Professional Ethics and Governance Analysis of Albion Bank Ltd.

This report provides a comprehensive analysis of Albion Bank Ltd.'s corporate governance, management structure, and business processes, including its adherence to the UK corporate governance code. It explores the degree to which shareholders are exposed to agency problems, the resulting agency costs, and potential conflicts of interest arising from the bank's operations. The report examines the roles and responsibilities of the board of directors, the impact of business process management on the bank's performance, and the best practices in corporate governance. It also discusses the risks associated with the bank's plans to move forward on the stock exchange. The analysis includes recommendations for mitigating agency problems and conflicts of interest, emphasizing the importance of transparency, accountability, and ethical conduct within the organization.

Professional ethics and
Regulations

Contents
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
Governance, management and business process of Albion Bank Ltd....................................1
Degree to which shareholders are exposed to 'agency problem' and potential increases in
agency cost.............................................................................................................................3
The potential exposure to conflicts of interest arising from business processes....................5
Recommendation....................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Ethics may be defined as the moral principles which directs an organisation to conduct its
business functions in right and effective way by following an appropriate legal structures and
practices. It governs the actions and behaviour of company and ensure that they act in a right
way towards its interested parties such as customers, employees, shareholders and community as
a whole. Every organisation whether engaged in banking, retail or manufacturing should follow
rules and regulations framed by governing bodies. The present assignment is based on the caste
study of Albion Bank Ltd. which is engaged in offering a range of conventional money
transmission, deposits and credit products with the help of its branch network. The project report
discusses the governance arrangements in the banks including the structure of the board and
management, assessing the potential exposure to conflicts of interest and agency problems. Later
on, recommendation has also be given under this report.
TASK
Governance, management and business process of Albion Bank Ltd.
The concept of Corporate Governance came into existence in the year 1992 by Cadbury
Committee which defines such concept that it is the system by which an organisation directs and
controlled. It mainly emphasis on framing the values of company instead of bringing efficiency
in operational activities. It highlights the best practice for accountability, transparency, probity
and long term success. It is further described by OCED which mainly focuses on the rights and
interests of shareholders, equitable treatment among shareholders, giving equal rights to other
stakeholders, disclosure of financial information and maintaining transparency, and Board of
Directors (Akisik, 2013).
The concept of corporate governance in UK have changed over a period of time as it firstly
emphasis on satisfying the legal requirements of shareholders but at present it also focuses on
identifying the needs and requirements of shareholders in wider context. These are the
individuals whose support decide the growth and success of an organisation as they both get
affected from each activities performed. Therefore, Corporate Governance is not just morally
superior but also ensure organisation to achieve long term performance and stability. Albion
Bank Ltd. is following UK corporate governance code along with exercising best practices which
includes leadership, remuneration, shareholders relations, accountability and remuneration. The
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code is not essential to comply as some of the principles Albion Bank Ltd. Can ignore to follow
but the reason of non-compliance should be given on financial report prepared on annually basis.
Management structure of Albion Bank Ltd.:
The structure of management board on the surface meets the code have more directors
who perform different roles and responsibilities. Furthermore, the key provisions of the code are
that every director is independent according to the law under the company’s act 2006. This is
clearly at the case of Albion Bank Ltd. where the various functional directors influences the
decisions of board of directors due to which the solely decision cannot possible to take, Such
functional directors holds various responsibilities related with operations, marketing, information
technology, human resource and administration (Arnaudov and Koseska, 2012). According to the
companies act, 2006 an individual said to be a director of company when their name is registered
under the documentation of company’s registry but it is not in the case of Albion Bank Ltd. as
the name of these functional directors are not registered as directors of company in
documentations.
In companies act, any interest in making transactions will be clearly mentioned which is
not considered as good corporate governance as well. As in the case of Albion Bank Ltd., all
contracts on shoplifting and refurbishment of premises are outsourced by company which is
owned by the son-in-law of the executive chairman which is unethical and not considered as
good corporate governance.
Another requirements of corporate governance is that CEO and Chairman performs
different roles and responsibilities which is clearly seen in the case of Albion Bank Ltd. where
CEO is responsible to conduct day-to-day operations and executive chairman who is responsible
to retain an office in head office.
Business process of Albion Bank Ltd.:
Since the banking sector facing financial crisis in the year 2000, banks have been faced
lots of pressure to increase cost and lowering its profitability. To deal with such situations,
business process management is required to perform its roles and responsibilities that will help
bank in achieving competitive position at market place (Barnett and Molzon, 2014). There are
mainly three elements of business process management which brings profitable results to Albion
Bank Ltd.:
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Agility: Business process management mainly emphasis on process automation and assist
organisations to accept the changes arises due to business situations and demands of customers.
Transparency: It is essential for Albion Bank Ltd. to bring transparency in presenting
their actual financial performs towards their shareholders so that they should understand the
impact they will get on the return on their investment (Duska, Duska and Kury, 2018).
Effectiveness: Business process management ensure about the better performance for
their process and assist organisation in achieving desired outcomes so that return can be given to
its shareholders in order to attain their reliability and trust.
Best practices under corporate governance:
Board of directors of Albion Bank Ltd. should require to comply with the corporate
governance rules according to the Warsaw stock exchange which are described as under:
1. The first practice is to build a strong board of directors who have knowledge and experts
in taking decisions related with the investing money.
2. Another practice is to define the roles and responsibilities that can help members of
company to execute the in desired manner.
3. Board of directors not only declares the conflicts of interest among shareholders but also
maintain a general culture of integrity in business dealing so as to comply its laws and
regulations without fear of recrimination.
4. Evaluate performance and make compensation decisions: Board of directors need to
analyse the performance level of each members of an organisation and on the basis of
which compensation have provided to better performer (Hodges, 2015).
5. Engage in effective risk management: The Company need to identify and evaluate the
risk factors they may face related wit financial, operational, legal risks etc. For this,
Board of directors is liable to make effective strategies to manage and monitor the risk
that will not affect their operations.
Degree to which shareholders are exposed to 'agency problem' and potential increases in agency
cost.
Agency problems are a conflicts of interest integral in some state where one party is
anticipated to enact in other's foremost interest. This problems generally arises when an agency
does not perform in best interest of the shareholders. As agent for stockholders are hired to make
better decisions which will be beneficiary for stockholders for increasing the wealth of
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shareholders. And when manager decided to work according to their interest then agency
problem arises. The basic problem in Albion Bank Ltd is irregular information among boards of
directors (agent) and share holders. They hire an agent as task can be carry out as principle can't
capable to perform because of less time of commitment and particular knowledge for proper
functioning of bank. The agent has an motivator to enact opportunistic, removal on the
performance quality and amusing to what promised was made to shareholders. More complex
task that in undertaken by directors and greater prudence must be provided (Lee and Cheng,
2012).
As Albion Bank Ltd. plan to move forward on stock exchange and boards of directors
object for taking these high risk. Executive and non executives are acted according to their
interest that is performance based incentives. In this bank they mainly focused towards
incentives elements and presently regulator concern about increasing provisions of bad debt
which is not considered as benefited for bank but then also thinking to move towards stock
exchange. So, conflicts of interest arises between boards of directors and managers. Boards of
Albion Bank Ltd. has declare that 'no claw back' of bonus on terrible performing loans. Boards
itself develop agency problems like remunerations policy. And mixture of shareholders
perpetually changes in stock exchange. So, it is not possible for them to focus on bank functions.
They have to hire a agent (directors) so that agency problems among executives, boards,
shareholders and managers minimizes. Some safeguards are created to resolve agency problems
in Albion Bank Ltd. Like independent directors and stock ownership directors and also
shareholders are exposed to the ‘agency problem.
Agency cost is a form of internal cost which develop from and should be compensated to
agents performing in place of a principal. This costs arises due to the core problems like agency
problems among management and shareholders. Shareholders wants that administration to run
organisation in such a manner that maximizes the value of shares while management desire to
develop firm in a way so that it increases their private financial condition and power which is not
considered as best interest of stockholders. The agency problems can't obviate for long periods
so agent is there who is not a owners. Share holders exposed this problems and try to measure
banks by involving them to obey various regulations planned to support the independent
directors. These compliances with regulations is not sufficient to assure that directors would act
in the best interest of bank and their stockholders (Lenssen, Dentchev and Roger, 2014).
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Agency cost truly issue their value on bank share price when there is provision for bad
debts are involved. Shareholders and investor have strong conflicts of interest as they have
administrative power. They usage self-seeking scheme that enforce agency cost but market
value decreases. And potential increases in agency cost as more demand to monitor the actions of
management (Giorgini and et. al., 2015).
The potential exposure to conflicts of interest arising from business processes.
Conflicts of interest is a condition where a disputes rise for person among two
competitive interests. These are reason by competitions over detected or real incompatible
wants. This may happen due to over debt, time and resources. And also conflicts of interest is
unethical for banks as well as other corporations. Parties generally misguided believe that to
meet their own wants, those of their opposition must be forfeited.
Albion Bank Ltd. Deals with deposits and credit products, conventional money
transmission, call centre and direct banking operations. Some issues related with incentives
elements for cross selling of insurance products. It is generally sourced from different links with
financial intermediaries like estate agents, mortgage brokers, lawyers and insurance. Managers of
branch motivates to networks and many other are involved in basic operations with the
operations of business like rotary and lions club (Miller, 2014).
Conflicts of interest position important reputation and some legal risks to finance
professionals. In Albion Bank Ltd., there is high risk as provisions for bad debt increases and at
that time plan to float to stock exchange. To evaluate the potential exposure to conflicts of
interest arising from business processes. In this bank conflicts of interest rise as average pay is
not more as compare to other banks that provide same products and facilities. And also
increasing bad debts then also to invest in stock exchange. So, conflicts between share holders
and board of directors as they are concern about remunerations related with performance. And
they have more task to perform within banks (Rezaee and et. al., 2012). Though they hire an
agent for handle stock-exchange so that management don't have to worry about all things. Due to
more risk conflicts of interest is also increasing. This conflicts of interest reviews should be
conducted by compliances and ethics officers. And misunderstanding of both boards of directors
as well as agents perspectives. Management should always have to careful in distinguishing,
assessing and handling all conflicts that arise during business process like transactions and all. In
some circumstances of Albion Bank Ltd. Such as a company has more than one interests in a
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proceedings. Banks should have knowledge about substantial non-public information of expected
party to a transaction that can't be share to their clients.
All above mentioned conflicts of interests that arises from the process of businesses can
resolve by hiring an agent that deals in stock exchange, by clarifying the linear perspective of
both parties, by distinguishing key feature of perspectives which required a change and improve
positions (Tuch, 2014).
Recommendation
It has been recommended to Albion Bank Ltd. after analysing the above information that it
is important to conduct business operations in more ethically way through complying with rules
and codes of conduct. Every organisation whether engaged in banking, retail or manufacturing
should follow rules and regulations framed by governing bodies. The board of directors need to
assess the conflicts of interest among the shareholders to company and maintain better relations
with them so as to get maximum support from them in operating business more smoothly. It has
also been recommended that every member of an organisation is independent due to which no
other member have right to influence the other’s interest and behaviour. As Albion Bank Ltd.
Deals with deposits and credit products, conventional money transmission, call centre and direct
banking operations due to which some issues related with incentives elements for cross selling of
insurance products are arises which can be resolved by taking an effective decisions by the board
of directors so as to retain the shareholders with company for longer period of time.
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REFERENCES
Books and Journals
Akisik, O., 2013. Accounting regulation, financial development, and economic
growth. Emerging Markets Finance and Trade. 49(1). pp.33-67.
Arnaudov, K. and Koseska, E., 2012. Business ethics and social responsibility in tourist
organizations in terms of changing environment. Procedia-Social and Behavioral
Sciences. 44. pp.387-397.
Barnett, J. E. and Molzon, C. H., 2014. Clinical supervision of psychotherapy: Essential ethics
issues for supervisors and supervisees. Journal of clinical psychology. 70(11). pp.1051-
1061.
Duska, R. F., Duska, B. S. and Kury, K. W., 2018. Accounting ethics. Wiley-Blackwell.
Giorgini, V. and et. al., 2015. Researcher perceptions of ethical guidelines and codes of
conduct. Accountability in research. 22(3). pp.123-138.
Hodges, C., 2015. Law and corporate behaviour: Integrating theories of regulation,
enforcement, compliance and ethics. Bloomsbury Publishing.
Lee, S. T. and Cheng, I. H., 2012. Ethics management in public relations: Practitioner
conceptualizations of ethical leadership, knowledge, training and compliance. Journal of
Mass Media Ethics, 27(2), pp.80-96.
Lenssen, J. J., A. Dentchev, N. and Roger, L., 2014. Sustainability, risk management and
governance: towards an integrative approach. Corporate Governance. 14(5). pp.670-684.
Miller, S., 2014. Trust, Conflicts of Interest, and Fiduciary Duties: Ethical Issues in the Financial
Planning Industry in Australia. Capital Failure: Rebuilding Trust in Financial Services,
pp.305-331.
Rezaee, Z. and et. al., 2012. Corporate governance and ethics education: Viewpoints from
accounting academicians and practitioners. In Advances in Accounting Education:
Teaching and Curriculum Innovations(pp. 127-158). Emerald Group Publishing Limited.
Tuch, A. F., 2014. The self-regulation of investment bankers. Geo. Wash. L. Rev.. 83. p.101.
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