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

This report discusses the corporate governance of The Commonwealth Bank of Australia, including its policies, principles, and recommendations. It also examines the legal, social, economic, and political implications of poor corporate governance. The report concludes with an analysis of two theories of corporate governance: agency theory and stakeholder theory.

CORPORATION LAW
Corporation Law

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Contents
Introduction................................................................................................................................2
Question 1..................................................................................................................................2
Commonwealth Bank- Corporate Governance......................................................................2
ASX Corporate Governance Council’s Corporate Governance Principles and
Recommendations..................................................................................................................3
Example of Bad governance by the Commonwealth Bank...................................................3
Director Duties.......................................................................................................................4
Question 2..................................................................................................................................4
Meaning and Importance of Corporate Governance principles.............................................4
Legal Issues........................................................................................................................5
Social Issues.......................................................................................................................5
Economic Issues.................................................................................................................5
Political Issues....................................................................................................................6
Theories of Corporate Governance........................................................................................6
Agency Theory...................................................................................................................6
Stakeholder Theory............................................................................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................8

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Introduction
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.
Question 1
Commonwealth Bank- Corporate Governance
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

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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).
ASX Corporate Governance Council’s Corporate Governance Principles and
Recommendations
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.
Example of Bad governance by the Commonwealth Bank
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

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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).
Director Duties
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.
Question 2
Meaning and Importance of Corporate Governance principles
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

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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.
Legal Issues
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).
Social Issues
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).
Economic Issues
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).
Political Issues
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

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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).
Theories of Corporate Governance
The two theories of the corporate governance will drive the views on the good
governance.
Agency Theory
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).
Stakeholder Theory
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

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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.
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.

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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:

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http://www.oxfordscholarship.com/view/10.1093/acprof:osobl/9780199990481.001.0
001/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:
http://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:
http://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.