IBU5GW: Royal Banking Report and Corporate Governance Analysis

This essay provides an analysis of corporate governance in a globalizing world, primarily focusing on the implications of the Royal Banking Commission's report on Australian banks. It summarizes the key arguments of an ABC News article regarding the report, highlighting the unethical practices of banks and the measures being taken to protect consumers. The essay further discusses critical issues in corporate governance, such as compliance with laws, transparency, accountability, human resource management, and innovation. It also explores relevant theories like agency theory and stewardship theory, emphasizing the importance of aligning the interests of agents (managers) with those of principals (shareholders) and the role of stewards in maximizing stakeholder wealth. The conclusion underscores the need for ethical and transparent operations to achieve good corporate governance and safeguard the interests of all stakeholders. Desklib is a platform where students can find similar solved assignments.

Running head: GOVERNANCE IN A GLOBALIZING WORLD
Governance in a Globalizing World
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction...........................................................................................................................................3
1. Summary of the Key Arguments in the Article, “What Does the Royal Banking Report Mean for
Consumers?” by Nassim Khadem, business news reporter for ABC News............................................3
2. Discussion of Key Issues in Corporate Governance........................................................................4
3. Discussion of Relevant Theories and Concepts in Corporate Governance.....................................5
Conclusion.............................................................................................................................................6

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Introduction
The term corporate governance refers to the system of processes, practices and rules by
which firms are directed as well as controlled. It involves balancing the varied and many
interests of the stakeholders of a company, such as customers, management, stakeholders,
financiers, suppliers, community and governance. Corporate governance today is something
that is plagued greatly by many issues and problems that need to be identified and resolved at
the earliest possible opportunity if the interests of stakeholders are to be adequately looked
into. This paper summarizes the key arguments that have been made in an ABC News article,
entitled, “What Does the Royal Banking Report Mean for Consumers?” by Nassim Khadem.
The report proceeds to discuss the key issues that exist in corporate governance today and
also discusses the relevant theories and concepts in corporate governance with an attempt to
understanding the ways by which corporate governance issues may be successfully resolved.
1. Summary of the Key Arguments in the Article, “What Does the
Royal Banking Report Mean for Consumers?” by Nassim Khadem,
business news reporter for ABC News
The primary arguments of the above article are that, based on the report produced by the
Royal Banking Commission of the Commonwealth of Australia, unethical practices on the
part of banks of charging money unethically for practically no service rendered on their part
are about to come to an end (Khadem, 2019). Mortgage brokers are now going to end up
losing most of the incentives that they normally receive by working in the interests of the
banks rather than by looking into the interests of their own clients, the days are numbered for
those engaged in the selling of useless insurance schemes for customers, as well as for people
who are involved in the sale of useless car loans and last resort compensation schemes shall

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be offered on the part of the Royal Banking Commission to those who are victimized by the
unscrupulous practices of banks (Khadem, 2019). Grandfathered Commissions, that is,
commissions that are paid to intermediaries who have been involved in the sale of financial
products prior to the FOFA (Future of Financial Advice) Reforms, and which are classified
otherwise as conflicted remuneration are now going to be brought to an end. A clear
justification will have to be provided by banks now for the retention of such commissions and
the cap ultimately will have to be brought down to zero (Khadem, 2019). A cap will be
placed on the commissions that are earned by car dealers when they engage in add-on
insurance sales. They will not be exempted any longer at all from all the laws pertaining to
the protection of national consumer credit. Flex commissions in particular are to be singled
out, that is the arrangement between car dealers and lenders that enables car dealers to set
customer interest rates on the basis of loan by loan. As a result of this customers, more often
than not, are hit with interest rates which are really high, making it difficult for them to pay
back such loans. Funeral expense policies and funeral life policies will be exempted no
longer from the category of financial product and unfair contract term provisions that have
been established by the ASIC Act will now be applied to insurance contracts as well.
Additionally industry levies shall be adopted for funding important services that are directed
at making sure that disadvantaged people have some equal measures to fall back on if they
happen to enter into disputes with any financial institution (Khadem, 2019).
2. Discussion of Key Issues in Corporate Governance
One of the most important issues in corporate governance today is compliance with laws.
Companies that are in need of progress and which demonstrate highly ethical behavior in
their modus operandi must be in compliance with all major financial laws that includes
banking laws as well as cyber laws (Davies, 2016). Banks are more of than not, seen to

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violate banking laws and standards, and engage in activities that look into their interest rather
than that of their stakeholders, chiefly their customers. If ethical operations are something
that needs to be assured on the part of banks then compliance with the laws of the land is
absolutely imperative (Davies, 2016). Transparency, accountability and disclosure are also
key issues in corporate governance today. Banks seldom appear to be transparent and
accountable for the assets and the liabilities that they are responsible for. Yet this is such an
important aspect of good corporate governance and good banking governance in particular.
Transparency is always needed on the part of corporate bodies such as banks and financial
institutions if the government is to have any faith in such bodies. Transparency is also needed
in corporate governance so that customers do not ever have to shift their focus to any other
corporate body owing to the prevalence of stiff competition in the market (Du Plessis et al.
2018). Inadequate human resource management is also a key issue in corporate
governance today. Human resource management at a bank, financial institution or any other
corporate body needs to recruit and retain employees of skill and dedication rather than those
who are simply looking to land any job they can get (Kopnina & Blewitt, 2018). Attention
needs to be paid to the skill sets of employees at the time of recruitment, which is not the case
at the moment, and which can ensure quality services rendered by employees for a corporate
body in the long run. The lack of innovation is yet another key issue in the domain of
corporate governance that requires immediate attention. Companies need to take some risk
and innovate with products and services in order to ensure customer satisfaction and high
sales for products and services over the long term. While running predictable products and
services in the market place is always a safe bet, innovating with products can ultimately gain
far more interest and respect on the part of a customer for a company whose products and
services it has been endorsing for quite some time now. (Glinkowska & Kaczmarek, 2015).

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3. Discussion of Relevant Theories and Concepts in Corporate
Governance
One of the most important and relevant concepts that need to be deployed when engaging
in activities pertaining to corporate governance is the agency theory (Glinkowska &
Kaczmarek, 2015), Such a theory defines the relationship that exists between principals, that
is, the shareholders of a particular company and the agents, a good example in this respect
being the directors of a particular company. The theory runs on the notion that the principals
of a certain company are seen to hire agents for the purpose of performing specific types of
work (Kruitwagen et al. 2017). The work of operating the business is something that is
delegated on the part of principals to managers and directors who are the agents of the
shareholders. It is the shareholders who expect that the agents will act and will also take the
types of decisions that are always like to be in the best interests of the principals (Kruitwagen
et al. 2017). The agents on the other hand are not always likely to make the types of decisions
that work in the best interests of the principals. An agent can always end up succumbing to
opportunistic behavior, self-interest or may not be able to meet up to the expectation that are
harbored by the principal. One of the most important features of the agency theory of
corporate governance is the divorce of control and ownership. According to this principle,
employees or people are to be held entirely accountable in their responsibilities and tasks.
Punishments and rewards may be used for correcting agent priorities (Madison et al. 2016).
Another crucial theory or concept of corporate governance is the famous Stewardship
Theory. According to this theory the wealth of a stakeholder is something that is protected as
well as maximized by a steward through firm performance. The stewards are managers and
company executives who work in the interest of the shareholders and who protect as well as
make a profit on behalf of shareholders (Shi et al. 2017). Motivation and satisfaction are both
attained on the part of stewards at a time when organizational success is achieved. Stewards

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stress on employees or executives to perform their operations in a way that this comes across
as autonomous and in a way that the returns of the shareholders are maximized. Their work
and their jobs is diligently taken ownership of on the part of stakeholders (Madison et al.
2016).
Conclusion
Thus, the issues in corporate governance today are many in number as is evident in
the ABC News article on the report of the Royal Banking Commission on Australia that
cracks down on unethical practices on the part of banks and financial institutions in the
country. Upon analyzing the key issues in corporate governance in general and through a
discussion of relevant theories and concepts pertaining to corporate governance, it is clear,
that the interests of stakeholders and shareholders is something that corporate bodies always
need to look into and that operations must always be carried out in an ethical and transparent
manner, if good corporate governance is to be achieved.

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References
Davies, A. (2016). Best practice in corporate governance: Building reputation and
sustainable success. Routledge
Davies, P.W., 2016. Current issues in business ethics. Routledge
Du Plessis, J. J., Hargovan, A., & Harris, J. (2018). Principles of contemporary corporate
governance. Cambridge University Press
Glinkowska, B., & Kaczmarek, B. (2015). Classical and modern concepts of corporate
governance (Stewardship Theory and Agency Theory). Management, 19(2), 84-92
Khadem, N. (2019). What does the banking royal commission report mean for consumers?.
ABC news.
Kopnina, H., & Blewitt, J. (2018). Sustainable business: Key issues. Routledge
Kruitwagen, L., Madani, K., Caldecott, B., & Workman, M. H. (2017). Game theory and
corporate governance: conditions for effective stewardship of companies exposed to
climate change risks. Journal of Sustainable Finance & Investment, 7(1), 14-36.
Madison, K., Holt, D. T., Kellermanns, F. W., & Ranft, A. L. (2016). Viewing family firm
behavior and governance through the lens of agency and stewardship theories. Family
Business Review, 29(1), 65-93
Shi, W., Connelly, B. L., & Hoskisson, R. E. (2017). External corporate governance and
financial fraud: Cognitive evaluation theory insights on agency theory
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