Critical Analysis: Corporate Governance & Ethics at AMP Limited 2018

This report evaluates the corporate governance and ethics system of AMP Limited, highlighting deficiencies such as managerial personnel failing to adhere to corporate governance policies and neglecting whistle blower reports. The company's failure to comply with ASX principles and recommendations led to a breakdown, triggered by a whistle blower exposing unethical practices. While a whistleblowing policy exists, it's insufficient to protect whistle blowers and stakeholders. The report recommends implementing a monitoring system to oversee management functions and adhering to ASX principles to ensure ethical operations and value creation. Ultimately, the report emphasizes the importance of ethical conduct and robust corporate governance in preventing scandals and protecting stakeholders' interests.

Corporate Governance & Ethics

Executive Summary
The aim of this report is to evaluate the corporate governance and ethics system of
AMP Limited to identify various deficiencies in the process. It is found that the managerial
personnel of the corporation has failed to adhere to its corporate governance policies since
they encouraged employees to get around the provisions given under FoFA. Moreover, they
did not take any actions against the reports made by the whistle blower to avoid the ethical
practices. While managing its operations, the company has failed to ensure that it complies
with ASX principles and recommendations. These were the reasons due to which the
breakdown of AMP Limited occurred after a whistle blower reported the unethical practices
of the organisation. Although the company has adopted a mechanism to protect whistle
blowers, however, it is not sufficient to ensure that the interest of whistle blowers and the
stakeholders are protected. Strategies are recommended in the report which would have
avoided the scandal. Firstly, the company should have implemented a monitoring system
which oversees the functions of the management to ensure that the policies of corporate
governance are strictly adhered by them. Secondly, the company should be followed the
principles and recommendations issued by ASX to ensure that they lay a solid foundation
and implement a structure which is focused on adding value to the company.
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Table of Contents
Introduction...............................................................................................................................3
Deficiencies in the system of corporate governance of AMP....................................................4
Circumstances which led to breakdown....................................................................................5
Mechanisms to protect whistle blowers....................................................................................6
Recommendations.....................................................................................................................6
Conclusion..................................................................................................................................8
References..................................................................................................................................9
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Introduction
The importance of business ethics has grown substantially as the number of cases
relating to the unethical behaviour of large organisations has increased. Multinational
corporations focus on implementing good corporate governance policies and the senior
executives of the company complies with them while forming business strategies (Tallon,
2013). In case of Australia, the Australian Securities Exchange (ASX) has issued various
corporate governance principles and recommendations which are necessary to comply by
Australian organisations to ensure that they ethically perform their operations while
ensuring that the interest of their stakeholders is being achieved. In this report, the case
study of AMP Limited will be discussed to evaluate the problems faced by the company
relating to corporate governance and ethics and the principles which it failed to comply
with. This report will evaluate whether anybody “blows the whistle” on the employee and
what mechanisms are implemented by the company to protect the whistle blowers and
whether these policies are sufficient to protect various stakeholders. Various strategies will
be recommended in the report as well which should be implemented by the company to
avoid the scandal.
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Deficiencies in the system of corporate governance of AMP
AMP Limited has implemented a corporate governance structure which the company
believes is important for its long-term performance and sustainability. This structure
enables the senior level executives of the corporation to take ethical business decision while
forming future policies. As per the corporate governance structure of the company, it issues
an annual statement of corporate governance. This statement sets out the corporate
governance framework which the board of directors has adopted, and it also outlines the
governance arrangements of the company of the last financial year. Moreover, the
corporate governance charter of the company outlines the key roles and responsibilities of
the directors and the management team which complies with relevant laws. The
corporation has adopted its constitution on 10th May 2012 which provides the rules that
govern its operations and includes the provisions for the role of directors (AMP, 2018a). The
corporation has also adopted a whistleblowing policy that encourages, protects and
supports those parties who report the wrongdoing of the company which includes corrupt
conduct, inappropriate workplace behaviour, fraud, and questionable accounting. However,
this policy has failed to encourage employees to report the unethical behaviour of the
company and its management.
As per this policy, the corporation claims that the key values of its organisational
culture include integrity, professionalism, and honesty. These values help the company in
conducting its operations and ensuring that the targets of the company are achieved while
acting ethically. The corporation encourages its current employees who are aware of
wrongdoing in the company to report the same to the leader or to the People & Culture
Advice Line which is available for AMP employees (AMP, 2018b). In this line, employees can
make anonymous calls to report the wrongdoing. However, most employees did not use
these services since they knew that ever after reporting, no action would be taken by the
management to avoid the issues. These policies comply with some of the principles issued
by the ASX. For instance, it complies with the fifth principle which provides that the
company should make timely and balanced disclosure. AMP Limited also issues a corporate
governance statement each year to disclose the ethical and unethical operations of the
enterprise. Furthermore, it complies with the seventh principle which provides that the
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corporation should recognise and manage the risk. This principle is followed because the
company has adopted a corporate governance structure which safeguards whistle blowers
and encourages employees to take a stand against the wrongdoing of the company.
However, the company did not comply with other principles which are issued by ASX.
Circumstances which led to the breakdown
A whistle blower of the company who worked in AMP corporate super division
between 2014 and 2016 reported various techniques which are used by the corporation to
get around the laws regarding personal and general advice. The financial advice division of
the company is a key contributor to its overall profitability. The incident highlighted a record
high negative 61 percent vote which is made against the remuneration report of the
company’s core advice business (AFR, 2018). There is various immoral and unethical conduct
of the company is also highlighted by the whistle blower in which it was held that the
company had been involved in dictating its employees to ensure that they did not raise their
voices against the unethical operations of the company. The whistle blower provided that
the senior level management of the company openly discuss regarding ways through which
the employees can get around the policies of the Future of Financial Advice (FoFA) (Bateman
& Kingston, 2012). When the whistle blower reported this to the manager, then the
manager told her that she needs to be careful. It was reported that AMP’s corporate super
business is used by the company to warn leads by advisers who wanted to gain new clients.
In most cases, this plan is not suitable because it involved paying higher fees.
However, the employees did not consider the interest of customers while giving
them the advice to determine whether it is suitable for them or not. The key reason for this
breakdown was failure of the corporate governance structure of the corporation to comply
with the principles and recommendations given by ASX. Firstly, the company failed to
comply with the principle which provides that it should lay solid foundations for
management and oversight (Royal Commission, 2018). The structure should ensure that the
functions of the board and other managerial personnel should be disclosed. If the function
of the senior executives and the manager of the whistle blower were disclosed, then it
would prevent the requirement of reporting to external authorities. Moreover, the
corporation has violated another principle which provides that the company should
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remunerate fairly and responsibly. The company has failed to implement a monitoring
process in its corporate governance structure which is targeted towards monitoring the
performance of the managerial personnel (Erkens, Hung & Matos, 2012). Due to lack of
monitoring, the actions of senior executives are not reported properly, and even after
reporting from the employees, no appropriate actions are taken by them.
Mechanisms to protect whistle blowers
The corporate governance structure of the company has adopted a whistleblowing
policy which is targeted towards ensuring that its whistle blowers are encouraged to report
the wrongdoings of the company, and they are protected for their actions. This policy is
focused on compliance with the core cultural values of the company which includes
integrity, honesty, and professionalism. Moreover, whistle blowers have the option to keep
their identity private in case they did not want to disclose to protect their interest. They can
directly call on the hotline of the company which enables them to hide their identity while
‘blowing the whistle’ on the company. However, these mechanisms are not sufficient to
protect various stakeholders and the whistle blowers. Firstly, there is no follow up
procedure which is established by the company to monitor its whistleblowing policy (Vogt,
2014). After the reporting of wrongdoing regarding the operations of the company, the
managers did not have to take immediate action or bring the report into the attention of
senior executives.
In the case of the whistle blower of AMP Limited, the report was made to the
manager; however, no action was taken. Rather than solving the problem and giving the
information to the board, the manager told the whistle blower to be careful. It defeats the
purpose of having a whistleblowing policy since no action was taken against the reports
made by the employees to address the issues (Dimitriu, 2016). Therefore, the mechanisms
implemented by the company are not sufficient to protect the interest of stakeholders. For
instance, employees are facing the issue of discrimination or harassment at the workplace
can report about these issues, however, since no actions are taken by the management,
these issues are not resolved. Moreover, the whistle blower of AMP Limited provided that
the senior managers were encouraging the employees to get around the policies given by
FoFA while giving advice to its customers (AFR, 2018). Therefore, the whistleblowing
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mechanism is not enough to ensure that the rights of customers are being protected even
after making a report by the employee regarding those immoral and unethical actions.
Recommendations
Following are different strategies based on good corporate governance policies and
principles issued by ASX which should have been implemented by AMP Limited to avoid the
scandal.
 Firstly, the corporations should implement a procedure for monitoring the functions
of the corporate governance policies in the organisation. The monitoring system
should also assess the functions of the managerial personnel to ensure that they
take appropriate actions to ensure that corporate governance policies are being
followed. In the case of AMP Limited, the managers were opening asking employees
to get around the policies of FoFA while giving advice to clients and give them advice
which is not suitable for them. A monitoring procedure would have stopped this
operation. Moreover, the manager did not take any action regarding the report
made by the whistle blower. A monitoring process would have enforced him to take
an action which could have avoided the scandal.
 The corporation has failed to comply with the principles and recommendations given
by ASX due to which it has failed to act ethically. The board of the company should
take appropriate measures to ensure that it complies with the principles given by
ASX (ASX, 2018). For instance, it has failed to lay a solid foundation for management
and oversight due to which the scandal occurred. Moreover, it has not structured his
board to add value to the corporation. The company has failed to promote ethical
and responsible decision making due to which the senior managers were involved in
encouraging employees to use ways to go around the policies of FoFA. Compliance
with these principles would have prevented the occurring of the scandal.
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Conclusion
From the above observations, it can be concluded that AMP Limited has been
involved in the scandal which was leaked by a whistle blower because the company was
conducting its operations illegally while violating the policies of FoFA. Although the company
has adopted a corporate governance structure, however, its managers did not comply with
its policies due to which the company was violating the principles of ASX. This violation was
reported by an employee; however, no action was taken by the manager which shows the
failure of the whistleblowing policy of the company. The whistleblowing policy which is
implemented by the corporation is not sufficient to protect the interest of its stakeholders
which include its employees and customers. The reason for the scandal was lack of effective
compliance with corporate governance policies and whistleblowing policy. In order to
address this issue, recommendations are given in the report which would have avoided the
scandal. The company should implement a monitoring program to oversee the compliance
and performance of its corporate governance structure and whistleblowing policy.
Moreover, effective compliance with ASX principles and recommendations would have
prevented the occurring of the scandal since the management of the company would not
have promoted or tolerated unethical behaviour.
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References
AFR. (2018). Whistleblower reveals more unethical behaviour inside AMP. Retrieved from
https://www.afr.com/brand/chanticleer/whistleblower-reveals-more-unethical-
behaviour-inside-amp-20180510-h0zx4g
AMP. (2018a). Corporate governance. Retrieved from https://corporate.amp.com.au/about-
amp/corporate-governance
AMP. (2018b). Whistleblowing policy. Retrieved from
https://www.amp.com.au/content/dam/amp/digitalhub/common/Documents/
global/whistleblowing_policy_website.pdf
ASX. (2018). Corporate Governance Principles and Recommendations. Retrieved from
https://www.asx.com.au/documents/asx-compliance/final-revised-principles-
complete.pdf
Bateman, H., & Kingston, G. (2012). The future of financial advice and MySuper. JASSA, (3),
49.
Dimitriu, R. (2016). Romania: First Steps to Whistleblowers’ Protection. In Whistleblowing-A
Comparative Study, pp. 243-262.
Erkens, D. H., Hung, M., & Matos, P. (2012). Corporate governance in the 2007–2008
financial crisis: Evidence from financial institutions worldwide. Journal of Corporate
Finance, 18(2), 389-411.
Royal Commission. (2018). 2018 Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry. Retrieved form
https://financialservices.royalcommission.gov.au/public-hearings/Documents/
exhibits-2018/16-april/Exhibit-2-13.pdf
Tallon, P. P. (2013). Corporate governance of big data: Perspectives on value, risk, and
cost. Computer, 46(6), 32-38.
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Vogt, J. (2014). Don't Tell Your Boss-Blowing the Whistle on the Fifth Circuit's Elimination of
Anti-Retaliation Protection for Internal Whistleblowers under Dodd-Frank. Okla. L.
Rev., 67, 353.
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