CORPORATE GOVERNANCE AND FRAUD

Running head: CORPORATE GOVERNANCE AND FRAUD
Corporate Governance and Fraud
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CORPORATE GOVERNANCE AND FRAUD
1
The Banking Royal Commission in its final report in 2019 laid down certain 76
recommendations and 24 referrals to the Banking, Superannuation and Financial Services
Industry (financial services industry) in terms of their corporate misconduct, leading to
governance failure. Commissioner Kenneth Hayne AC made the recommendations in the
light of the severe corporate misconducts and failure, in reference to the ASX Corporate
Governance Principles (Gergis 2019). The Commission identified the issues and
subsequently laid down its causes, reasons and recommendations (Final Report: Royal
Commission into Misconduct in the Banking, Superannuation and Financial Services
Industry 2019). The misconducts pointed out in the report are:
1. Breach of Director’s Duties
The directors breaching their fiduciary as well as the statutory duties as directors are the
one of the main actors affecting the corporate governance, eventually leading to a collapse. It
has been thoroughly discussed that the directors have been misusing their duty “to act in good
faith” for the best interest of the company, which must have a purpose as held under section
181 of the Corporations Act 2001 (Cth). Thereby, directors are often found to be hiding
behind the ‘business judgment rule’ where they could do anything arbitrary and justify it as a
necessity for the best interest of the business.
2. Kick-backs or Commissions
Most of the brokers and advisors do not disclose the fact that they are being given
commissions to recommend financial products like insurances to customers by the insurance
providers or lenders. In a way, it is a kind of fraudulence that are customers put through every
day, thereby the brokers are gaining a bad name for the financial institutions.
3. Shoddy financial advice