Corporate Governance: Background, Impact, and Recommendations

This article discusses the background, impetus, rationale, momentum, and support and/or resistance of corporate governance in the Australian banking sector. It also covers the interim findings, revelations, conflicts of interest, and corporate culture that were uncovered by the Royal Commission. Additionally, it provides recommendations, likely reforms, and the impact of the Royal Commission on the banking sector. Finally, it compares global financial markets and the need for cross-cultural awareness in corporate governance.

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Contents
Part a...........................................................................................................................................3
Answer 1-...............................................................................................................................3
Answer 2-...............................................................................................................................3
Answer 3-...............................................................................................................................3
Answer 4-...............................................................................................................................3
Part B..........................................................................................................................................4
Answer 1-...............................................................................................................................4
Answer 2-...............................................................................................................................4
Answer 3-...............................................................................................................................4
Answer 4-...............................................................................................................................4
Part C..........................................................................................................................................5
Answer 1-...............................................................................................................................5
Answer 2-...............................................................................................................................5
Answer 3-...............................................................................................................................5
Answer 4-...............................................................................................................................6
Part D.........................................................................................................................................6

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Part a
Background, impetus, rationale, momentum and support and/or resistance
Answer 1-
Corporate governance is a unique framework that helps to build organisation`s values and
vision. The purpose of using corporate governance is to facilitate effective management to
make and deliver long-term success of the company. Companies use corporate governance to
outline the specific operations and formulate guidelines for the employees (Ziffer, 2018).
Sound corporate governance not only increase the efficiency of Australian banks but also
focuses on providing profits to their shareholders. However, it is evaluated that various
corporate governance measures has shown effective performance of 11 Australian banks
since from 1999 to 2013. The efficiency of Australian banks have increased after the
introduction of ASX principles based on good corporate governance. The introduction of
ASX principles has improved the performance by maximisation the total revenue. The “Big
four” banks of Australia such as National Australia Bank (NAB), commonwealth bank
(CBA), Westpac, and ANZ has admitted that after the application of ASX principles and
corporate governance, they have started performing better than any other competing regional
bank (Cuomo, Mallin, and Zattoni, 2016).
Answer 2-
The Purpose of Royal Commission is to investigate misconduct in the financial service
sector. Royal commission can recommend changes in the rules and regulation that governs
the banking sector and its operations. Royal commission is an association paid by the
government for investigating the misconduct. Royal commission has the power to call
witness and collect evidences regarding the misconduct (Ni, and Wart, 2015).

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Answer 3-
The senate committee recommended royal commission to involve due to commonwealth
bank financial scandal. However, Malcolm Turnbull did not respond properly. By the time,
more wrongdoing and scandals were uncovered on the part of other big banks such as ANZ,
Westpac, and NAB. National senator called for royal commission after going through the
case of Commonwealth bank. The commission covers banks either large or small, general
insurers, superannuation providers, wealth manager and life insurance business. The
commission would investigate “rate rigging” claims regarding setting the bank’s bill swap
rate. NAB and ANZ has attempted to settlements with the help of regulators but Westpac was
triggered under civil proceedings (Sier, 2017).
Answer 4-
The Prime Minister Malcolm Turnbull pushed back for renewing actions regarding inquiry
into the working of the Australian banks. Malcolm Turnbull resisted the idea of
implementation of royal commission because it would not offer and resolve the scandal-
plagued banking sector. The resistance on the part of Malcolm Turnbull was continued
because function of commission of inquiry is similar to royal commission but it differs when
it comes to reporting either government or the parliament. Malcolm Turnbull argued that the
royal commission would simply an inquiry, costs a lot of expenses, take a lot of time, and do
make some recommendation that would precisely what the commission of inquiry is already
doing (Mansfield, 2017).
However, Malcolm Turnbull admitted that his refusal to call royal commission was a political
error. Although, government tried to protect customers by introducing rules and regulations
to clean up the sector rather than identifying the culprits (Franks et al., 2014).

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Part B
Interim findings, revelations, conflicts of interest and corporate culture
Answer 1-
Royal commission has found that Westpac, AMP, and CBA have breached corporation act.
The senior counsel assistant has told that AMP break the corporation Act by misleading
ASIC making deliberate and material attempts. Royal commission told that AMP could face
criminal penalties while misleading corporate regulator ASIC regarding practise of charging
fees for no service to its customers. Royal commission also charged CBA, Westpac, and
NAB for multiple breaches of the corporation act. More of advices from financial planners
lead to the case against Westpac, as the advice was terrible. Whereas NAB faced more
scrutiny by Royal commission due to widespread practise of false signatures on the part of
customers on the investment document. Ms Orr recommended that both former ANZ
subsidiaries breached the corporation Act because of failure to provide efficient, honest, and
fair financial services.
Answer 2-
Royal commission places the situation of interest opposing because it found that envelopes
were packed with bribes. Problem gamblers get unnecessary credit extensions and bank
manager transferred $35,000 to foreign scammers. The framework in which billion dollars for
financing home loans, car loans, credit cards to customers were kept under surveillance. The
Royal commission put a check on for the misconduct in banking and financial services
industry.
Recently, banking royal commission curved the attention to find whether there exist a conflict
of interest between IOOF (financial investment company) and super members. Whether
IOOF put its profits much above its super member`s interests (Apergis and Cooray, 2015).

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Answer 3-
Corporate culture have direct impact on the performance of employees within a bank. The
issue of corporate culture in banking sector has been noticed in various cases such NAB and
CBA. It has surfaced through significantly addressing two major concerns- enhancing
financial stability and winning public interest. Focusing on compensation as remuneration is
important because pay drives employee`s behaviour. Culture determines the efficacy of
employees, which induce employees to work in a consistent manner with the given values
and objectives of the organisation. Positive and motivating corporate culture may drive the
employees to remain satisfied and work harder. The combining relationship between extrinsic
factors of motivation and remuneration is perceived to have impact on employee’s behaviour.
Job and remuneration satisfaction plays an important role in measuring the employee
turnover.
Answer 4-
The various cases regarding corrupted financial institutions includes HSBC money
laundering lapse in Mexico. The bank officials repeatedly avoided internal warning that
reveals that monitoring system of the bank was inadequate (Viswanatha, 2012).
In 2009, Wells Fargo bank paid $175 million to settle charges caused due to discrimination
against black and Hispanic borrowers.
The breach of Corporation Act, 2001 by “big four” banks of Australia due to which the
banking royal commission was established.
In order to attain a short-term financial benefit, a corporation engages in laundering and
bribing activities. The World Bank considers corruption a major barrier to two main goals,
one of them is ending poverty in the world until 2030 and other is boosting the prosperity for
40 percent poor people residing in developing countries. Corruption do not allow people to

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access health services and have negative impact on health such as infant mortality. Emphiral
studies reveal that poor pays high percentage of their income as bribes (World Bank, 2017).
Many companies are currently under investigation by US department of justice and securities
exchange commission (Taylor, 2015). Although, it is not at all easy to retain the same public
image after corruption. However, by improving corrupt corporate culture, bank will build
public trust; law compliance will improve financial performance and strengthen the
organisation competitive position.
Part C
Rewards / punishments, recommendations, likely reforms, and impact
Answer 1-
Royal commission not only had severe impact on the working of “Big four” banks but also
affected entire bank and finance sector. The ability of repricing mortgage to balance pressures
of entire sector`s was affected, which has negative impact on banks. Shares of CBA bank fell
by 1.9 percent. Initially, the establishment of royal commission will have minor impact on
profit, but this short-term impact will enforce and inculcate governance rules to give long-
term benefit for the organisation. The need of announcement of formation of royal
commission came after a string of scandals, fraud, and corrupt company cultures, and
widespread corruption of banking institutions. The announcement followed and faced an
extended political pressure due to threat of members of national party.
Answer 2-
In the system of corporate governance, it is necessary for the board of directors play a crucial
role. The leaders and directors can implement distinct clawbacks and cancellation features for
all executive officers by offering them equity awards. The company should formulate
incentive compensation and recoupment disclosure policies. The leader can get feedback by

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reviewing independent control functions by evaluating and making compensation decisions.
The company should publish a business standard report to increase the transparency of
processes, culture, governance, business practises, and risk management. The directors
should also provide and expand disclosure of various political and lobbying activities to
include the participation of political processes in case of corruption.
Answer 3-
The royal commission has made new recommendations suggesting that-
The federal government should take an initiate to establish national office for children safety,
and prevent child sexual abuse. Westpac contradicted that all open findings made them
against the activity of royal commission because of failure of its system of royal commission
to monitor its planners, who were responsible for misconduct (Mathews et al., 2015).
Therefore, it is recommended that royal commission should conduct its monitoring under the
community standards. It is reported that royal commission regulated the conduct below the
community standards due to misconduct of ASIC (Australian Securities and investment
Commission) (Salim, Arjomandi and Seufert, 2016).
Answer 4-
After the formation of royal commission, the banks became stricter in following corporate
governance rules. Royal commission not only keeps a check on the activities of banks and
financial institutions but also inquires every aspect of misconduct, if any. The royal
commission understands and analyses the whole corruption and scandal act performed by the
bank. Apart from various rules regulations such as bribery Act, corporation act and it is
mandatory to accomplish ethical practises. The government has to more agencies to prevent
the interest of customers and stakeholders. Loyalty for customers and stakeholders is the self-
responsibility (Novitaningrum and Amboningtyas, 2017).

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Part D
Global awareness, globalisation, cross-cultural awareness and comparisons in global financial
markets
No, the issues of money laundering, exchanges bribes, and distrust of customers is all similar
in every country. Royal commission as an agent to inquire the misconduct no more differs
from agencies inquiring in different countries.
The widespread bribery news, which was extended through FBI interruption. Several senior
officials from FIFA were caught for authorising broadcasting rights to countries, who applied
very late. The initials applicants should get the first opportunity to hold broadcasting rights.
Football`s governing body, FIFA officials were witnessed taking millions of pounds in
bribes.
Another example of scandal is American express bank, who was charged and fined $65
million due to money laundering activities. The company could not detect drug-related cash
transactions laundering over last few years. The company entered into deferred prosecution
agreement with department of justice to solve the charge that could not maintain effective
anti-money laundering program (Poirier, 2007).
Volkswagen scandal, where the car started emitting toxic gases that effect the environment
severely. In 2015, United States Environment Protection Agency issued a notice to control
enforcing to protect the environment and focus on Clean Air Act (Hotten, 2015). The
unethical practises can be controlled only when the company directors and leaders strive to
make such policies to incentivize the employees by providing them external motivation
factors. The government has also started appreciating and rewarding the companies who
accomplish and inculcate corporate governance in their company’s code of conduct. Every

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country has such cases related to money laundering, bribes. Corporate governance rules
provide and designs the rules of governance and should make it mandatory to follow and
implement fairness, transparency, responsibility, and accountability. The government should
penalise as well as ban them to conduct such business who hurt the interest of consumers and
stakeholders.

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