The National Australia Bank: A Case Study on Corporate Governance

Running Head: THE NATIONAL AUSTRALIA BANK 1
The National Australia Bank
Student Name
Institutional Affiliation

THE NATIONAL AUSTRALIA BANK 2
Introduction
Banks are not just institutions for finance; they are also the fundamentals of an economy.
The National Australia Bank is one of the largest financial amenities institutions that has been
listed on the stock exchange of Australia. The NAB is among the 30 most lucrative monetary
services organization globally. However, in the year 2004, January, the bank revealed to the
world the acknowledgeable losses it had incurred in association to conducting an unauthorized
business in a foreign currency that amounted up to AUD360 million (Gompers, Ishii, and
Metrick, 2007). The foreign exchange disaster was categorized as an operational threat, the
menace of loss that is as a result of failed or inadequate systems, processes or people and this
echoed the significance of the role of the bank’s corporate governance (Tricker, 2010).
What is good corporate governance
Good Corporate Governance is defined by a well-governed and a well-managed business,
where the leaders are responsible for the organization’s performance as well as the decisions
made (Carver, 2011). There are several characteristics of good corporate management, and they
are;
 Effectively set and implemented policies
 Appropriate risk control measures
 Fairness among the organization’s individuals
 Clear and effective strategies for the organization
 Self-evaluation of the management
 Social accountability at the company level
 Transparency

THE NATIONAL AUSTRALIA BANK 3
In this report, the National Australia Bank is discussed.
Question A
The concurrent problems of the National Australia Bank that is the year 2001 loss of the
AUD4.1 billion on the Home Side of the US, the strong degree of the bank’s risk management
performances and absence of the auditor independence, were discussed by the US Securities and
Exchange Commission in the year 2004. The discussion reinforced that, the bank had failed to
give corporate governance the maximum priority, over some years (Horrigan, 2010). It is
indicated that the board and management of the National Australia Bank had ineffective board
committees, unproductive audit procedures and lack of liability. Therefore, the interior control
structure’s integrity was easily breached. Thus the National Australia bank failed to observe the
doctrines of noble corporate governance. The board’s dysfunction led to humiliating monetary
losses, a substantial decline in the firm market evaluation and credibility loss. For these reasons,
it is vital to think through the matters of corporate authority concerning the effect on the greater
banking sector, the community, the economy, the organization concerned as well as the impact to
other institutions.
Poor governance submissions made to the Banking Royal Commission about the
National Australia Bank
Board Dysfunction
Good governance involves the use of common sense during the process of
accountabilities, roles, and responsibility assignment. The practice involves differentiation
between the responsibilities and roles of the management and board; it also requires the
assurance of appropriate processes and structures to be placed in the position to meet the

THE NATIONAL AUSTRALIA BANK 4
required responsibilities. The failure of NAB is in its threat management organizations, followed
by the culture in existence which the regulators describe as a surrounding where the major
concern is the profit, while the other limitations are overlooked (Chait, Ryan, and Taylor, 2011).
The framework of the internal governance of NAB is satisfactory. However, the faults are at the
implementation process of the existing precautions instead of designing the safeguards. The
losses are attributed to the operating system of the NAB environmental system where there is the
poor observance of the controls and systems of threat management; this indicates a weakness in
the procedures of the NAB’s internal control (Thomson, and Jain, 2007).
Auditor dysfunction
A good corporate control requires an external oversight that comprises the auditors that
conduct routine scrutiny of the corporation, to guarantee that the institution conducts its tasks
appropriately (Waddock, 2008). In line with the requirements of the ASX for the leading two-
hundred listed societies to create an interior audit commission, NAB formed an audit board in
2003 known as the Principal Board Audit Committee (PBAC). The panel was meant for
investigating and discussing all the high-risk matters raised by both external and internal
auditors. The CEO and the Chairman of the organization were part of the new audit board and
despite fact that the committee is responsible for analyzing the practices of threat management of
NAB, no meeting was conducted, in 2003. The issued warning regarding the practices of the risk
management were never covered (Carver, 2011).
Upon incurring a $360 million loss of the foreign currency, PwC was appointed by the
bank to explore the irregularities in trading the foreign currency and alongside APRA reviewed
the practices of the bank. Immediately issues arose concerning the independence of the report of
PwC as PwC became the ‘external experts’ in the case, thus the independence of the