Principles of Corporate Governance: Medibank’s Adherence

The corporate governance structure is most important feature of any business affairs as it helps in identifying issues, challenges, and problems. It also permits the company to repay to the all the shareholders of the corporation and the communities. The corporate responsibility, ethics, corporate governance structure and corporate governance principles not only help sustaining a great faithful customer foundation, but are also significant for long term development, future progress and attainment. These activities support the within relationships with the workers of company.

The good corporate governance is not only restricted to the proper environmental practices, but it develops to arrange overall values of corporation with the objects of clients, workers, investors, dealers, supervisor and the common people. In this report, various aspects of the corporate governance structure, principle of corporate governance structure and strategies of corporate governance structure of Medibank Pvt Ltd. is discussed and critically examined.

In Australia, Medibank Pty Ltd is a top private health insurer. The main business of Medibank Pty Ltd is Health Insurance. It underwrites and allocates poliies of private health insurance in respect of two brands, Medibank and ahm. Medibank has a group of related businesses, which is called as Medibank Health. Previously, it was considered as complementary Services. Medibank Health leverages experience of Medibank and capability to render and organize services related to health, and sustain the business of Health Insurance. As Medibank Pty Ltd keeps assets to assure its regulatory reserves, it may also produce important asset income from its collection of investment assets.

Principle 1: According to first principle, the structure of the company must be deigned to make able the board of company to render strategic directions for corporation and the management. The framework of company should make sure the balance of authority.

Principle 2:  According to this principle, the company must have board of proper composition and size. It is recommended that the majority of board of company should contain independent directors. There should not be same person for the post of CEO and chair. The nomination committee should be established by board of company.

Principle 3: As per this principle, the corporations must encourage ethical decision-making and responsible decision-making. It is recommended to make code of conduct. The company should reveal the codes to develop faith in the integrity of company and to enforce the responsibility of individual for making report and evaluating report of immoral practices. It is also recommended that company should make the policies related to diversity. It is also required by the company to disclose the proposition of women in annual report.

Corporate Governance Statement 2017 and APRA Governance Standards

Principle 4: It is stated by this principle that the framework of the company should justify and secure the integrity of financial reporting. The board should establish audit committee. There should be formal charter of audit committee.

Principle 5: According to this principle, the corporation should promote the disclosure on the time. The company should make written policies to make sure the compliance with requirements of ASX principles. The written policies should ensure responsibility at level of senior executive for that compliance.

Principle 6: This principle states that the corporation should respect the shareholder’s rights. The company should exercise these rights properly. It is recommended to the company to develop the communication policy for encouraging proper communication with shareholders. The company should encourage the involvement in the general meetings of company.

Principle 7: this principle states that the company should develop the sound system of risk oversight, administration, and internal control. It is recommended that the board of company should disclose the management has reported to it as to effectiveness of management of company of major business risk.

Principle 8: the company should make sure that the level and arrangement of remuneration is proper and sufficient to establish the clear relationship. It is recommended to a company to establish remuneration committee. The remuneration committee should be framed by majority of independent directors. It should be chaired by independent chair. It is also recommended to the company to make differences between remuneration of executive directors and remuneration of non-executive directors.

Medibank is committed to report ASX corporate governance principles and best practice recommendations. During year 2017, Medibank continued to comply with ASX guidelines. However, principle 5 ‘make ASX listing rules disclosures timely’ is not applicable to unlisted GBE such as Medibank Pvt Ltd. In according with Board policy, MD and CEO give a self-assessment sign-off in respect of the controls and actions of corporation. This procedure supports the written certification of MD and CEO to the board under ASX Guideline Recommendations.

The board is devoted to increasing experience of customers, enhancing performance in business, creating values of shareholders and satisfying the development of Medibank. For achieving the objects of business affairs, board pursues to make sure that Medibank is appropriately managed to secure and increase the interests of shareholders. The corporate governance statement involves accepting processes of risk management, policies related to corporate governance and ethical conduct.

The corporate governance practices of Medibank Pty Ltd for the year ended 30 June 2017 are state in the Corporate Governance Statement 2017.  During year 2017, Medibank Pty Ltd had in place policies and procedures, which conform to recommendations in third edition of ASX Corporate Governance Council Corporate Governance Principles and Recommendations. Medibank Pty Ltd also meets the governance standards related to industry issued by Australian Prudential Regulation Authority (APRA). The main practices of corporate governance are made at Medibank. They are defined in this statement and the main policies of corporate governance are available on website of Medibank Pvt Ltd.

Independence and Royal Commission Inquiry

It is always expected from the directors to make an independent decision to bear on judgement of Board. The director is regarded as independent director if a director is a non-executive director who is not management’s members, and is free of the business or other relation, which can significantly obstruct with the execution of imaginative and independent decision or can rationally be supposed to do same. Every director gives timely updates of their comfort, position, and relations.

The Royal Commission offers the individuals or companies to make public submission by the online form. This is required by those, who want more help by the email or telephone. The object of submission was to recognise reasons of unproven misconduct, factors that led to occurrence of misconduct and actions to be taken to solve the matters. In this way, Royal Commission conducts an inquiry in the relevant method. After the inquiry, it makes a report on the misconduct in banking and financial industry. The Royal Commission has rights to induce witness and recommend the charges related to crime. The enquiry of Royal Commission significantly affects the employment of managers in bank.

The Royal Commission makes focus on getting truth whether there is any breach of the laws related to financial services and other governing laws. The submission enables the Royal Commission to collect the information quickly in compare of the long procedure of convincing witness to act and produce documents. The intentional disclosure of secret or advantaged details to the Royal Commission can mean that there is an indirect disclaimer of secrecy or legal privilege in respect of the information in following lawsuit.  Medibank Pty Ltd supports the Royal Commission in the banking sector or finance sector. It is very significant that victims of scandals related to Medibank Pty Ltd are afforded a chance to make submissions and if suitable, provide evidence before the royal commission.

The corporate governance means the manner in which corporations work. It also includes non-profit organisation. The corporate governance contains the rules, regulations, policies, and procedures, which are in place to guide and control the function of all corporations and the organisations. In regarding good corporate governance, a balance requires to be hit between the requirements and objects of all shareholders involving the shareholders inside and outside a corporation or an organisation.

Depending on the type of entity concerned, the shareholders can involve a various group of concerned parties involving stakeholders, staffs, workers, organisation, consumers or customers, associations, which give subsidy like banks or other financial institutions, the governance system and even the wider group or public. The Good corporate governance is very important feature of representing the good corporate nationality. There are many principles of good corporate governance such as appreciation of the directors, qualified individuals in board, better healthy communication and good internal risk management strategies, and part of board. The good corporate governance plays very important role in the proper management of any corporation organisation.

Theories on Corporate Governance

The corporate governance is defined as the system to direct and control the companies. There are various theories on the corporate governance such as shareholders theory, stakeholders theory, ultitarian theory, transaction theory, agency theory and contract theory. The most significant theories are shareholders theory and the stakeholders theory.

The stakeholders theory is most important theory to make views on the corporate governance. In 1970, the Stakeholder theory was inserted in the management discipline. It is developed by Freeman integrating corporate responsibility to a broad range of stakeholders. It is argued by various theorists that stakeholder theory is resulted from an arrangement of the sociological and administrative disciplines. The stakeholder theory is less of a formal combined theory and more of an extensive research tradition, integrating attitude, political theory, economics, law, ethics, and structural science. The stakeholder theory involves all group such as investors, clients, staff, governance system, and community. It promotes ethics of cares, concept of fiduciary relationship, and the theory of property rights.

The stakeholder theory can be described as any person or community who can influence or is influenced by the accomplishment of the objects of company. Contrasting the agency theory in which the managers are performing and helping for the stakeholders, it is suggested by stakeholder theorists that managers in corporation have a linkage of relationships to serve this include dealers, workers and partners of business. It was argued that this group of network is significant other than owner-manager-staff relationship as defined in agency theory. The stakeholder theory addresses the group of stakeholder deserving and necessitating the attention of management. It is also suggested by theorists that the firm is a system, where the object of the company is to create wealth for the company’s stakeholders.

The shareholder theory is considered as the important manner of conducting business with corporations realising that there are drawbacks to focus only on the interest of the shareholders. An attention on short-term strategy and bigger risk compelling are just two of the intrinsic risks included. The part of shareholder theory may be considered in the demise of companies, where uninterrupted pressure on managers to enhance the returns to shareholders led them to influence the accounts of company.

 Further, the stakeholder theory specifies that a corporation owes an accountability to a broader group of stakeholder, in the place of just shareholders. The stakeholder is defined as any person or group, which may influence or be influenced by the activities of a business. It involves workers, clients, dealers, creditors and broader community and participants. These theories resolve the extrinsic requirements.

Conclusion

The stakeholder theory is described as an important element of corporate social responsibility. This concept recognises the responsibilities of companies in the current time, whether they can be economic, legal, moral, or generous. In these days, the largest companies of the world claim to have corporate social responsibility at the core of their strategies related to corporation. Whereas there are several sincere cases of corporations with a morality, many others exploit corporate social responsibility as a good means of PR to advance their image but eventually flop to put their arguments in the action.

A good corporate governance may have a positive effect on confidence of shareholder by encouraging them that the company is making smart decisions related to business and is well managed within. Self-assured shareholders are likely to invest huge amounts in regulated company because a positive return on the investment. It may lead to improved market confidence in the corporation, which may serve to increase complete value of stock. When the value of stock of a company rises, so does its complete value.

An organisation with poor corporate governance approaches may have a bad impact on the business market and the great economy. The deficiency of good corporate governance at the administrative and managing level may lead to poor business decisions, which can decrease the complete value of the corporation and make it more complex for the business to meet its financial responsibilities. This was considered during the year 2009, when poor corporate decisions lead to cascading failures in the markets, which in turn caused slow economy. Further, poor corporate governance of the company may lead poor political connection.

Furthermore, poor corporate governance enhanced the penalties for abolishing, changing, or constructing records in central inquiries or for trying to deceive shareholders of company. It also enhanced the responsibility of audit firms to remain impartial and sovereign of their clients.

Conclusion

As per the above discussion, it can be concluded that the corporate governance is significant aspect of success of company or an organisation. It develops the management responsibility, proper investment to the management, security of investors, promotion of long-term investment and the stakeholders activism. On the other hand, the poor corporate governance ripples the Australian markets. The issues related to corporate governance should be resolved for proper valuation of organisation.

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