The impact of NAB’s decision on stakeholders

Discuss about the Corporate Goodness and Shareholder Wealth.

The new method for exploitation of workers through moving towards agile approaches to working has become a new trend among big corporations and banks in order to absorb more out of workers. Along with offshoring and outsourcing of jobs, bank losses are utilizing every option to creatively decrease expenses even at the expenses of the workers. This is observable in the case of National Australian Bank (NAB) wherein 6000 jobs were flagged owing to shift towards digital and new technology transactions, thereby cutting a swathe through traditional ways of banking. Moreover, this was observable when the bank had reported an annual net profit of $5.3 billion.

For the purpose of investment in new technology, NAB had decided to flag 6000 jobs so that plans to slash expenses in such technologies can be facilitated. The bank also stated that it would hire additional 2000 people with skills in such enhanced technologies. Besides, it reported an annual net profit of $5.3 billion and with such resources, it intends to move sixty percent of its business online in the upcoming three years. Further, costs associated with redundancies would amount to $800 million for NAB. However, even though the bank attained such mass profit scale, yet it faced a decline in its share prices by 2.8%. Moreover, according to the bank, it would attain annual savings of $1 billion by the year 2020 if it focused on cost-cutting measures.

The reason behind flagging of such jobs can be attributed to the fact that such number of workforce represents around 18% of the worldwide workforce of the company and in order to cut one billion costs, flagging such jobs are essential. Besides, in order to move from traditional methods of banking to new and digitalized technology transactions, not such high amount of workforce will be required by the bank. In simple words, innovative technologies do not necessitate such large amount of workforce and therefore, instead of incurring miscellaneous expenses on the workforce, the company has laid off the jobs of 6000 people that will be done in the span of three years.

In relation to other possible issues faced by the banks, it is notable that banks are failing in making enough money because of failures in their return on investment or return on equity required by the shareholders. Therefore, in the absence of higher resources, banks are facing immense pressure to continue the smooth flow of operations in the current scenario. Secondly, development of technologies has allowed the customer to demand enhanced banking services but due to incapability in financial resources, such customer experiences are left unsatisfied (Kruger, 2015). Thirdly, banks are facing immense pressure from the regulatory bodies as they continue to enhance the requirements that force banks to expend a huge amount of their discretionary budget (Adams et. al, 2016).

Relevance of stakeholder theory and legitimacy accounting theory

Due to job cuts in the National Australian Bank, the stakeholders will be primarily affected. The main stakeholders who will be affected are the employees, business partners, shareholders, and the customers. The employees are the people who are being laid off so they have a direct connection with such issue and as a result, they will have to find another level of employment that aligns with their requirements. Besides, this will surely cause financial losses to such employees because getting another work in another company is not an easy task considering the complicated corporate environment. Secondly, the shareholders will also be affected due to such job cuts because the company’s policy of flagging such huge number of employees have attracted a decline in the share prices (Wicks & Colle, 2011). Nevertheless, the business partners will also face extreme complications because flagging such huge number of employees will cause immediate losses to the entire company owing to such instant change in the working environment and decline in share prices (Paradise & Rogoff, 2009). Hence, the business partners and suppliers will also encounter major financial issues. Lastly, if the entire company is running at losses, it will fail to offer quality effective services to its customers, thereby failing to retain them for a longer duration.

Stakeholder theory and motivation of stakeholders have become a pervasive aspect of the current corporate world and strategic management issue. Such theory addresses the questions of who and what an organization is for, or to whom managers are liable? It is primarily engaged in finding the key groups of stakeholders. In order to maintain the relationship with the stakeholders, NAB must attempt to frame better policies in its framework so that it can progress towards development. In relation to customers, their likely motivations are satisfaction, fairness, integrity, and good-value. NAB can use such theory to make sure that its affairs are directed towards the satisfaction of such key motivations of customers. Furthermore, in relation to investors and shareholders, NAB can ensure that its prices of shares do not witness a declining trend and instead, it increases on a level that can provide economic feasibilities and return on investment to such stakeholders. Furthermore, stakeholder theory can be used to make sure that the business partners or suppliers enjoy mutually beneficial relationships in the entire business operations of the company. Finally, employees can be motivated through the provision of a working environment that promotes trust, equal opportunities, non-discrimination, and challenges (Parker et. al, 2011). These likely motivations can be provided by NAB through the application of stakeholder theory in its framework.

In relation to NAB, legitimacy accounting theory is more suitable because this theory rests on the ideology wherein it can seek a positive link with the community in order to attain secure access to resources. Further, the ethical decision on the part of NAB resulted in creating a threat to its legitimacy. This is because it struck a breach of contract when all of a sudden 6000 employees had to face job cuts. This is the reason why NAB must perform in such a way that all perspectives of stakeholders are taken into due consideration. For customers, they must ensure that an environment that fosters trust, integrity, and clarity is present in the company. Further, shareholders and investors must ensure that the company’s affairs do not result in fall in the overall level of profit (Hooks et. al, 2011). For such purpose, they must observe that the company’s resources are invested at proper places. Besides, business partners or suppliers can make sure that the demands of employees are fulfilled to a major extent and unethical practices are not undertaken within the organization (Lapsley, 2012).

Both legitimacy and stakeholder theory assert the fact that stakeholders have the right to be treated in a fair and equal manner by a company and that the issues of stakeholder power are not directly significant. However, the major difference betwixt both theories is that stakeholder theory primarily emphasizes financial or economic motivations on the part of stakeholders but legitimacy theory is more inclined towards a classical model wherein it prioritizes social motivations of the corporate (Foo, 2017). In the current corporate environment, stakeholder theory is more significant than legitimacy theory because it is employed from the users’ viewpoint to investigate how an organization pays attention to identifiable and particular stakeholder groups in social and environmental disclosures. However, legitimacy focuses only on why such disclosures are required. Banks are more inclined towards economic motivation and they can easily look after its stakeholders through the implementation of stakeholder theory (Boussebaa, 2015). However, choosing legitimacy theory cannot benefit them as disclosures to the society and environment are secondary activities for a bank.

Conclusion

The decision taken by NAB resulted in a loss in its share price even though it had attained huge annual net profits. This sheds light on the fact that looking after stakeholders is so crucial in the current environment and if their issues are not addressed, or the company itself prioritizes other aspects instead of stakeholders’ concerns, it will suffer in the long-run. Moreover, stakeholder theory can be beneficial in observing different viewpoints of all stakeholders and from a bank’s perspective, economic motivations are more likely to benefit it instead of social motivations.

References

Adams, C.A., Potter, B., Singh, P.J., and York, J. (2016) Exploring the implications of integrated reporting for social investment (disclosures) [online]. Available from: https://drcaroladams.net/exploring-the-implications-of-integrated-reporting-for-social-investment-disclosures/ [Accessed 10 April 2018]

Boussebaa, M. (2015) Professional service firms, globalisation and the new imperialism. Accounting, Auditing & Accountability Journal [online]. 28(8), p. 1217-1233, Available from:  https://doi.org/10.1108/AAAJ-03-2015-1986 [Accessed 9 April 2018]

doi:10.1016/j.jfineco.2014.09.008 [Accessed 9 April 2018]

Foo, M., (2017) A review of socially responsible investing in Australia [online]. Available from:  https://business.nab.com.au/wp-content/uploads/2017/06/socially-responsible-investing-in-australia.pdf [Accessed 10 April 2018]

Hooks, J. and Staden, Van CJ. (2011) Evaluating environmental disclosures: the relationship between quality and extent measures. British Accounting Review [online]. 43(3), 200-213. Available from doi:10.1016/j.bar:2011.06.005 [Accessed 10 April 2018]

Kruger, P. (2015) Corporate goodness and shareholder wealth. Journal of Financial economics [online]. p. 304-329 Available from

Lapsley, I. (2012) Commentary: Financial Accountability & Management. Qualitative Research in Accounting & Management. [online]. 9(3), pp. 291-292. Available from https://doi.org/10.1111/1468-0408.00081 [Accessed 10 April 2018]

Merchant, K. A. (2012) Making Management Accounting Research More Useful. Pacific Accounting  Review [online]. 24(3), p. 1-34. Available from https://doi.org/10.1108/01140581211283904 [Accessed 10 April 2018]

Paradise, R. and Rogoff, B. (2009) Side by Side: Learning by Observing and Pitching In. Ethos [online]. 37, pp. 102–138. Available from https://doi.org/10.1111/j.1548-1352.2009.01033.x [Accessed 10 April 2018]

Parker, L, Guthrie, J. and Linacre, S. (2011) The relationship between academic accounting research and professional practice. Accounting, Auditing & Accountability Journal [online]. 24(1), p. 5-14. Available from: https://doi.org/10.1108/09513571111098036 [Accessed 10 April 2018]

Wicks, H. and Colle, D . (2010) Stakeholder Theory, State of the Art. Cambridge University Press