Importance of Corporate Governance Essay 2022

Running head: IMPORTANCE OF CORPORATE GOVERNANCE
Importance of Corporate Governance
Name of the Student
Name of the University
Author Note

1IMPORTANCE OF CORPORATE GOVERNANCE
Introduction
The dawn of the twenty first century brought about a lot of significant changes in the
structuring of the world. One of such changes was the introduction of the field of globalization
and liberalization in the economy sector of the international sphere. The different private
enterprises now had the freedom to pursue their economic activities based on the aspect of a
capitalist form of market structure. In other words, the aspect of a competitive market increased.
However, one of the elements which was introduced in a globalized form of capitalist market is
that of the factor of corporate governance (Tricker and Tricker 2015). This essay seeks to
understand the importance of good governance for the aspect of corporate success. In this regard,
the essay analyzes one of the case studies related to the field of corporate governance.
Summary of the arguments made in the article
The National Australia Bank has been blamed by the financial services royal commission
for conducting financial misappropriation. It has been alleged that the then chief executive of the
National Australia Bank, Andrew Thorburn engaged in something known as the “fees for no
services”. Kenneth Hayne, the member of the financial royal commission, condemned the then
prevailing culture and work ethics of the National Australia Bank and blamed Thorburn for the
decline in the image of the bank (ABC News, 2019).
In this regard, the chief executive officer of the Royal Bank of Scotland, McEwan was
invited to become the new chief executive officer of the National Australia Bank so that he can
aid in the development and regeneration of the bank. McEwan was praised by the then acting
chief executive officer of the National Australia Bank, Phil Chornican to have significant
knowledge about the ethical standards and guidelines of the Australian banking system. This is

2IMPORTANCE OF CORPORATE GOVERNANCE
significant to understand because at a time of such an internal financial crisis which posed a
challenge on the brand image of the bank, bringing in an ethical person who has a sound
knowledge of the banking system would invite the confidence of the customers in a gradual yet
steady manner.
Thus, the appointment of McEwan was seen in a favorable light by all the relevant parties
to the issue. Kenneth Hayne believed that his appointment as the chief executive officer of the
National Australia Bank would be seen as an active engagement on the part of the bank to help
resolve the crisis (ABC News, 2019). Furthermore, the members of the Bank itself approved of
the appointment of McEwan as he has the record of finding practical and ethically abiding
solutions to the problems faced in the work place.
Interest of the media to report on such an issue
The media has a vested interest in reporting such an issue of financial misappropriation
done by a reputed bank of the society as they want to show to the world the various selfish
designs that are embarked on by the different business enterprises. Banks have the obligation of
ensuring a steady supply of finances in the society (Berger, Imbierowicz and Rauch 2016).
Moreover, they are also charged with the responsibility of keeping the monetary sources of the
people in a safe place, to be returned to them at the time of request. However, often times it can
be observed that they very players who are charged with the maintenance and security of our
finances, are the ones who are engage in unscrupulous and unethical behaviors (McCahery,
Sautner and Starks 2016).
The media reports on such arguments in order to reveal the self-serving motives of the
business enterprises. The capitalist nature of the market is such that it promotes a competitive

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frame of mind among the business corporations. However, one of the main requirements of such
a market structure is that the competition should be fair. Often times it can be seen that the
business companies fails to take this in to cognizance and rather just work for the achievement of
their own higher margin of profit. In this regard they are found to often engage in such cases of
financial unethical behavior which goes unnoticed by the common public (Du Plessis, Hargovan
and Harris 2018). Thus, in order to make the common public aware about the nature of the
companies they are doing business with, the media takes it as their prerogative to ensure that all
cases of unethical behavior is exposed in front of the entire human community.
Importance of the corporate governance issues
Governance refers to the process of executing the activity and functioning of the
governments. In the twenty first century, a lot of importance is placed on the element of
governance as it signifies an aspect of accountability and responsibility on behalf on the different
institutions of government (Armstrong et al. 2015). With the introduction of the concept of a
welfare state, such an idea of governance has also found its root in the field of corporate
functioning.
In other words, it can be observed that the different business organizations no longer have
the absolute freedom to pursue their production activities based on their idea of competition. The
earlier idea of capitalism entailed no accountability on the part of the businesses and their
primary motive was the higher generation of profit margin. With the turn of the century, the idea
of corporate governance assumed a string foot hold in the human community (De Haan and
Vlahu 2016). The concept of corporate governance refers to the formulation of ethical policies
which are found to be socially favorable. The aim of such corporate governance is to hold the
different business organizations accountable for their acts of omission and commission (Aguilera

4IMPORTANCE OF CORPORATE GOVERNANCE
et al. 2015). In this regard it can be seen that one of the major consequences of corporate
governance is that of corporate social responsibility. Under such corporate social responsibility,
the business enterprises are seen to be having significant accountability to the common public for
their acts of production.
Corporate governance is mainly instituted for the big public enterprises (Larcker and
Tayan 2015). The state often holds majority shares in certain publicly important enterprises of
the world. In this regard, they are made highly accountable for their functioning processes any
failure on their part has the ability to have a severely negative and cascading impact on the
financial health of the entire concerned economy (Aguilera, Judge and Terjesen 2018). For the
effectiveness of the aspect of corporate governance, it should be rerated as one of the internal
constituent units of the state itself, such as the police department of the state. Furthermore, in the
event that certain unethical problems arises, the state needs to eliminate them in a rapid manner
and with efficiency so that the customers of the business do not lose their hope and faith in the
concerned organization (Bain and Band 2016).
The importance of corporate governance lies in the fact that the economic market of the
world has undergone drastic change in the twenty first century (Cuomo, Mallin and Zattoni
2016). The aspect of globalization has opened up the various economies of the world to different
business activities. In this context, it is important that the business perform in an ethical manner
as their functioning reflects the image of their home country. Thus, any financial discrepancy
that may occur in the working of such businesses, not only the image of that company gets
negatively impacted but also the image of the home country is also adversely affected.

5IMPORTANCE OF CORPORATE GOVERNANCE
Conclusion
To conclude, several corporate governance issues are seen to be existing in the article
which has been referenced in the course of this assignment. The case of financial
misappropriation on the part of the National Australia Bank has severely damaged the image of
the bank as well as the country of Australia. Corporate governance implies that the businesses
are required to work along several ethical guidelines which seeks to uphold the image and
credibility of the business enterprise along with the image of the country they belong to.
However, in the context of the National Australia Bank it can be observed that the then
chief executive officer created an internal financial crisis within the firm whereby the fees were
made without any services given in lieu of them. In this regard, one of the most important
corporate governance issues that were raised in the context of this article is that of the issue of
accountability. The National Australia Bank had the vital functioning of providing banking
services to the common public. In other words, the bank was required to take care of the finances
of the public as well as to ensure that such finances were handled in a transparent manner.
However, the chief executive officer himself engaged in such unscrupulous activities, revealing
the need for an immediate and effective change in the management of the firm. Thus, it can be
noticed that the significance of adhering to the aspect of corporate governance is important for
the field of business functioning but more so when the different state enterprises are concerned.
This is the direct consequence of the introduction of the need to establish a welfare state which
has the primary objective of fulfilling the desires of the customers.

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References:
ABC News. (2019). NAB appoints RBS boss Ross McEwan as CEO after five-month search.
[online] Available at: https://www.abc.net.au/news/2019-07-19/nab-appoints-ross-mcewan-as-
ceo/11324616 [Accessed 17 Aug. 2019].
Aguilera, R.V., Desender, K., Bednar, M.K. and Lee, J.H., 2015. Connecting the dots: Bringing
external corporate governance into the corporate governance puzzle. The Academy of
Management Annals, 9(1), pp.483-573.
Aguilera, R.V., Judge, W.Q. and Terjesen, S.A., 2018. Corporate governance deviance. Academy
of Management Review, 43(1), pp.87-109.
Armstrong, C.S., Blouin, J.L., Jagolinzer, A.D. and Larcker, D.F., 2015. Corporate governance,
incentives, and tax avoidance. Journal of Accounting and Economics, 60(1), pp.1-17.
Bain, N. and Band, D., 2016. Winning ways through corporate governance. Springer.
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770.
Cuomo, F., Mallin, C. and Zattoni, A., 2016. Corporate governance codes: A review and
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De Haan, J. and Vlahu, R., 2016. Corporate governance of banks: A survey. Journal of
Economic Surveys, 30(2), pp.228-277.

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Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate
governance. Cambridge University Press.
Larcker, D. and Tayan, B., 2015. Corporate governance matters: A closer look at organizational
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McCahery, J.A., Sautner, Z. and Starks, L.T., 2016. Behind the scenes: The corporate
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Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices.
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