Impact of Corporate Governance and Culture on Behavior

This essay explores the relationship between corporate governance, corporate culture, and organizational behavior. It argues that strong corporate governance and a positive corporate culture are essential for promoting ethical conduct within organizations. The essay uses the AWB oil-for-wheat scandal and the misconduct at the Commonwealth Bank as examples of how unethical corporate cultures can lead to significant corporate misconduct. It also references literary sources to support its claims. The essay emphasizes the importance of adhering to ASX guidelines and suggests recommendations for making corporate governance principles more effective, including stricter regulations, regular audits, and a focus on ethical values within the organization. The author posits that corporate culture significantly influences employee behavior, even more than written guidelines, and that a culture of transparency, ethical conduct, and stakeholder consideration is crucial for long-term organizational success.

Corporate Governance, Corporate
Culture and corporate behaviour

Abstract
The essay presents the opinion that the Corporate Governance and Corporate culture help in
framing the organizational behaviour. The organization with an ethical corporate culture
promotes ethical behaviour. The essay presents the examples of AWB scandal and
Commonwealth Bank to show that the unethical corporate culture promotes corporate
misconduct. The claim made in this essay is also supported using literary sources. The ASX
guidelines will be followed in an organization in practice only if the laws are made strict. It
also provides a few recommendations which can be used to make these principles effective.

Table of Contents
Introduction................................................................................................................................4
Discussion..................................................................................................................................4
Corporate misconduct: the AWB’s Oil for wheat scandal.....................................................4
Corporate culture and corporate governance.........................................................................5
Royal Service Commission....................................................................................................6
Corporate misconduct by the Commonwealth Bank.............................................................7
Do these codes of conduct, corporate government frameworks and Corporation Laws
actually work?........................................................................................................................8
Conclusion................................................................................................................................10
Bibliography.............................................................................................................................10

Introduction
Corporate behaviour is considered critical for the success of any organization, both in terms
of maintaining relationships with the stakeholders as well as attaining financial success. The
corporate behaviour includes ethical codes of conduct, legal rules and social responsibility
principles (Graham, 2013). The corporate behaviour affects not just the shareholders and the
stakeholders of the company, but also the economy of the organization. A socially and
ethically responsible behaviour of the leaders in any business organization makes the
organization more sustainable (Black, 2001). This can be witnessed in the AWB’s “oil-for-
wheat” scandal where the director and chairman of AWB Limited failed to manage the
conduct of their employees regarding illegal sanctions and corruption. The essay will present
the view that the corporate governance is highly responsible for the corporate behaviour. The
organizations need to develop strict corporate governance principles which govern the ethical
behaviour of the employees within the organization and its related overseas operations.
Discussion
Corporate misconduct: the AWB’s Oil for wheat scandal
To understand the significance of a good corporate governance framework and good
corporate culture in framing a good corporate behaviour, it is necessary to understand the
impact of corporate misconduct. The AWB’s “oil for wheat” scandal is one of the greatest
examples of corporate misconduct (Frain, et al., 2013). The background of the incidence
dates back to the time period between 1993 and 2003 when UN established a program for
Iraq named as oil for food where the money received by selling oil in Iraq was put in an
escrow account and it was, later, used for buying wheat (SBS News, 2015). From 1999 to
2002, AWB was found to be involved in the act of making an illicit payment to the Iraq

Government as supposed “transportation fee” which was funnelled to Saddam Husain’s
regime. It was a breach of the UN trade sanctions. This case can be witnessed as a perfect
example of a corporate culture leading towards greed, deception and corruption. The
investigation reports of the UN suggest that how the corporate culture of AWB influenced the
corporate behaviour and the behaviour of the senior managers. The senior managers of the
company kept the sanctions and CG principles above the profits and sales of the organization
(Fallon & Cooper, 2015).
Corporate culture and corporate governance
The above case highlights that the company did not follow any corporate governance
principles which are extremely necessary for any organization. They breached all laws related
to ethical corporate behaviour. The corporate culture of the organization got inclined towards
greed, deception and corruption. The organization needed to follow the principles of
corporate governance to develop a good corporate culture (R.M.Haniffa & T.E.Cooke, 2005).
Good governance develops a healthy corporate culture. CG deals with the formulation of a
few principles which the organization must follow to get managed and controlled. It ensures
that the organization determines effective objectives and forms ethical guidelines which must
be followed to meet the objectives. The Hybrid CG regulations laid by Australian Security
Exchange (ASX) are considered to be the best for the company performance as they are not
very strict but entails come form of sanction to maintain a regulatory influence over the
employees. The ASX CG principles promote responsible and ethical decision-making, make
balanced and timely disclosures and respect the sanctions and the rights of stakeholders (ASX
Corporate Governance Council , 2010).
In my opinion, if AWB had followed these principles, they would have performed all their
operations within the limits of their corporate conduct and developed a corporate culture

significantly away from breaches and corruption. This opinion of mine has also been
supported by Grebe in his published article in 2013 (Grebe, 2013). As per the report
published by Fallon and Cooper in 2015, the culture of AWB encouraged all its employees to
maximise the revenue and the profits of their company. It encouraged the employees to do
what-so-ever it takes to maximize the revenue of the company, even if it included breaching
the international laws and ethical standards. Thus, the employees of the company helped the
owners to continue this act of bribery and breaching and did not oppose it. Increasing the
revenue of the company, by any means, increased the benefits of managers in the form of
super salaries, bonuses and incentives. The Board members serving their tenure when the
scandal occurred and company made exceptionally high revenue, were re-elected for their
unethical efforts for yet another term. Their salaries were rose to $1 million (Fallon &
Cooper, 2015). All these acts show that the corporate culture of AWB promoted bribery,
corruption and breaching of international laws and sanctions to maximize their profits.
Royal Service Commission
The Royal Commission was established late in December 2017 for investigating and finding
out whether any of the Australian financial institutions are engaged in any sort of corporate
misconduct and their legal proceedings need to be forwarded to the Commonwealth of
Australia. The Commission began functioning on 13th March, 2018. The Commission has
reported the appalling behaviour of a few major banks in Australia including forged
documents, alleged bribery, misselling the insurance to the people who are not efficient
enough to afford it and lending money to the customers without verifying their living
experiences. One of banks which is said to be involved in such an act is Commonwealth
Bank (The Guardian, 2018).

Corporate misconduct by the Commonwealth Bank
According to the Australian Transaction Reports and Analysis Centre (Austrac), the
Commonwealth Bank was guilty of 53,700 breaches of laws related to counter-terrorism and
money laundering and it failed to explain the transactions worth $77 million over a number of
years through its deposit ATMs (The Guardian, 2018). The Bank sold financial products and
advices to their customers as they are the considered to be highly profitable. However, the
bank sold them to the customers without obliging their financial interests. They just sold the
products to make more money and 75% of the cases revealed that these advices failed to
comply with the best interests of the customers. Not only the poor financial advice but also
the reprehensible behaviour of the bank was not in compliance with the noble corporate
behaviour. The poor conduct of the bank included the administration errors, breaches of
lending obligations and fraudulent documentation (ABC News, 2018).
This case presents a picture where the corporate misconduct directly impacted the interests of
the customers. In this case also, the corporate culture of the Commonwealth Bank is the
major reason for the corporate misconduct as the culture of the bank is to maximize the rate
of profits for the institution, even if it is not in the interest of the customers. The culture of the
organization directly impacts the individual learning, motivation, values, decision making
and communication of the employees. The organizational culture delivers the values and its
vision to the employees. Thus, if the employees in an organization are doing the same, they
are inspired by the negative culture of the organization which encourages them to perform
any possible task, whether legit or illegitimate, to maximize the revenue and profit of the
organization (LI, 2015).
According to Thomsen (2004), the ethical values in an organization’s culture are influenced
by the corporate governance. There are three major mechanisms of governance- the board

composition, stakeholder influence and ownership structure. The corporate culture and
corporate behaviour is framed by the managers and the board of directors in large
organizations such as Commonwealth Bank. Thus, a significant framework based on ethical
corporate governance principles must be framed to shape a corporate ethical behaviour
(Thomsen, 2004).
Do these codes of conduct, corporate government frameworks and Corporation
Laws actually work?
The ASX principles of corporate governance and Codes of conduct have value as the internal
guidelines as well as the external statement of the corporate commitments and values. They
clarify the organization’s values, mission and principles and link them with the professional
conduct standards that must be followed in an organization. They do not just predict the
behaviour of the organization but also present the ethical standards which the employees of
the organization need to follow ( Ethics.org, 2018). The organizations usually have these
codes of conduct or corporate governance principles well defined, whether it’s legally
mandatory or not for them to follow them. This determines the corporate reputation of
organizations and a company with good ethical practices and behaviour is accepted well by
the stakeholders. Such companies have certain competitive advantages over their competitors
(Adam & Rachman-moore, 2004).
But the question is whether all these principles, guidelines or CG frameworks ensure ethical
behaviour of the organizations and the employees working for it. In my opinion, sticking to
these guidelines is necessary but there is a need for carrying out strict monitoring processes to
check whether these guidelines are strictly implemented or not. All the big organization has a
written set of ethical rules on paper which need to follow but these written guidelines are
actually followed or not, depends on the organizational culture. The activities in practice

influence the employees more than a few rules which are just written on papers for fulfilling
the legal requirements. For instance, both the companies found guilty of unethical behaviour
were renowned companies with good corporate reputation before these incidents took place.
They also had ASX guidelines or CG principles to be followed but still the culture of the
organization focused more on gaining profits apart from maintaining the company ethics.
Thus, corporate culture highly influences the behaviour of the employees than mere
mentioning the CG principles (Schein, 2009).
If these guidelines are to be followed with full efficiency, then the rules and regulations need
to be stricter and regular audits and checks need to be organized. The compliance of these
principles must be cross-verified by the authorities. The company must be asked to disclose
their financial information, CSR related data and other accounts at regular intervals and it
must be made mandatory. If any company fails to do so, they must be asked for a proper
explanation and the data must be verified on a regular basis. This will allow the companies to
keep a check on the day to day activities of the employees and check if they go unaligned
with the CG principles (ASX Corporate Governance Council , 2010).
A corporate culture must be developed on the basis of certain guidelines identified by the
corporate culture. Disclosure of all the information must be provided on time so that it is
ensured that the company is ethically trying to perform its duties and the profits earned by the
company are strictly as per the ASX principles defining the code of conduct. The employees
of the company must be interactive and encouraged to follow the rules and keep the interest
of the society above their personal interests. They must be taught to serve the moral values of
their job first and then, personal interests (Agle, et al., 2014).

Conclusion
The report gives an account of the impact of corporate culture and the corporate governance
frameworks on the corporate behaviour followed within the organization. The cases described
above prove this conception. The corporate cultures of both Commonwealth Bank and
Australian Wheat Board used to keep the profits of the organization above their ethical
standards. They focus on maximizing their revenue and do not worry about the sanctions or
legal measures. They even used the foul measures to increase the revenue of the company.
Thus, there is a need for the authorities to make their measures stricter and audit the company
operations on a regular basis.
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