Corporate Law - Case Study on AMP's Overcharging Scandal

This case study discusses the overcharging scandal of AMP, a leading wealth management firm in Australia, and the role of its board chairperson, Catherine Brenner. It analyzes the legal duties of directors and the Business Judgment Rule in corporate law.

Running Head: CORPORATE LAW
Corporate Law
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AMP, the Australian leading wealth management firm is currently faced with a full-
blown crisis. Its board chairperson, Catherine Brenner had resigned after it emerged that the
company routinely overcharged its customers and misled regulators. The company manages
more than $150 billion in terms of assets. After the scandal was exposed, the share price
plummeted by approximately 25% in a matter of weeks to reach its lowest level in five years.
The company lost approximately $3 billion in market value (Maley, 2018).
Revelations at the Hayne royal commission reveal that the company charged its
customers without providing them with any service and further misled the corporate regulator
for 20 times. The ring fencing process involved orphaned clients of retired planners were
placed in a single pool where they were charged fees for up to 90 days for services they did
not actually receive (Maley, 2018).
The commission also revealed the role played by Catherine Brenner in what was
supposedly an independent investigation by AMP’s legal advisers seeking to uncover
information regarding the fees-for-no-service scandal. She ensured that the final report
presented to the ASIC exonerated Meller by inserting a paragraph that explicitly stated that
the chief executive, Meller, was unaware of the practices or their illegality (Maley, 2018).
The director’s statutory duties as provided by the Corporations Act require the
director to act in good faith, have a proper purpose, and avoid conflicts of interests. Other
duties covered by the act include dishonest or reckless conduct, management standards
involving care and diligence, and disclosure obligations. The actions of a director should be
in good faith and in the best interest of the company and done for a proper and legal purpose.
The investigations reveal that the board of directors was aware of what was happening
in the scandal revealing that the culture placed the interests of the shareholders before those
of the customers. The actions to mislead the ASIC were deliberate. The Royal Commission

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heard that between the year 2012 and 2015, AMP made a deliberate plan to charge its clients
fees without giving them any service. By stepping down, she took responsibility for the
actions as these actions directly contravene the duty not to misuse information to gain
advantage like in the case of inserted paragraph to exonerate Miller. She also misused her
position as the chair of the board top gain undue advantage by influencing what was expected
to be an independent report on the scandal (Maley, 2018).
The Business Judgment Rule requires that the director make the business judgment in
good faith for a proper purpose, should avoid conflicts of interests, must be informed of the
subject matter, and be rational about the decisions made. Section 180(3) defines the business
judgment as a decision to take or not to take action in respect to a matter relevant to the
business operations. The board has being accused of condoning and embracing the behavior
to mislead government agencies and recover fee from clients for no service rendered for their
heavy remuneration package (Maley, 2018). The actions were not in good faith and not for a
proper purpose. In as much the actions furthered the agenda of shareholders wealth
maximization, the agenda was purely for selfish reasons and at the cost of customers.
The financial reports must comply with the accounting standards as well as giving a
true and fair view of the financial performance of the company. The directors’ report must
also include details pertaining to remuneration matters and their interests in the company in
accordance to section 298 to 300B. The company is also required to disclose material
information in relation to the company’s operation on a continuous basis. AMP has
deliberately misled the regulators for twenty times and by issuing this misleading
information, AMP has continuously contravened the sections highlighted in this paragraph
which are in section 674, section 297 or 303 stating that the company has an obligation to
form an opinion that cause a true and fair view. Others include complying with auditing
standards as required in section 307A (Maley, 2018).

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References
Maley, K. (2018, April 30). Catherine Brenner's formula for climbing the corporate ladder.
Retrieved from Financial Review : http://www.afr.com/business/banking-and-
finance/catherine-brenners-formula-for-climbing-the-corporate-ladder-20180429-
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