Corporate Governance of National Australia Bank

This report examines the corporate governance of National Australia Bank, including its compliance with ASX principles and the importance of good governance. It also discusses the legal, social, economic, and political implications of bad governance, as well as the Agency and Stewardship theories of corporate governance.

Running head: CORPORATE GOVERNANCE
Corporate Governance

CORPORATE GOVERNANCE 1
Contents
Introduction................................................................................................................................2
Question A.................................................................................................................................2
Corporate Governance of National Australia Bank...............................................................2
ASX Corporate Governance Principles and Recommendations............................................3
Example of Good and Bad Governance.................................................................................3
Director Duties.......................................................................................................................4
Question B..................................................................................................................................4
Good Corporate Governance and the Importance of Corporate Governance principles.......4
Legal Implication...................................................................................................................5
Social Implication..................................................................................................................5
Economic Implication............................................................................................................5
Political Implication...............................................................................................................6
Agency Theory.......................................................................................................................6
Stewardship Theory...............................................................................................................6
Conclusion..................................................................................................................................7
Bibliography...............................................................................................................................8

CORPORATE GOVERNANCE 2
Introduction
This report basic aim is to discuss the corporate governance of the National Australia
Bank (NAB), determine the relationship of corporate governance and sustainability
performance of the NAB. National Australia Bank is the listed company in the Australian
Stock Exchange. The report further examines the internal management and the government
control over the company. The National Australia bank conduct had been registered in the
Royal Commission that had been discussed in this report and its compliance with both
Australian Law and community standards. The NAB main work is to provide banking
services to the Australian business. The banking services provided by NAB in all over
Australia to the different sectors that include health, government, community banking and the
agribusiness. The NAB if failed to take certain good governance decisions then legal, social,
economic and political implications can took place. The two theories of the corporate
governance will be discussed in this report.
Question A.
Corporate Governance of National Australia Bank
National Australia Bank (NAB) has a wide approach to the corporate governance
and the government practices and NAB arrangements in place at NAB. The NAB has set its
goal is to being the most respected bank in Australia and New Zealand. It has a motive to
move Australia forward with their banking services1. They follow the five organisation values
that motivate and guide the board and the executive leaders to execute a strong culture in the
organisation. The strong and efficient culture drives the organisation that will help in to
deliver industry-leading, the sustainable outcomes for the customers and shareholders. For a
long-term sustainability, accountability and decision making for that, a foundation has been
laid by the corporate governance. In NAB, there has been an open, timely and the transparent
communication with all the stakeholders to win their respect. To maintain a good relationship
with the shareholders and the investors the company had been engaged in many ways- by
direct written and electronic communication from the Chairman itself. The company provide
their information about their policies and the government regulation on the website as all the
information relating to the ASX, periodic table updates, financial results and reports available
1 NAB, Corporate Governance (2018) <https://www.nab.com.au/about-us/corporate-governance>

CORPORATE GOVERNANCE 3
on the shareholder centre. The company has an investor-relation app in which all related
information to the shareholders. The NAB had invited the shareholders that for the AGM in
advance to submit the questions to understand the key areas of interest or the concern. The
companies also focus as to rotate AGM to many capital cities of Australia so that as many
shareholders as possible can participate.
ASX Corporate Governance Principles and Recommendations
The Board of National Australia bank had approved the ASX Corporate Governance
Recommendations and the Principles that the bank has to comply with this. There are some
principles that had been recommended by the corporate governance council that has been
complying by the organisation. The Nab had laid down solid foundations for management
and oversight as recommended by the ASX they had provided the respective roles for the
Board and the management. The NAB board had structured to add value and the acts had
been defined to act with ethically and responsibly. While reporting they should safeguard the
corporate integrity. The disclosures are timely and balanced so that the investors and the
shareholder had been informed through the website. The principle says that it must respect
the rights of the security holders so necessary programs had been implemented by the bank.
The principle says that the risk must be recognised and managed that what bank has already
the committees to manage and to recognise the risk. The next principle suggests that the
company must remunerate fairly and responsibly by making and committee, the company has
the committee to comply with this suggestion2.
Example of Good and Bad Governance
The corporate governance from the above paragraph seems to be very good of the
National Australia Bank, but in 2018, the National Australia bank name had been came in the
Royal Commission into misconduct3. The staff of the National Australia bank had been found
to be in bribery. A series of scandals in 2015 had been implicated by the NAB. It was
revealed that millions of dollars had been paid to the customers in compensation to the
clients. The staff of NAB had been found to be in inappropriate planning in between 2009
2 ASX Policy Charter, Key to Disclosures Corporate Governance Council Principles and Recommendations
(2018) <https://www.nab.com.au/content/dam/nabrwd/documents/reports/corporate/2017-axs-appendix.pdf>
3 Stephen Bell, and Andrew Hindmoor. "Are the major global banks now safer? Structural continuities and
change in banking and finance since the 2008 crisis." Review of International Political Economy 25.1 (2018): 1-
27

CORPORATE GOVERNANCE 4
and 2015. It was also revealed that there is a volatile and the toxic culture is in the bank. The
NAB staff had been banned by the ASIC who has been previously licensed for providing
financial advice. The National Australia bank had been implicated in the impropriety in the
foreign exchange trading. The major problem has started with the introducer program that has
emerged in between 2013 and 2016 in that the persons like the non-financial experts
including the people such as gym trainers will receive the commissions to refer the strangers
to National Australia Bank who will ask for home loans. Multiple breaches are the
occurrences of forged documents for settling down the loans, lending practices and there is
the promotion of unreasonable add-on insurance on car loans among these are the practices
that prompted the calls for the commission. This raised the question on the National Australia
bank corporate governance that has mentioned above. It had raised the question of the
directors and manager who had not followed their duties that are given in the Corporation
Act. Twenty bankers were fired or they had resigned and another 32 were scolded over the
issues that have connected with the introducer program. It shows that the NAB corporate
governance has totally failed, as they are unable to deal with the situation that has taken place
in the organisation4.
Director Duties
The directors, managers and the officer of the National Australia bank had failed to
obey their duties. The Director duties under section 180,181,182 & 183 of the Corporations
Act had been violated5. The director must show care and diligence towards the corporation
that has been violated in this scandal as care was not taken place. The director shows good
faith and thinks in the best interest of the company and for the proper purpose under section
181 is not followed as for their interest, they had violated the interest of the company. The
directors should work in the best interest of the company to avoid conflicts. Section 182
states that the director cannot take benefit of his position to gain for himself or for someone
else but the full advantage by the staff of NAB has taken the advantage in this royal
commission conduct. The duty of the directors to use the information which they have gained
in the course of their duties for the advantage to someone under section 183 but in this case,
4 Gareth Hurchens, Banking royal commission: details of NAB staff in bribery ring emerge (2018)
<https://www.theguardian.com/australia-news/2018/mar/13/banking-royal-commission-public-hearings-open-
on-litany-of-misconduct>
5 Jonathan Charteris-Black, The communication of leadership (Routledge, 2006).

CORPORATE GOVERNANCE 5
they had violated this and took advantage of the position6. Thus from this, the company has
to take major steps for the good corporate governance as they need to do guide the ethics that
they must follow in the organisation. It is necessary for any organisation to run successfully
that their corporate governance should be strong.
Question B.
Good Corporate Governance and the Importance of Corporate Governance
principles
National Australia bank has to think that what actually the corporate governance
means and how to implement the good governance in the organisation. The good corporate
governance that helps the companies to function more efficiently and it is a process of
transparency and disclosure that is followed is to provide shareholders, the regulators with the
public with the accuracy of the information about the operational, financial, and other
segments of the company. The Stakeholder needs to be put in priority by balancing their
needs by the art of directing and controlling the organisation7. Whenever the corporate
governance has been in talks it is necessary to keep in mind that the organisations have the
duties and the responsibilities towards their shareholders and it should be governed in
accordance with the law with the interests of the shareholders and the stakeholders. For any
organisation, the motive of corporate governance is to make profits for the organisation that
can be only possible with the good corporate governance. The good corporate governance is
the key role for any organisation. Any organisation that is registered in ASX required
following the governance principles8.
Legal Implication
The companies like NAB who had failed to meet the corporate governance and failed
to meet their obligations can face the legal implications. In Australia, the Corporations Act
6 Australia institute of company directors, What are the duties of diretors (2018)
<http://www.awlnsw.com.au/assets/Latest%20news/Duties%20of%20Directors.pdf>
7 Australian Securities & Investment Commission, Directors liabilities when things go wrong (2018) <Available
from: https://asic.gov.au/for-business/your-business/tools-and-resources-for-business-names-and-companies/
asic-guide-for-small-business-directors/directors-liabilities-when-things-go-wrong/>
8 Mercedes Rodriguez-Fernandez,. "Social responsibility and financial performance: The role of good corporate
governance." BRQ Business Research Quarterly 19.2 (2016): 137-151.

CORPORATE GOVERNANCE 6
2001 is the principal legislation from which the companies are regulated. The principal
corporate regulatory agency is the ASIC as it is an independent Commonwealth government
body. The listed companies in ASX have to disclose their annual reports, in that the
principles and the guidelines that have been provided to the companies in how much extent
they had fulfilled must be submitted. The reasons will be provided for not fulfilling the
principles that had been provided by ASX. The civil and the criminal penalties will be
imposed whoever failed to meet the listing rules.
Social Implication
The National Australia bank bad corporate governance can lead to the major social
issues that can affect the company reputation in the market and among the customers. It is
required for any corporation to maintain its reputation. A successful company is who is free
from all the encumbrances and had a good reputation in the market.9
Economic Implication
NAB is the largest financial institution of Australia and the bad corporate
governance in making wrong decisions by their staff or the bad governance can lead to the
huge loss. The poor advice can lead to providing compensation to the clients that can affect
the company economic condition10.
Political Implication
The political affairs of an organisation can affect the company in many ways such as
providing donations to the political parties. The relation with the political affairs can make
the organisation in worries and put the organisation in the inquiry. Therefore, it is important
for the good governance that organisations should make a distance from political
interference. In a recent implication by the bank, they had stopped the fund to the political
parties11.
9 Dana Gold, Law and economics: toward social justice ( Emerald Group Publishing, 2009)
10 NAB, Annual Review 2018 (2018). < https://www.nab.com.au/content/dam/nabrwd/About-Us/shareholder
%20centre/documents/annual-review-interactive.pdf>
11 The Sydney Morning Herald, National Australia Bank bans all donations to political parties and candidates
(2018) The Sydney Morning Herald < https://www.smh.com.au/politics/federal/national-australia-bank-bans-
all-donations-to-political-parties-and-candidates-20161005-grv1op.html >

CORPORATE GOVERNANCE 7
Agency Theory
The first theory is the Agency theory that states the relationship between the
shareholders and the executives and the managers. The shareholders are the principles of the
company as they hire agents in the company. According to this theory, the directors and
managers are the agents of the shareholders. The directors, managers and the staff in
accordance with this theory are to make a decision in the interest of the principal. However,
sometimes it does not happen like this and some of them make it for the self-interest.
National Australia bank staff had for self-interest and adopted opportunistic behaviour that
had easily failed to meet the principal interest. This theory main motive is to separate
ownership and the control. Therefore, it is required for the agents to provide good governance
and able to stand to the needs of the shareholders. The management and the ownership are
required to cooperate with each other to fulfil the interest12.
Stewardship Theory
The second theory is the stewardship theory that is related to a steward protecting and
maximising the wealth of the shareholders through the good performance of the firm.
Stewards are the managers and the executives of the organisation and they work for the
shareholders. It is different from the agency theory, as individualism is not been practised in
this theory as in this it integrates on the organisational goals and that of stewards. It is
required for the better results for the organisation that the organisation must satisfy the
stewards and they should promote the autonomous actions of the executives in the company.
This theory is failed to comply by the National Australian Bank. The staff of the bank had
failed to protect the wealth of the organisation and results in giving compensation to the
clients. This theory is also suggested to the unifying the roles of the CEO and the Chairman
for reducing the costs of the agency. However, it can be said by combining these two theories
is better and can be more successful than using only one theory for the corporate
governance13.
12 Sorin Nicolae Borlea and Monica-Violeta Achim, ‘Theories of corporate governance’, (2013) 23 Studia
Universitatis Vasile Goldis Arad 117-128.
13 S Subramanian "Stewardship Theory of Corporate Governance and Value System: The Case of a Family-
owned Business Group in India." Indian Journal of Corporate Governance 11.1 (2018): 88-102

CORPORATE GOVERNANCE 8
Conclusion
It has been concluded that the National Australia Bank required making certain
changes in corporate governance. The directing and regulating policies of the bank need to
improve. The bank had been found to be in the misconduct in the Royal Commission 2018
and from that, it could be concluded that the bank has not good governance and from many
pieces of evidence, it has been proved that the bank corporate governance was poor. The
NAB required to adopt the good governance practices and to adopt the principles of the good
governance. The bank if failed in making certain decision to comply with the principles can
face legal, social, economic and political implication that can affect the NAB. It has been
concluded from the two theories such as agent and stewardship that the bank has failed to
comply with these theories.

CORPORATE GOVERNANCE 9
Bibliography
Articles/Books/Reports
Charteris-Black J, The communication of leadership (Routledge, 2006).
Gold, DL, In Law & Economics: Toward Social Justice (pp. 21-28). (Emerald Group
Publishing Limited, 2009)
Others
ASX Policy Charter, Key to Disclosures Corporate Governance Council Principles and
Recommendations (2018)
<https://www.nab.com.au/content/dam/nabrwd/documents/reports/corporate/2017-axs-
appendix.pdf>
Australia institute of company directors, What are the duties of diretors (2018)
<http://www.awlnsw.com.au/assets/Latest%20news/Duties%20of%20Directors.pdf>
Australian Securities & Investment Commission, Directors liabilities when things go wrong
(2018) <Available from: https://asic.gov.au/for-business/your-business/tools-and-resources-
for-business-names-and-companies/asic-guide-for-small-business-directors/directors-
liabilities-when-things-go-wrong/>
Hurchens, G Banking royal commission: details of NAB staff in bribery ring emerge (2018)
<https://www.theguardian.com/australia-news/2018/mar/13/banking-royal-commission-
public-hearings-open-on-litany-of-misconduct>
Hurchens, G, Banking royal commission: all you need to know – so far (2018)
<https://www.theguardian.com/australia-news/2018/apr/20/banking-royal-commission-all-
you-need-to-know-so-far>
NAB, Annual Review 2018 (2018). < https://www.nab.com.au/content/dam/nabrwd/About-
Us/shareholder%20centre/documents/annual-review-interactive.pdf>
NAB, Corporate Governance (2018) <https://www.nab.com.au/about-us/corporate-
governance>

CORPORATE GOVERNANCE 10
Royal Commission, Misconduct in the banking, superannuation and Financial Services
Industry (2018) <https://financialservices.royalcommission.gov.au/Pages/default.aspx>
The Sydney Morning Herald, National Australia Bank bans all donations to political parties
and candidates (2018) The Sydney Morning Herald <
https://www.smh.com.au/politics/federal/national-australia-bank-bans-all-donations-to-
political-parties-and-candidates-20161005-grv1op.html >
Journal
Rodriguez-Fernandez, Mercedes, "Social responsibility and
financial performance: The role of good corporate
governance." BRQ Business Research Quarterly 19.2 (2016): 137-
151.
Bell, Stephen and Andrew Hindmoor. "Are the major global banks now safer? Structural
continuities and change in banking and finance since the 2008 crisis." Review of International
Political Economy 25.1 (2018): 1-27
Borlea Sorin Nicolae and Monica-Violeta Achim, ‘Theories of corporate governance’, (2013)
23 Studia Universitatis Vasile Goldis Arad 117-128.
Subramanian, S, "Stewardship Theory of Corporate Governance and Value System: The Case
of a Family-owned Business Group in India." Indian Journal of Corporate Governance 11.1
(2018): 88-102.