Meaning and concept of corporate governance structure

The corporate governance is important element for company’s success. The corporate governance recognises complexities or difficulties in conducting business affairs. The corporate responsibility, ethics, corporate governance structure, and corporate governance principles create the trustworthy customer base. The good corporate governance of company helps in making long-term development and achievements. It is very helpful for the growth of employees of company. The good corporate governance is not only limited to the adequate environmental practices, but it develops to arrange overall values of an organisation to achieve objects of clients, staff, investors, dealer, administrator and the public.

In this report, meaning, and concept of corporate governance structure, principles of corporate governance, corporate governance theories, and consequences of poor corporate governance structure of common wealth bank is discussed and critically evaluated.

The company or bank preferred for the evaluation is Commonwealth Bank.  Commonwealth Bank is multinational bank in Australia. The commonwealth bank runs business across the world such as United States, New Zealand, Asia and UK. Commonwealth Bank provide the financial services including banking services. This bank is listed on Australian security exchange. It includes various trademarks namely Commonwealth insurance and Commonwealth securities. The major object of this report is to evaluate the theories, principles, consequences and impacts of corporate governance of Commonwealth Bank in effective manner.

The good corporate governance refers the procedures of discovery and transparency are monitored so as to render managers and stakeholders as well as the people with exact and correct data about the economic, operational and other elements of the corporation. The corporate governance covers the policies and processes to make sure that an organization is managed in such manner that it attains its objects. In profit oriented companies, these objects will be to increase shareholders returns. Though, conflicting interest of other shareholders is identified. In addition, the company has to work in its environmental directions and limits that involve acting in a moral way and in compliance with law, rules and regulations. BOD have duties for the governance of their organizations. The functions of stakeholders are to employ and to satisfy themselves that proper corporate governance structure is in the place (Neubauer & Lank, 2017).

ASX has established many approaches and polices to sustain its commitment to running the business affairs of the company ethically and in proper manner which is open and responsible to the shareholders and the clients in marketplace (Katamba, et. al, 2012). These principles encouraged effectiveness of board of company. Following principles and recommendations are suggested for Commonwealth bank-

Principles of corporate governance

Principle 1: Identify and define duties of board and management of company-

 This principle says that the framework of the company should be framed to enable the board of company to give strategic guidelines for board and the management of company. The structure of company should ensure the balance of authority. It is suggested to board to accept a formal statement of issues that details the duties of board. Other substitution is the official statement of delegated authority to board.

Principle 2:  framing board for additional value-

According to it, a proper structured board is one that enables the effective liberation of responsibilities enforced by law on directors and inserts value in respect of circumstances of corporation. It is recommended to assess the independence and disclosure of independence of directors of the company.

Principle 3: Encourage moral and accountable decision-making-

According to this principle, an organisation must encourage ethical decision-making. It is recommended to form code of conduct. The company should disclose the codes to establish confidence in the honesty of company and to implement the duties of individual for making report and examining report of immoral practices. Further, it is recommended that corporation should develop the policies related to diversity. It is also required by the company to explore the proposition of women employees in annual report.

Principle 4: Secure integrity in financial reporting-

It is stated by this principle that it requires the corporation to put in place a framework of evaluation and permission framed to make the honest presentation of financial position of corporation. The framework will include evaluation and deliberation of the accounts by audit committee and a procedure to make sure the independence and capability of the external auditors of company (Moon, 2014).

Principle 5: Make balanced disclosure at the time-

In accordance with this principle, an organisation should promote the disclosure on the time. An organisation should make written policies to ensure the compliance with needs of ASX principles. The written policies should make sure the duties of senior executive for that compliance^.

Principle 6: Give respect to the rights of shareholders-

It is stated by this principle that corporation must respect powers of stakeholders. The company should use the rights in effective manner. It is recommended to the company to establish the policies for better communication with shareholders. The company should promote the involvement in the company’s general meetings.

Principle 7: Identify and handle risks of company-

Corporate governance theories

According to this principle, the company is required to make the sound system to manage the risks. It is recommended that the board should disclose the management has reported to it as to efficiency of management of huge business risk

Principle 8: Promote enhanced performance of business-

This principle says that the company is required to make sure proper remuneration. It should be proper to develop clear relationship. It is recommended to a company to develop remuneration committee. The remuneration committee is required be structured by majority of independent directors. It is also recommended to company to make differences between executive director’s compensation and non-executive director’s compensation (Muller, 2017). The degree to which Commonwealth bank notices fundamental principles of good corporate governance is a significantly essential factor for the decisions related to investment. International flows of capital make able banks to access funding from the greater pool of depositors (Bottomley, 2016). 

For an example, the scandal of Commonwealth Bank raises various questions about corporate governance or about the implementation of financial regulation, and about the internal system of the Commonwealth Bank. Thus, it is required to consider the implications for ongoing debate about income discrimination.

The Royal Commission proposes the persons or companies to make public submission via online modes. This is required by those, who want more help by the mail or phones. The purpose of submission was to identify reasons of unconfirmed wrongdoing, factors that led to occurrence of misbehaviour and actions to be taken to resolve the issues. Thus, the Royal Commission conducts an inquiry in the proper method. After the inquiry, it makes a report on the misconduct in banking industry and financial industry. The Royal Commission has powers to make witness and mention the charges related to crime. The enquiry of Royal Commission affects the employment of officers in the bank (Morrison, 2015).

The Royal Commission focuses on getting truth whether there is any violation of the law related to financial services and more relevant laws. This submission makes able the Royal Commission to gather the details rapidly in comparison of the long process of substantial witness to perform and produce documents. The planned disclosure of secret or privileged details to the Royal Commission may mean that there is an indirect disassociation of privacy or legal honour regarding the information in following lawsuit. The Commonwealth bank agrees with the Royal Commission in banks or finance sector. It is very important that sufferers of scandals related to Commonwealth bank are afforded an opportunity to make submissions and if proper, render proofs to the royal commission (Tricker & Tricker, 2015). 

Consequences of poor corporate governance structure of Commonwealth Bank

The corporate governance is described as system to direct and manage the companies. There are many theories on the corporate governance such as shareholders theory, stakeholders theory, ultitarian theory, agency theory, transaction theory and contract theory (Schwartz, 2011). The most important theories are shareholders theory and the stakeholders theory. These theories are defined as below-

The shareholder theory relies on the facts that only object of corporate governance is to help a listed company to increase the value of shareholders. In so doing it ignores corporate governance realities in various markets everywhere, where many kinds of insider systems of governance present in the corporation concerted ownership (Tricker, 2015). This insider system is thought to be more delegated of continental corporate jurisdictions. In a relative corporate governance outlook, the dominant economic theory consequently fails to take into account various presenting frameworks of ownership. This unstable capital structure has a major influence on corporate governance problems. It may result in conflicts of interests of the various types (Meagher & Goodwin, 2017).

The shareholder theory emphasizes that corporate boards have a major duty to increase the financial interest of shareholders. However, in the stakeholder theory, managers should balance the interest of all the stakeholders, that include not only shareholders, but also clients and workers, and in some descriptions of the theory, the group, the atmosphere and even creditors and competitor. The shareholder theory is significant for running the business with companies realising that there are limitations to point only on interest of the shareholders. The part of shareholder theory can be considered in the companies, where endless burden on administrators to increase shareholders returns (De Haan & Vlahu, 2016).

Further, the stakeholder theory of the corporate governance focuses on influence of activities of corporate on the recognised stakeholders if the companies. This theory states that the officers and directors should take in consideration that interest of shareholders in the procedure of the governance system. It involves taking actions to decrease or diminish the interest conflicts of shareholders (Cranston, 2018). The stakeholders are divided into two categories such as internal shareholders and external shareholders. The internal stakeholders involve directors and workers who are generally included in the procedure of corporate governance. On the other hand, the external stakeholders include the auditors, clients, dealers, agencies and other groups at large scale (Zientara, 2017).

The stakeholder theory is defined as significant factor of CSR. This theory identifies the company’s duties in the present time, whether they may be financial, legal, ethical, or generous. In these days, the big companies of the world claim to have at the core of their strategies related to company. Whereas there are many cases of companies with an ethic, many others abuse CSR as a good means of PR to develop their image but ultimately fail to put their points in the act (Chan, et. al, 2014).

A good corporate governance can have positive influences on the faith of shareholders by motivating them that an organisation is taking good decisions in respect of the business affairs and is well managed within. The confident shareholders are likely to make investment of huge amounts in the self-governed corporation due to the good return on investment. It may lead to enhanced market confidence in company that can serve to enhance total value of stock, when the stock value of corporation rises, so does its total value (Meagher & Goodwin, 2017).

A company with poor corporate governance approaches may have bad influence on business market and economy (Kraakman & Hansmann, 2017). The lack of good corporate governance at the executive level may lead to bad decision that may reduce total value of company and make it complex for the business to fulfil duties. It was considered in year 2009, when bad corporate decisions lead to dropping disasters in the marketplaces, which in turn caused slow economy. Further, poor corporate governance of the company may lead poor political connection (Anginer, et. al, 2016). Furthermore, Poor corporate governance weakens the legal framework of the company. The bad corporate governance increased the fines for eliminating, varying, or creating records in the central questions or for trying to mislead stakeholders of the corporations. It also increased the duty of audit firms to remain unbiased and self-governing of their customers (Du Plessis, Hargovan & Harris, 2018).

The good corporate governance motivates the investors to hold the shares in organizations for the long period as corporations often advantages from having stakeholders who have interests in the long-term predictions (Klettner, Clarke & Boersma, 2014). The existence of good and proper corporate governance in corporation and through the economy as a complete, helps to render a degree of self-reliance which is required for adequate working of economy. The corporate governance has a proper connection to progress and development of country (Jacoby, 2018).

Conclusion

As per the above discussion, it can be concluded that the corporate governance is significant aspect of success of company. As per the discussion it is found that companies should have social responsibilities. Corporate governance of company is the heart and soul of company. The corporate governance is utilized as shorthand for contribution to future progress. Good corporate governance has an important role to run business. Various problems related to development such as health, and poverty are integrated around corporate governance in company. The companies having social responsibilities make more profits. In this way, the corporate governance should not be considered as an act on the behalf of large companies but it is required to be treated as ethical duties on their behalf. According to corporate social responsibility policy of Commonwealth Bank, it is found that good corporate governance helps in keeping name of brand everywhere. On the other hand, the poor corporate governance ripples markets of Australia. The issues related to corporate governance should be resolved for effective evaluation of the company.

References

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