BULAW5915 Corporate Law: CBA's Governance, Duties, and Compliance

This report examines the corporate governance practices of the Commonwealth Bank of Australia (CBA) in light of the Royal Commission's inquiry into misconduct within the financial services industry. It assesses CBA's adherence to corporate governance principles, including ethical conduct, disclosure, and risk management, as outlined by the ASX Corporate Governance Council. The report details the duties of directors, the importance of continuous disclosure, and the consequences of failing to observe good corporate governance, including potential legal, social, economic, and political ramifications. The analysis covers CBA's policies on anti-money laundering, anti-bribery, and whistleblower protection, highlighting the bank's commitment to improving financial well-being and shareholder value. It also addresses potential legal liabilities and the importance of ethical and responsible decision-making within the organization. Desklib provides access to this and other solved assignments.

Running head: CORPORATE LAW
Corporate Law
Name of the Student
Name of the University
Author Note

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Part A
The Commonwealth Bank of Australia is a company whose conduct is being considered
by the Royal Commission to inquire and report the misconduct in the organization (Tanzer,
2016). Royal Commission started its investigation on the financial service industry regarding the
misconduct within its system including forged documents, alleged bribery and others. The
Commission in its financial advice closing submission found that clients were charged fees by
the entities of CBA for no service. Further it was alleged that they did not have adequate
resources to provide ongoing services to their clients. It was also submitted by the Council
Assisting that with respect to orphan child, there were instances of contravention of Sec 12 DI(3)
of ASIC Act. Commonwealth Bank of Australia follows a strict corporate governance rules. It
has a focus on creating a governance to strengthen the relationship with their customers (Toohey,
2014). It has always been their objectives to reduce and control the risk outcomes. The
Commonwealth Bank of Australia has a commitment to improve the financial well-being of their
customers (Commbank.com.au, 2018). Their corporate governance practices are developed and
refined from time to time with the evolving regulations and laws, and stakeholders expectations.
The organization has set up an effective governance policy which determines the appropriate
arrangements for corporate governance of the Bank. A board has been composed for
Commonwealth Bank of Australia to frame the corporate governance policies for the
organization and its subsidiaries. Their governance policy includes approving the share trading,
anti-bribery policies, anti-corruption policies, delegation of authorities policies and continuous
disclosure. The company has adopted a code of conduct which prohibits money laundering and
counter terrorism. The company follows a strict principle for fraud control and whistleblower

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policy. The arrangement was made in compliance with the recommendations mentioned in the
third edition of the ASX Corporate Governance Council Corporate Governance Principles and
Recommendations. The Corporate Governance Statements of the company published on 8
August 2018, is an example of its ideal corporate governance arrangements. The practices which
they had adopted have followed the recommendations which are set out in the ASX Corporate
Governance Council’s Corporate Governance Principles and Recommendations. The
Commonwealth Bank of Australia has implemented policies and drafted a code of conduct,
which regulates the behavior of the Directors, Employees, Senior Executives and the
stakeholders. They follow a culture which provides whistleblower protection to their people
(Matthews, 2016). An anti-corruption and anti-bribery policy is implemented in the institution to
protect their customers and communities. The adherence to good corporate governance of the
company is reflected in their policy for the director which imposes certain duties on them.
Duties of directors
Directors of Commonwealth Bank are obligated to follow their duties and
responsibilities. After the alleged scandal of money laundering incident took place, the company
has improved their policy and set up a Board. The Board assesses on a regular basis, the
independence of the Directors to ensure that the Non-Executive Director are engaged in any
business that would interfere with their position. The directors are required to be careful to
disclose any material relationship or contact according to the Corporations Act. The Directors
should strictly adhere to the policies relating to the matters of voting, in which they may have an
interest. The details of the offices which are held by Directors with other organizations should be
set out in the website of the Bank and in the Directors’ Report. The Directors should not be
associated directly with any substantial shareholder. The Non- Executive Directors are not to

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carry out any role for the Bank except for the role of a Director. The Non-executive Directors are
bound to not having a material contractual relationship with Commonwealth Bank except for the
role of the director of the Bank.
ASX Corporate Governance Council Corporate Governance Principles and
Recommendations
The principles which have been mentioned in the ASX Corporate Governance Council
Corporate Governance Principles and Recommendations have been followed by the
Commonwealth Bank of Australia. The guidelines have provided that the corporation should act
with ethics and responsibilities. A company should maintain regular and balanced disclosure. It
should recognize the risk factors and mange it (Klettner Clarke & Boersma, 2014).
Disclosure
The Commonwealth Bank of Australia takes into consideration their obligation to make
continuous disclosure The Bank has a policy which is written to comply with the obligation to
make disclosure. The company is expected to disclose immediately any information in the
market which would materially affect the price or value of CBA shares. The directors, executives
and secretary of the company needs to identify and material information to their people. The
information regarding changes in financial performance, a debt capital raising, a legal dispute,
any material fraud, changes in the Board of Directors or Group Executives, changes in credit
rating applied to the Bank or its securities, a matter which may adversely affect the reputation of
Commonwealth Bank of Australia should be disclosed to the market (Continuous Disclosure
Policy, 2018). The Commonwealth Bank of Australia should immediately disclose the material
information to the ASX unless it comes under the exempted criteria.

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Ethics and Responsibility
CBA ensures that it acts ethically and responsibly during its course of conduct. The
organization is focused on adopting a policy to take decisions lawfully and ethically and
discharge their obligation in a responsible manner. Their code of conduct designed to identify,
manage and prevent the actual, perceived and potential conflict of interests. CBA should make a
disclosure to their clients about any event which may cause risk of damage to the client. They
will review and assess the policies from time to time and take steps to redress any deficiencies
which are identified. The Group has taken a step towards prevention of slavery and human
trafficking in their business (Schoenmaker, 2013). . They are committed to zero tolerance for any
culture of corruption and bribery. They would consider, identify and control the events of
corruption and bribery according to the Anti-Bribery and Corruption Policy. The organization
follows a transparency in its dealings.
Risk management
Commonwealth Bank of Australia is exposed to financial as well as non-financial risks,
and has designed a risk management policies and practices to maintain their standard of
governance. The Board may establish a risk committee for that purpose. It has implemented a
risk management framework to manage any occurrence of risk. The risk management system is
created keeping in mind the evolving risk in the financial services sectors from the changes in the
business environment, community expectations and is subjected to review (Tao & Hutchinson,
2013). The framework has covered the three key documents, that is the Group’s Risk Appetite
Statement, their Risk Management Approach and the Strategic Business Plan.

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Rights and remedies of Shareholders
The Commonwealth Bank of Australia is dedicated to provide better value and outcomes
for the shareholders. It provides the shareholders the necessary and high quality information
relating to their investment, timely. They are committed to respond to the feedbacks of the
shareholders. An investors relations program is held to facilitate the communications between
the shareholders and the Bank. It emphasizes on the participation of the shareholders in the
meetings and encourages them attend and participate in the Annual General Meeting of the
Bank. Additionally, to facilitate the attendance of the shareholders, the locations of the Annual
General Meetings are held in capital cities rotationally. CBA encourages the shareholders to
present their questions in the Annual General Meetings to provide important insights into their
concerns, which enables the Commonwealth Bank to provide feedback. The Bank encourages
their shareholders to communicate with the help of electronic measures with the Bank. For this
purpose an email address is provided to the shareholders.
Part B
There are certain consequences that the Commonwealth Bank of Australia may possibly
suffer if the person who are making decisions on behalf of the company fail to follow the
corporate governance principles. Non-compliance of the policies may lead to legal consequences
against the organization. An amount of $700 million fine was imposed on the organization for
the breach of anti-money laundering policy recently
Importance of Good Corporate Governance
Corporate governance is the system of regulations, processes and practices used to direct
and control a firm (Tricker & Tricker, 2015). It is the system to balance the interest of the

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shareholders, management, customers, suppliers, government and the community. It is purported
to provide effective, prudent and entrepreneurial management which helps in delivering success
to the company (Todorovic, 2013). The ASX Council has recognized that various entities may
adopt various governance practices on the basis of their size, complexity, culture and history. It
has provided a set of practices that the listed entities can adopt for achieving good outcomes and
meet the expectations of the investors (Davies, 2016). The Council considers that the policies of
risk management, disclosure should be fundamentally followed in a financial organization like
Commonwealth Bank.
Consequences for not observing good corporate governance
Legal
Commonwealth may face legal consequences for not complying with the principles of
ASX. If it contravenes its obligation to disclose necessary information to its clients, it may incur
a liability under the Corporations Act (Fanta, Kemal, & Waka, 2013). If any person suffers any
loss or damages for breaching the obligations, a criminal or civil liability may arise on the part of
CBA. Shareholders may bring a class action against CBA. ASIC can issue a notice for infringing
the duties if it has reasonable grounds to believe that Commonwealth has failed to fulfill its
obligation to disclosure.
The liability can extend the people as they may face civil or criminal liability for
contravening the disclosure obligation. If a person has the capacity to affect disclosure or
withhold knowingly an information sensitive for market from the manager, he can be held liable
for causing breach to continuous disclosure obligations. In earlier times, Commonwealth Bank
was alleged to breach the Anti-Money Laundering and Counter- Terrorism Financing Act. The

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CBA failed to make report the terrorism financing suspicions in 24 hours (Janda & Chalmars,
2018). Even after having the knowledge of suspicious activity, risk was not actively monitored in
38 instances.
Social
Not observing the policies of governance may have its impact on the society too. Every
firm has a corporate social responsibility. The activities of the firm may result into social
consequences (Young & Thyil, 2014). Failure to complying with the ASX principles can cause
harm to the reputation of CBA. CBA may incur highly high adverse publicity for not observing
the policies, which may cause a downfall of its share value in the market. This may affect the
flow of capital in the market, which is a concern for the society at large.
Economic
Non-compliance with a good corporate governance principle may cause serious economic
consequences for a firm like Commonwealth Bank. It may hamper the economic growth of the
whole country. ASX may suspend the shares of CBA from trading if it is of the opinion that the
company has failed to, unable to or unwilling to comply with its continuous disclosure
obligations. If CBA contravenes the ASX principles of risk management, it may incur some risks
and liability for itself. Massive fraudulent or criminal activities within the corporation may result
into financial crisis. The downfall of market value may decline the sale of shares and CBA may
lose some of its shareholders. CLSA has assumed that if there are continuous incidents like
money laundering, the shareholders may face a decline in the growth of profit. Such incidents of
downfall of shares may turn into uncertainty of CBA in the market.
Political

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There may be political consequences for not complying with the ASX principles of
corporate governance. CBA may receive political and bureaucratic criticism. Failure to comply
with the recommendation can cause a risk to public interest. The competitive market may face a
growth while it will face downfall. There may be a need for new and strict legislative framework.
The company which does not follow the principles, may face hindrance from the political force
of the Country. The political parties may disapprove certain conducts of the company. For
ensuring proper compliance with the principles of corporate governance, Government has
created bodies like Royal Commission. Prime Minister Malcolm Turnbull labelled the incident
of losing almost 20 million account records, to be an extraordinary blunder.
Stakeholder Theory
In this reference the Stakeholder Theory can be discussed, which was embedded in the
management principles in the year 1970, which incorporated corporate accountability to a wide
range of stakeholders. Stakeholders theory is defined as a group or individual who can be
affected by the achievement of the objectives of the organization. Internal stakeholders are
distinguished from the external stakeholders of a corporation. While internal stakeholders are the
directors and employees, who are directly related to the process of corporate governance, the
external stakeholders may include the auditors, creditors, suppliers, community and the
government. This theory states that the managers of a firm have range of relationships to serve
including the suppliers, business partners as well as the employees. The ASX Corporate
Governance Council Corporate Governance Principles and Recommendations adheres to the
theory. If CBA fails comply with the guidelines of the mentioned principles and
recommendations, it may fail to perform their obligations towards their stakeholders (Beekes,
Brown & Zhang, 2015). Stakeholders form a significant part for the decision making process for

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the company. When CBA announced that they would charging fees for withdrawing cash from
another bank’s ATM, NAB’s chief customer officer of consumer banking and wealth, Andrew
Hagger appreciated their effort and encouraged the competitive lead of CBA.
Business Ethics Theory
Business ethics theory of corporate governance can be discussed in this prospect, which
is the study of business related activities, situations and decisions to address the right and the
wrong. Businesses have a huge impact on the society, in terms of employment and services
(BORLEA & ACHIM, 2013). Non-complying to a standard practice of management can collapse
it. Business collapse is highly responsible for causing an effect in the society. The ethics helps to
identify problems and the benefits associated with the ethical issues in the organization. Failure
to complying with the business ethics makes the society suffer as a whole (Salim, Arjomandi &
Seufert, 2016). A general rule of ethics should be followed in every industry for its growth. All
ethical problems should be treated with immense importance and managed carefully. Therefore it
is required that the organization should have a strategic policy towards bribery and corruption.
The report should be made to proper authority for any such activity. If a company fails to
perform their ethical obligations, it shall be liable for their conduct to the public. The business
shall be exposed to consequences for not abiding the basic principles of morality. If CBA fails to
observe the ethical obligations, the incidents of negligence in reporting suspicious activities
within the organization may increase gradually, if CBA does not adhere to the ASX Corporate
Governance Council Corporate Governance Principles and Recommendations. Non-ethical
behavior in an organization shall cause a down fall of shares as it was happened in an earlier
allegation, where shares of CBA shed about approximately 14 per cent of the value. In the case,

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it was alleged that, Commonwealth had failed to appropriately monitor suspicious transactions
(Janda, 2017).

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9566060

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