Corporate Governance and Breach of Directors' Duty: A Case Study of Commonwealth Bank of Australia

BULAW5915 Corporate Law
Running Head: CORPORATE LAW ASSIGNMENT
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Semester 2 2018 9 / 6 / 2 0 1 8
Student’s Name

CORPORATE LAW ASSIGNMENT 1
Contents
Part A...............................................................................................................................................2
Introduction 2
Corporate Governance statement of the company 2
Royal Commission 3
Unfair Practices and Class Actions: Royal Commission Finding 3
Corporate Governance Breach 4
Conclusion 4
Part B...............................................................................................................................................5
Why Corporate Governance Principles are necessary? 5
Theories 6
Bibliography....................................................................................................................................8
Books 8
Legislation 8
Other Resources 8

CORPORATE LAW ASSIGNMENT 2
Part A
Introduction
Corporate Governance is a topic, which is deeply connected with ethical practices. Corporations
Act, 20011 is the legislation that provides the manner in which an Australian company should
respond to it is stakeholders. These provisions are often known as Corporate Governance. This is
to understand that corporate governance is nothing apart from following good and fair practices,
which are also mentioned under the Corporations Act, 2001. The report attached herewith is
focused on one of the Austrian Company. The Chosen Company here is Commonwealth Bank of
Australia (the bank/CBA). This company is listed on the Austrian Stock Exchange (ASX) and as
the same is a bank, the Royal Commission is considering the operations.
Corporate Governance statement of the company
Similar to any other company, the bank also publishes it is corporate governance statement every
year in which the directors and management of the bank describe that what they think about
governance. According to the Corporate Governance Statement made by this company in the
year the bank is focusing on the financial well-being of it is customers and choosing this way to
ensure a long-term sustainability. Under the Culture heading, the bank has stated that the same is
focused and committed to developing an accountable culture, which not only supports to
business strategies of the bank but also coordinate with law and ethics2. Similar statements were
there in the annual reports for the year 2016 and 2017. By looking after the statements this can
understand that management of the company is concerned about corporate governance and
directors and officers of the same are adhere to follow good practices and governance is their
day-to-day activities.
However, the other side of the coin is also significant to study. Apart from the written
statements, the reality is more important to know. In the recent years, many of the Austrian
banks have reported negatively and it has come into light that they are not co-operating with the
fair practices. Commonwealth Bank of Australia is also one of them. After that in the year 2017,
Royal commission has established.
1 Corporations Act, 2001 (Cth)
2 commbank.com.au, Corporate Governance Statement (2018)
<https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/corporate-profile/corporate-
governance/CBA-2018-Corporate-Governance-Statement.pdf>.

CORPORATE LAW ASSIGNMENT 3
Royal Commission
This commission checks out the suspicious activities in bank, finance, and superannuation
services industry. The chosen company i.e. Commonwealth Bank of Australia has acted
negatively in the area of corporate governance. The following discussion provides a justification
for this statement.
Unfair Practices and Class Actions: Royal Commission Finding
Recently in the year 2017, Australian Transaction Reports and Analysis Centre (hereinafter
mentioned as AUSTRAC) has made a claim against the Commonwealth Bank of Australia
(hereinafter referred as a bank), in which it has been reported that the bank failed to make follow
Federal Government's anti-money policies. The authority claimed that the company has not made
a disclosure regarding around 54000 account transaction that consisted of value more than
$100003. These transactions were required to be reported. Each such transaction if proving to be
breached could attract the penalty $18 million. In this manner, the bank was in danger to pay
hundreds of billions of dollars in penalty. As soon as this news has published the market price of
shares of the company fall down very speedily. The shareholders of the company have faced a
heavy lose cause of such a fall in the prices of shares of the company. The reason behind such
fall was the negative impression on the reputation and financial position of the company cause of
heavy penalties. Later on, shareholders have initiated a class action against this company4. In this
settlement, the bank becomes agreed to pay $700 million as a penalty5. In addition to this, when
Royal Commission has alleged many of otter banks about unethical practice, CBA also accepted
that the same has charged the customers for no services. The commission further found that the
bank has also breached the provision of law by outlining some accounts and investment products
as commission free and later on charging commission and keeping them in bank account6.
Corporate Governance Breach
3 James Hancock, Commonwealth bank Shareholders launch class action over money- laundering scandal (9
October 2017) <http://www.abc.net.au/news/2017-10-09/commonwealth-bank-shareholder-class-action-set-to-get-
underway/9029988>.
4 commbank.com.au, Commonwealth Bank Lodges Response to amended AUSTRAC and class action claims (23
FEBRUARY 2018) < https://www.commbank.com.au/guidance/newsroom/response-to-amended-AUSTRAC-and-
class-action-claims-201802.html>.
5 Austrac.gov.au, AUSTRAC and CBA agree $700m penalty (4 June 2018)
<http://www.austrac.gov.au/media/media-releases/austrac-and-cba-agree-700m-penalty>.
6 Sarah Danckert, Clancy Yeates and Ruth Williams, NAB, CBA recommended for criminal charges in commission
findings (24 August 2018) < https://www.smh.com.au/business/banking-and-finance/nab-cba-recommended-for-
criminal-charges-in-commission-findings-20180824-p4zzna.html>.