Corporate Governance of Commonwealth Bank of Australia

This report focuses on the corporate governance of the Commonwealth Bank of Australia, including their compliance with ASX principles and recommendations, poor governance, and breached duties. The importance of corporate governance principles and theories, such as agency and stewardship, are also discussed.

Running head: CORPORATION LAW
Corporation Law

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Contents
Introduction................................................................................................................................2
Question 1..................................................................................................................................2
Corporate Governance of Commonwealth Bank of Australia...............................................2
ASX Principles and Recommendations.................................................................................3
Poor Governance....................................................................................................................3
Duties Breached.....................................................................................................................4
Question 2..................................................................................................................................4
Importance of Corporate Governance principles...................................................................4
Corporate Governance Theories............................................................................................5
Agency Theory...................................................................................................................5
Stewardship theory.............................................................................................................6
Conclusion..................................................................................................................................6

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Introduction
This report will focus on the corporate governance of the Commonwealth Bank of
Australia. The Commonwealth Bank has stated their corporate governance in their annual
report where they had mentioned that they have complied with all the principles and
recommendation of ASX. Recently an inquiry conducted by the Royal Commission where
several banks governance has been found to be in question and in that one of the bank is
Commonwealth Bank. Royal Commission has detected various conduct of the
Commonwealth Bank doubtful. The director duties towards the organisation and the laws of
the Corporations Act that has breached will be discussed in this report. The importance of
corporate governance and the principles lay down by the ASX. It is required for a listed
company to follow the ASX principles or it can lead to the legal, social, economic and
political implications. The two theories of the corporate governance that will show the views
on the corporate governance and how the Commonwealth Bank of Australia has failed to
comply with these duties.
Question 1
Corporate Governance of Commonwealth Bank of Australia
The corporate governance is the art of directing and controlling the organisation. The
commonwealth Bank had also published the corporate governance of their company in their
statement. The commonwealth Bank has the goal is to create and maintain the good relation
with the customers by improving their economic conditions. The company has also stated
there in their statement about the relations with the stakeholders. The company also talks for
the good governance inside the corporation by the implementation of the code of conduct in
the organisation. The Bank in their statement has stated about the policies need to be made
easier simpler to understand for strengthening the governance of the organisation. The bank
had made strict laws to mark a stop mark on the bribery and the corruption. The bank had
made the laws to stop the human trafficking in their supply chain and in their business. For
minimising the financial and the non-financial risks, the bank has implemented the risk
management policies. The bank AGM is rotated between the capital cities of Australia so that
maximum of shareholders can attend the meeting. The bank had made certain policies from
which the cooperation between the management and the shareholders that can be improved.

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This statement gives the outlook of the corporate governance of the bank but according to the
report of the Royal Commission, the governance of the bank had been found in the question
(Commonwealth Bank of Australia, 2018).
ASX Principles and Recommendations
The principles and the recommendation of the ASX are required to be followed by the
listed companies. The Commonwealth Bank is the listed company and has to comply with the
disclosure obligations of the ASX. The bank has to reveal the information that can affect the
Ziffer, D. (2018) market price or affects the bank shares. In the ASX recommendation stated
that the management of the company such as directors and the company secretary would be
liable if participated in the decision-making (Tricker & Tricker, 2015). The Commonwealth
Bank is not allowed to disclose its governance policy without the confirmation of the ASX. It
is necessary for the bank to apply all the principles that had recommended by the ASX in
their disclosure policy and has to comply with all the principles and the recommendation
mention in that report. The principle of ASX suggests that the corporations should lay a solid
foundation for the management. The company must work ethically and provide the safeguard
policies in the company. The priorities of the security holder must be considered (ASX,
2018).
Poor Governance
The Commonwealth Bank in their corporate governance statement has mentioned that
they had complied with all the principles and recommendations of the ASX but the bank had
shown poor governance according to the report of the Royal Commission (Royal
Commission, 2018). The certain acts of the management of the Commonwealth Bank showed
the poor governance. The bank had admitted that their planning body had breached the laws
of the Corporations Act as they had charged the fees from the clients who had already died
for the services that they had not received (Danckert, 2018). The financial advisors of the
bank by fraud ways showed profits by making forged signatures and created the unauthorised
investment accounts. The bank had also found in another scandal that includes money
laundering, inappropriate foreign exchange trading, they behaved blind to terrorism
financing, ignored the statutory reporting responsibilities for about three years (Ziffer, 2018).
Its subsidiary Bankwest had also come into the spotlight for the unfair loan practices. The
Bank due to their bad governance and accepted the truth that their employees had been into
the misconduct and for they had millions of penalties to ASIC and provided the compensation

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to the clients. It has proved from the evidence that had been found by the Royal Commission
that the corporate governance of the Commonwealth Bank of Australia does not adhere to the
governance they had stated in their statement (Hurchens, 2018).
Duties Breached
The duties were required to perform by the management such as directors, financial
advisors and the company secretary of the bank has not performed and violated the director
duties of the Corporation Act. The Commonwealth Bank of Australia had accepted the
management of the company had breached the laws of the Corporations Act. The duties
under section 180, 181, 182 & 183 had been a breach that says the directors or the officer
hold the position equivalent to the position of the director. They are required to do his work
with care and diligence that what the employees of the Commonwealth Bank of Australia had
failed to comply with these laws, employees not shown care and diligence towards the
organisation and results in the scandals. The directors must work for the organisation and not
for the personal motive and work with honesty, as this law was completely breached by the
management of the company. Thus, it can be said that the director duties had been breached
by the directors of the corporation.
Question 2
Importance of Corporate Governance principles
Commonwealth Bank of Australia is required to understand the importance of
governance principles and to implement those principles in the organisation for the better
governance. The corporate governance principles that are recommended by the ASX have
necessary to be followed by the organisation. The principles of the ASX are necessary for
every listed company like Commonwealth Bank to implement in their company. These
principles laid down the foundation of the good governance in the organisation. The good
governance means that if the company is working efficiently and the process of the
organisation is transparent and good disclosure policies (Berger, Imbierowicz & Rauch,
2016). It helps the regulators, shareholders and the customers to know the accurate
information about the management process. It will make the good cooperation between the
management and the shareholders, investors and the customer. Thus to avoid legal, social,
economic and the political implications it is required for the bank to have a good governance
and must comply with the principles of the ASX. These implications are as followed:-

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 Legal Implication: The listed company such as Commonwealth Bank of Australia has
to follow the principles that they had stated the principles and the recommendations of
the ASX. There are civil and criminal penalty had been imposed on the company if
they failed to comply with the principles. The management of the company found to
be breached the laws of the Corporation Act than then the civil and criminal penalties
will be imposed. The bank can receive the infringement notice from the ASIC for its
conduct. Therefore, it is necessary for the organisation and the management that the
decision should be taken in a proper and ethical manner to protect from the legal
implication on the organisation.
 Economic Implication: The fraud practices by the bank for which the bank had paid
millions of penalties that causes the financial loss for the Commonwealth Bank of
Australia. Thus, it can be concluded that if the organisation failed to follow the good
governance within the organisation that must follow the principles of the ASX. It is
necessary for the organisation to think before taking any decision on their economic
outcome (Gulf News, 2018).
 Social Implication: It is required for the bank to make a trust among its customers, as
it should be the main motive for any organisation. If the scandals that have revealed
in the Royal Commission the company will lose the trust of its customers. It will lead
to the downfall of the reputation of the bank in the society. The company goodwill is
the company’s biggest assets and for maintains that assets than there are required to
maintain a good governance in the company (Rodriguez, 2016).
 Political Implication: The companies are required to provide good governance to
avoid any political implication. The political pressure can be rise due to the bad
governance in the company as some strict laws or some amendment can be made by
the government that can affect the business (Aulich, Jones, & Head, 2018).
Corporate Governance Theories
There are some theories of corporate governance that suggest the views of the
organisation for implementing the good governance. The Commonwealth bank should
require complying with these theories for the good governance.
Agency Theory
This theory states that the main responsibility of the business is to make profits. This
theory also states the relationship between the shareholders and the management. The

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management is hired is to fulfil the interest of the shareholder. The management is the agent
and the shareholders are the principal in accordance with this theory. The management has
the legal and moral duty to serve their interest. This theory has the basic rule that make
money as much as possible and both these rules are embodied in the society as by the law and
the ethical custom. The management of Commonwealth Bank of Australia had failed to apply
this theory, as they had not worked in the shareholders’ interest. The management of the
company has done certain frauds for their self-interest. This theory aims is to develop
cooperation between the shareholder and the management. However, this theory only focuses
on the interest of the shareholder that is followed by very few organisations because the
modern business focuses on the interest of other such as stakeholder also into the
consideration (Sapra, Subramanian & Subramanian, 2014).
Stewardship theory
This theory states the basic aim to all over the development of the organisation by
giving good results. It gives focuses in protecting the interest of stewards and in maximising
the wealth of the shareholders. This is not related to the agency theory because in that theory
individualism was followed but this theory talks about the goals of the organisation. In this
theory, stewards are the executives and the managers of the organisation as they work for the
shareholders and for achieving the goals of the organisation. Commonwealth Bank of
Australia had failed to comply with this theory as due to the poor governance and poor ethics
in the company. In the Royal Commission, report it was stated that in the organisation there
was the poor ethical environment. It can say that the management values were not conducted
in the organisation in accordance with this theory and therefore the employees of the
organisation have performed poorly. The companies can learn from this scandal and for good
governance, they can apply both agency and stewardship theory in the organisation. These
two theories if combined than can give better results for the corporation (Sapra, Subramanian
& Subramanian, 2014).
Conclusion
It can be concluded from the above two question that the corporate governance has its
own importance. The Commonwealth Bank of Australia has failed to comply with the
principles recommended by the ASX. The bank conduct into the Royal Commission proved
that their corporate governance was not adhering as they had published in the yearly
statement. It has proved from the evidence that the directors of the company had breached the

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laws of the Corporations Act. It can be concluded from the case that if the companies failed
to apply the principle of the ASX that it can lead to legal, economic, social and the political
implications. There is required for the companies to work with in accordance with the two
theories of the corporate governance that had described at the end of the report as what
Commonwealth Bank of Australia had failed to apply.

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References
ASX. (2018). ASX corporate governance. Retrieved from:
https://www.asx.com.au/about/corporate-governance.htm
Aulich, C., Jones, S., & Head, B. (2018). DIVESTMENT OF COMMONWEALTH PUBLIC
ENTERPRISES IN AUSTRALIA: THE CUPBOARD IS BARE 1. Annals of Public
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bank failures during the recent financial crisis. Journal of Money, Credit and
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Corporations Act, 2001 (Cth)
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services industry. Retreived from:
https://financialservices.royalcommission.gov.au/Pages/default.aspx

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