Corporate Governance Assignment

Corporate governance assignment

Corporate governance
Answer – 1
The year 2015 was a very ominous year for the NAB. The bank was engulfed into a lot of
controversies pertaining to financial planners. The National Australia Bank was said to have
paid millions of dollars under the table as compensation to its clients from the year 2009 to
2015. The employees of the National Australia Bank leaked such information and claimed
that the bank was engaged in unacceptable practices. One of the employees even stated the
presence of a noxious, fraught and unscrupulous culture within the bank. The National
Australia Bank was also involved in foreign exchange trading scandals and this also created a
lot of chaos for the bank. The NAB’s employees who were hired to offer financial advice to
the clients too executed and supported the bank in conducting these malpractices and
therefore, upon their identification they too were banned by ASIC.
Macquarie Bank was also involved in impairment in foreign exchange trading. ASIC
discovered the involvement of Macquarie Bank’s traders in a lot of scandals. Therefore, the
bank was asked to compensate for the same by means of donating $2 million towards charity.
Westpac faced a lot of controversies pertaining to bank bill swap rate and the country’s key
interest rates. The bank was also sued for determining if the client meets the lending criteria
for the home loan through an automated process. One of the employees of the aforesaid bank
was also sentenced to jail for lending millions of funds to senior citizens through fraudulent
activities. Few Westpac bankers were also seen to have leaked the credential information of
the clients’ orders to foreign exchange traders and this is why ASIC instructed Westpac to
compensate by means of donating $3 million to Financial Literacy Australia. The bank failed
to pass on benefits to its clients that they would have received from package deals that
include credit cards, home loans, and transaction accounts. Hence, the bank initiated the
refund of $65 million to not less than 220,000 clients pertaining to the failure of passing on
benefits.
The three are considered as the worst forms of misconduct because such misconduct leads to
removal of people faith from the banking system. Further, the act was worst because the
scandal involved continuance of extracting fees from the accounts of the people who died, to
a charge of fees for no service. Such practices give an indication of the misconduct they have
in their mind. The banks are a place where people deposit money with utmost faith and are
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Corporate governance
such acts are continued that will lead to grave issues1. Further, it represents the greedy nature
of the banks and the manner in which the executives performed the operations. In all the three
cases, the officials were connected in the scandal thereby striking the fact that such dishonest
means tend to erode the people faith in the system of banking2
Answer – 2
2.1
The main reason the Commission provided for the unethical behavior and bad culture are as
follows:
• The level of interest conflict was high as there was immense movement in terms of
personal goals and the deficiency in terms of ethical remuneration structure was missing. It
was the main reason that leads to unethical behavior.
• Secondly, the separation of duties was absent when it comes to the provision of financial
advice and the marketing of financial products. When the duties are not separated it leads to
conflict and in the due course of action attracts unwanted behavior. The sales/marketing of
the product when left to operate without any regulation leads to major differences3.
• The level of transparency was missing when it comes to financial products. The
employees to attain a big advantage provided services and product to the client that were not
suited to them. Hence, the transparency together with the greedy nature of the employees led
to the downfall. The information transparency was missing and it was one of the major
loopholes that caused the fraud4.
1 Carroll Connelley (ed), Aspects of leadership, Ethics, law and Spirituality (Marines Corps
University Press, 2012)
2 Sytse Douma (ed), Economic Approaches to Organizations. (London, 2013)
3 Patrick , Ulrich, ‘Managing natural resources – Are family firms different from other firms’
(2018) 1 Corporate Governance and Sustainability Review
4 Rob Bauer (ed), Corporate environmental management and credit risk (Maastricht
University, 2010)
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Corporate governance
• Further, the parties defied laws, as well as regulations that govern the operations of the
financial service industry. It was witnessed that the parties defied the laws and acted as per
their own benefits. Further, the laws were not stern and the parties were not held accountable
for the same.
• The greedy nature of the parties was one of the prime reason because the parties wanted
the reward and this was done with the aid of selling the wrong product. In short, personal
greed took a leap and led to the downfall5.
Going by the situation, it can be said that the individuals, as well as institutions, were mainly
in search of reward and the same was accomplished by providing wrong products to the
consumers.
2.2.
The Regulators should define the best practices that lead to avoidance of unethical behavior.
Certain best practices lead to avoidance of unethical behavior and helps in structuring the
corporate culture:
Hire right – The regulator should lay a policy of selecting the correct people so that it
provides a huge difference in organizational ethics. The organization must ensure a series of
steps such as background check, screening of the purchase tools and interviews so that the
selection of the best candidate is done. It must be ensured that the organization follows the
cultural and social norms for the best practice and adhere to the regulator's viewpoint.
Incentivize the correct thing – The regulators should inform that the correct thing should be
incentivized. This means that the employees should not run for rewards. Hence, it is the need
of the hour that the introduction of new policies should be done whereby the organization
should allow the best practice 6. Quality checks should be done by the regulation that helps
in ensuring the best practice. Moreover, the incentive must be set for the correct product that
will aid in the ethical course of activity7.
5 Patrick Velte (ed), ‘Impact of auditor and audit firm rotation on accounting and audit
quality: A critical analysis of the EC regulation draft (2012) 1 Journal of Governance and
Regulation 7-13.
6 David C. Hay and W. Robert Knechel, ‘Meta-regression in auditing research: Evaluating the evidence on the
big n audit firm premium’ (2017) 36 Auditing: A Journal of Practice & Theory 133-159.
7 Domenico Campa (ed), ‘An assessment of corporate governance reforms in Italy based on a comparative analysis of
earnings management’ (2014) 14 Corporate Governance 407-423. https://doi.org/10.1108/CG-06-2012-0048
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