recommendations for Commonwealth bank-..............4
The Royal Commission into Misconduct in Commonwealth bank –..............................................7
Important theories of corporate governance of company-...............................................................8
Consequences of poor corporate governance................................................................................10
Impacts of good corporate governance of company-....................................................................11
Conclusion.....................................................................................................................................11
References......................................................................................................................................13

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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.
Background of Commonwealth Bank-
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,

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amid claims of scam, dishonesty, and money laundering, among many other crimes (Schwartz,
2011).
Meaning of good corporate governance-
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.
Corporate governance statement of Commonwealth Bank-
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

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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).
The corporate Governance Principles and Recommendations for Commonwealth bank-
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

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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).
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).

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Impacts of good and bad corporate governance of Commonwealth Bank of Australia-
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 into Misconduct in Commonwealth bank –
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).
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

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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).
Significant theories of corporate governance of company-
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

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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 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).

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Consequences of poor corporate governance-
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.
Conclusion
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

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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.

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References
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bank capitalization strategies. Journal of Financial Intermediation, 26, 1-27.
Beck, J., & Paton, G. (2018). Corporate law: The Royal Commission: Corporate culture
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Cranston, R. (2018). Principles of banking law. Oxford: Oxford University Press.
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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.

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Klettner, A., Clarke, T., & Boersma, M. (2014). The governance of corporate sustainability:
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practices. New York: Oxford University Press.

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Zientara, P. (2017). Socio emotional Wealth and Corporate Social Responsibility: A Critical
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