Case Study Analysis: Corporate Governance Issues at Deutsche Bank

This dissertation presents a comprehensive case study of Deutsche Bank, examining the corporate governance issues that have plagued the institution. The study delves into the bank's involvement in various scandals, including tax evasion, the LIBOR scandal, and sanction violations. The analysis explores the failures in risk management and the lack of effective corporate governance that contributed to these issues. It investigates the company's responses to these events, considering the appropriateness and effectiveness of their actions. The case study also addresses the potential for similar events to occur in the UK, evaluating the current corporate governance and accountability systems. Furthermore, it identifies general lessons learned from the case regarding governance, risk management, and ethics. Finally, it provides an investment decision based on the findings. The research incorporates a literature review to provide a theoretical framework for the analysis, covering legal elements, and relevant academic perspectives.

DISSERTATION

Table of Contents
Case Study of Deutsch Bank............................................................................................................1
INTRODUCTION...........................................................................................................................1
Purpose of study.....................................................................................................................1
Structure of case Study...........................................................................................................1
CONTEXT.......................................................................................................................................2
CASE STUDY ANALYSIS............................................................................................................4
1. Corporate Governance issue within the company..............................................................4
The ethical issue.....................................................................................................................6
Corporate Social Responsibility.............................................................................................7
Board Effectiveness issue.......................................................................................................8
2: Literature review................................................................................................................8
Legal elements......................................................................................................................10
3: Response of the company to the issues............................................................................10
4: Possibility of similar events happening in the UK. .........................................................11
5: General lessons learned from the case.............................................................................11
6: Investment decision..........................................................................................................12
CONCLUSION .............................................................................................................................13
REFERENCES .............................................................................................................................14

Case Study of Deutsch Bank
INTRODUCTION
Purpose of study
Deustche Bank AG is a German bank and which is engaged in the retail banking as well
as financial services business. It is a reputed Bank, and current having its operations in around 58
Countries. Because of the size of operations, The bank has faced certain issues related to the
frauds that has taken place within the bank in the recent past (Azim, 2012). The company's image
has been tarnished due to these issue and management has shown a major concerned over it and
have tried to overcome the same by making policies as well as procedures in this regard. The
Project Mainly focuses the scandals that has taken place within the company and how the same
has been addressed by the company through taking corrective action. Managers are making
necessary attempts to overcome the issue of these scandals and the effects on company's image
that has taken place over period of time. The project will also be concentrating on various
effective ways that will help company in overcoming these issues and stable their overall market
position over period of time.
Importance of case
Deustche Bank has played a very crucial role in the overall development of banking
sector and growth of financial services all over Europe, the bank is present in around 58
countries covering most of the Europe and parts of Asia as well. The company is facing various
issues related to its business and thus it is essential to make sure to bring the organisation out of
this mess of scandal, which has put a dent on the organisation as well as its reputation in the
recent past. The organisation shall take necessary steps as well as corrective actions to overcome
this issue of scandals over the company.
Structure of case Study
The case study will try to address various issues related to the banking system and effects
of scandals on the banking system (Bainbridge, 2012). The structure will try to address Problem
1: What were the main corporate governance issues within this case? Problem 2:What does the
theoretical, academic, professional or legal literature/regulation say on these issues? Were such
events or features of case consistent with or in contrast to the theoretical, academic, professional
or legal literature/regulation? Problem 3: If the company/organisation addressed these issues,
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was the response appropriate? Did it address the fundamental issues at stake? If a response has
yet to emerge, what would be a suitable response to be and why? Problem 4: Could similar
events happen again in the UK today? Why? Do you think the current system of corporate
governance and accountability in the UK is sufficient to deal with these issues? Problem 5: What
were the general lessons learnt from this case? What about governance, risk and ethics from this
case has been learned as a student? Problem 6: Would one invest in this firm? Give the reasons
for decision.
CONTEXT
Deustche Bank is a German investment bank having various branches around the world,
more specifically company operates in around 58 countries. It is regarded as 17th largest bank in
the world as in terms of assets. The company is listed in the DAX stock Exchange at is currently
quoting at 10 Euro per share. It was founded in 1870 in Berlin, Germany and thus has been able
to gain the overall trust of individuals residing within the country and around world (Ball, 2018).
The company is also present in various businesses like investment banking, retailing, wealth
management etc. The company's revenue is around 27 billion Euros and is growing quite rapidly.
It is estimated that the overall growth of the company has seen a hit due to the various recent
scandals that has taken place within company.
There are various kinds of issues that the company is facing due to the recent scandals
that has taken place within the company. Company is making sure to make effective as well as
efficient actions to overcome the same issues constructively. There are three major issues that are
being faced by the organisation and has been mentioned hereunder:
Description of Key Events
Scenario 1: Tax Evasion: In December, 2014, The company was facing issues related to tax
evasion within the united states. The attorney in United States stated that company has broken
various environmental laws and thus is liable to pay around 190 Million $ in taxes, penalty as
well as interest (Blanchard and Peale, 2011). The government of US claimed that Deutsche bank
applied insolvent Shell organisation for the purpose of evading its tax liability on major
purchases in drug maker Bristol-Myers Squibb. Under the scandal, around 6 major employees of
the organisation was found to be involved, they were involved in tax fraud related to CO2
Emission certificates, and most of those employees were afterwards convicted during the trial.
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Deutsche Bank was not convicted because of absence of corporate liability laws within
Germany.
Scenario 2: LIBOR Scandal: The company faced various issues, which includes its 29
employees being engaged within the illegal activities of fraud. The company has agreed to pay
around $220 million to resolve the probe within the interest rate manipulation. IT has to remove
all the employees from the company, which has put dent on the workings of company over
period of time. Deustche Bank has not been able to implement various plans like installing an
independent monitor so that interest can be monitored effectively (Brower and Mahajan, 2013).
Various issues were arising within the organisation, but the management of company was not
taking necessary decision in this regard, which raised the questions on the overall intent of
Employees. The company has to pay around $2.1 billion to American regulators as a penalty for
the LIBOR Scandal that took place, This further impacted overall growth of the organisation in
the longer run.
Scenario 3: Sanction Violations: The company was found to be engaged in the processing as
well as sanctioning loans to individuals who belonged to blacklisted nations, states as well as
federal authorities. The bank had to pay a penalty of about 258 million$ imposed by federal
reserve bank due to the fact that bank was found to be working with some of the nations which
were banned by United States like Libya, Iran, Sudan, Burma etc. The no. of transactions that
were done with these countries were around 27,200 and it was valued at around 11 billion dollars
(Clampitt, 2012). This has tarnished the image of the bank in United States and thus the business
has shown a decline in united states which has resulted in a negative net income of the company.
The bank is still going under investigation by the US Agencies for its work.
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CASE STUDY ANALYSIS
1. Corporate Governance issue within the company
Deutsche Bank has been facing various issues related to corporate governance because of
the fact that its top management has not been focusing on the business and as a result various
scandals has taken place within the organisation, which has malign the image of company at
international forum and has also shook the overall confidence of consumers over period of time
(Crane and Matten, 2016). Every Organisation focuses on Corporate Governance by effectively
implementing various plans as well as policies in this regard. Thus, it is important for Deustche
Bank as well to establish a better corporate governance control on the business, so that overall
growth and development can take place and cases of scandals can be reduced to an extent.
Risk Management
Every Organisation has face the issues related to risk that is there within a business. The
risk can be related to the internal environment or the external environment of the organisation, it
is the responsibility of the management to make sure that effective risk management policy is
being framed by company to overcome the issues related to management in an effective as well
as efficient way. Risk management standards were not followed by the bank which has given a
rise to various scandals within the organisation. The employees of the company took the
functioning of the company lightly with no major accountability issues, thus were getting
involved in various malpractices that affected company and its overall reputation over period of
time. In UK, Various acts and legislations amendment were made to make laws related to
scandals and fraud a bit Stringent, that will create a overall deterrence among individuals as well
as organisation to enter into fraudulent activities to earn a higher profit (Fouquau and Spieser,
2015).There is a need to follow a proper ERM Framework which is also called as enterprise risk
management model that will allow the organisation to effectively manage the various risks
involved within the organisation in an effective manner.
Through this an organisation would be able to effectively protect as well as enhance the
ultimate value of its stakeholders, which includes employees, customers, owners, society etc.
Basically an ERM covers all the aspect of the business which helps in properly managing the
business in the longer run.
Risk management model:
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This is an effective model which comprises of various aspects such as identify, analyse,
treat and monitor and report. These all aspects assist management of Deutsche bank to make an
effective decisions and suitable policies to overcome issues which are currently affected their
brand image in competitive market world. Such aspects brings huge impact on the relation of
management with their stakeholders. These aspects are briefly discussed under the below:
Identify: Identification is considered as first element of risk management model.
According to the Dawson and Grill (2012), it is important for an organization such as Deutsche
bank to identify the needs of their stakeholders which includes customers, investors, society as a
whole. In the present case of Deutsche bank, they are dealing with the companies blacklisted by
America due to which they faces legal consequences (German, 2014). It affects their
sustainability in America which cause huge damage to their strong identity as well. Thus while
operating business in USA, it is important for management of Deutsche bank to first identify the
list of companies which strictly prohibited by USA government to deal with and on the basis of
which, select companies for the purpose of transacting. It enhances their strong image in USA
market as well as help them in capturing large market share.
Analyse: It refers to analysing the needs as well as demands of all the stakeholders of the
organisation like employees, customers etc. Customers shall be given right kind of services so
that satisfaction level can be achieved and brand reputation of the bank can be gained back which
was maligned in the cases of Fraud etc.
Treat: According to Devinney, Schwalbach and Williams (2013) A company shall make
right kind of plans that will enable the organisation to grow as well as prosper in an efficient
manner. Deustche bank shall treat its employees as well as customers in an appropriate manner.
There is a need that employees shall be trained, so that they will not indulge in various kind of
fraudulent activities and they generates a sense of belonging for the organisation over period of
time, which will further reduce the risk of scandals in the organisation. There is also a need to
overcome the issues of corporate Governance.
Monitor: As per the Views of Gordon (2015) It is the responsibility of Top management
to ensure that the working of subordinates and managers are monitored on a consistent basis
which will make sure that the task is being completed in an appropriate manner and employees
are not getting involved in activities that will malign the image of the company in any way.
Employees of the company has been consistently involved in various cases of Tax evasion and
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making personal profits on the name of company, also they were involved in making transactions
with different countries which were blacklisted by the United States and thus was fined with
heavy penalty, it is important to look into these matter effectively by the top management in the
longer run (Hartman, DesJardins and MacDonald, 2011).
Report: This is also an essential part of risk management model. This section is based on the
communication which can be held among the organisation or its stakeholders. In this stage the
major risk is identified by the organisation or its management as making appropriate decision in
order to resolving the issue in effective manner. Evaluation of issues and resolve them as to
improvising the operations of firm. It is essential for organisation or its management to create an
effective communication channel in order to maintain appropriate flow of data and information.
Deustche Bank, it works in a financial sector and it is essential for the firm to design an
appropriate plan and policies in regards to developing the operations of the firm. The designed
rules and policies needs to be followed by the organisation or its employees and stakeholders as
to managing the activities of the firm in effective manner. In this segment, higher authority and
stakeholders are reliable to providing appropriate information to the each department of the firm
for attaining higher competitive edge within the market place.
This can be clearly seen and identified that risk management model is effective and
helpful for Deustche Bank to overcome with their issues that are relating with the financial
aspects. This kind of models are effective for the firm to reaching at their potential goals as to
using appropriate flow of communication.
The ethical issue
An ethical issue or ethical contradiction is a decision-making issue which arises in
between of two possible moral imperatives, neither of which is unambiguously acceptable or
preferable. Each business organisation is based on some ethics and which are required to be
followed by them in order to managing the operations of the firm in effective manner. As a
financial sector, Deustche Bank is performing various activities for enhancing their business
operations at wide scale (Hartmann, 2011). The ethical governance issues defined to the plans
and policies which are created by the organisations in respect to developing the process of their
operations and activities in respect to reaching at their potential goals and objectives. Deutsche
Bank was accused of misleading investors in the securitization, packaging, marketing, sales and
issuance of residential mortgage backed securities in between the year of 2006 and 2007.
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Deutsche Bank is significantly securitized billion of dollars of imperfect mortgages and later
made false representation to investors in regards to the quality of the underlying loans. The bank
is also supported to the shoddy mortgage underwriting and negligent lending which caused
borrowers to lose their homes because they couldn't pay their loans. Each business organisation
has some purpose and the major objective of Deutsche Bank is to grab the attention of more and
more customers through offering them variety of effective services which are beneficial for them
(Hernández-Jover and et. al., 2012). Deutsche Bank is concern on creating an effective plan as to
addressing the issues like Tax Evasion, LIBOR Scandal, Sanction Violations, which has direct
influence on the operations of the firm. The company is majorly concern on using fast and
advance technologies as to developing the operations of banking sector in order to attaining
higher competitive edge within the market place. Investment needs to be done in appropriate way
in order to using potential sources which are efficient in handling the scandal of the bank.
Deutsche Bank is very much concern on finding out the measures as to resolving the scandals
which are creating a bad impression of the firm in the mind set of people. As a financial sector
the company needs to maintain their brand image in order to sustaining good relationship with
customers.
Corporate Social Responsibility
Corporate Social Responsibility is considered as an essential business approach which
contributes to the sustainable development through providing economic, environmental and
social benefits for all stakeholders. In the modern business environment, CSR is determined as
the most essential element which is majorly used by organisations in order to attain high growth
and success within the market place. Deutsche Bank’s corporate responsibility is brought to life
in its regional units and endowed foundations. Their initiatives ensure that social capital is built
in all regions in which the bank operates (Hillstrom, 2012). As a large business organisation,
Deutsche Bank is concern on gaining the attention of large number of people through conducting
various CSR activities as these are effective in enhancing the operations of the firm at market
place. The first scandal of the bank is Tax Evasion as it is essential for Deutsche Bank to fire the
employees who are involved in the scandal as to creating an example for the public. The another
scandal LIBOR Scandal, in which company faces various kind of issues which has the direct
influence on the operations of the firm. For this Deutsche Bank is concern on conducting various
CSR Activities like free education camp etc. as to maintaining the brand image of firm in the
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mind set of people. Third scandal is based on Sanction Violations, for overcome with this
scandal bank is providing low interest loan facilities to their potential clients for managing the
effectiveness of organisational operations.
Board Effectiveness issue
The management of Deutsche Bank play a vital role in bringing an organization ahead
than their rivals through formulating an effective plans and policies in competitive market world.
It has been understood from the above scenarios that Deutsche Bank may lose its existence in
America due to performing against the law and standards. In the second scenario, it has been
identified that Deutsche Bank has indulged in LIBOR scandals due to which they had to pay
huge amount as penalty. It adversely affects their brand image in American market. Therefore,
the management board is held liable to educate employees of different level to comply with legal
laws and standards formulated by American Government so that the sustainability of company
will increased (Hodge, 2016). For this, it is essential to read out all policies and standard of
America and accordingly operates their business so as to re-attain their brand image in American
market. As it also requires change in leadership as well due to such non-compliance of country's
law and standard. Leaders are the only one which guide and direct the members to perform in an
ethical way. Therefore, management board should be more effective to achieve growth and
expansion of business in market for longer period of time. The third section is based on the issue
of the sanction violations in Deutsche Bank and it is essential for management to direct their staff
member not to deal with the countries which are blacklisted by the government of the US. It can
be done through providing sufficient knowledge in regards to the standards and the policies.
2: Literature review
The given case study is based on Deutsche Bank and its various scandals which has a
huge influence on the activities and operations of the firm. The bank has breached the norms of
corporate governance. The major focused area of each small as well as large business enterprises
is to develop their standards in respect to attaining high growth and profitability at market place.
In the financial sector, trust is the major priority of the customers as people are mainly looking
for the well reputed and highly standard company as to making their financial transaction more
effective and relevant. It is necessary for the firm to act in ethical way through follow the
government policies and rules in order to develope the loyalty and trust of people towards the
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firm or its operations. As per the case study analysis of Deutsche Bank, the company has faced
various kind of issues due to their financial scandals and failed to meet the norms and ethics of
corporate governance. Thus Deutsche Bank faces various negative consequences like decreasing
the customers based, low market share, decreasing brand image, high loss etc.
The stakeholder Theory
This considered to be the most important and effective theory which finds its application
in the first scandal of of Deutsche Bank “The tax evasion scandal” involved in the deal of CO2
emission certificates. Stakeholder is defines as a party that has some specified number of stake in
the company. As a large financial sector the Deutsche Bank has different stakeholders like
directors, managers, employees, government and suppliers, who are engaged in the various
activities of the firm (O'Brien and Dixon, 2012). Stakeholders are the key element of the firm
and plays effective role in making decisions in regards to the betterment of the business
activities. Due to the scandal of tax evasion, Deutsche Bank faced various kind of issues like bad
brand image, government restriction etc. and the company has decide to pay $95 million (€90
million) just to settle a United State, that charged Germany's biggest lender by tax evasion. In
this scandal, stakeholders plays vast role in creating the decision to accused the six former
employees who are the part of the scandal in which the potential tax fraud deal with CO2
emission certificates and most of them were afterwards convicted.
Behavioural Theory of fraud
In the second scenario, Deutsche Bank states the impact of LIBOR scandal on the
business activities of the firm. This considered as the biggest fraud of Deutsche Bank as in this
the bank is ready to pay 45 states which is a combined $220 million to resolutions a probe in
between the interest rate manipulation, more than double the amount of Barclay's Plc's settlement
of past year (von Meding and et. al., 2013). Fraud has become the largest threat of the worlds
economy. It is a global issue not only in terms of its influence on the major corporations and key
financial institutions but it also effect on smaller organisations and ultimately the wider public
who indirectly pay for the losses through increased costs of goods and services. This theory is
effective in providing an appropriate solution by taking legal action against the employees who
are involved in this scandal.
Decision Making theory
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