Corporate Governance And Risk Management For TAFP

Corporate Governance and Risk Management Issues in TAFP

Discuss about the Corporate Governance and Risk Management for TAFP.

The provided case study shows the major corporate governance and risk management issues in Terra Australis Financial Planning Limited (TAFP), the financial planning arm of Terra Australis Bank (TAB). From the provided information, it can be observed that the most part of the senior management of TAFP was involved in the huge fraud scheme of the organization s they were supporting Donald Vanvo (Don) in the forgery of investments in the high risk financial instruments for the overall benefit of the bank (Sadgrove 2016). In addition, the behavior of the management was negative as they were supporting Don in the fraudulent activity. In this context, it needs to be mentioned that the organization was exposed to the risks of insolvency, loss of goodwill and financial loss. Thus, it is required for the company to manage these risks. As per suggestion, the company is required to carry on their business by complying with all the required financial and legislative regulations. In addition, the company also needs to comply with the financial ethical principles in order to avoid these risks (Chance and Brooks 2015). 

The remuneration plan of TAB was not appropriate as per the industry as most part of the remuneration plan was dependent on short-term incentives like bonuses. The commission of the employees was dependent on the selling of investment assets with aggressive and high risks. This was the main area of concern as it contributed to the selling of high-risk investment assets in the fraud manner (der Merwe and Marthinus 2013).

As per the management policy of TAB, the employees were required to meet the sales target in order to be retained by the company. This aspect created a negative as well as aggressive culture among the employees and in their behaviors and they started to forge the documents of the customers in order to make their investment in high-risk portfolios in a fraud way. It created an unethical corporate culture in the organization (Klettner, Clarke and Boersma 2014).

In order to minimize the agency conflict, there needs to be two parts in the remuneration scheme of the company; they are Fixed Remuneration and Incentive-based Remuneration. The inclusion of fixed remuneration plan will decrease the competition to sell high-risk investment assets as the employees will have the assurance to get their fixed salary (der Merwe and Marthinus 2013).

Suggested Risk Management Approach for TAFP

In the whole fraud scheme of TAFP, Australian Securities and Investments Commission (ASIC) had an important role to play. Throughout the course of the financial planning scandal, ASIC took some actions. It can be seen hat ASIC started a surveillance program on the financial fraud case of TAFP as the whistleblower, Joe Bloe, requested it to take immediate action by informing about the financial planning scandal (Bottomley 2016). However, ASIC failed to take immediate action on this matter. As a remedial action, ASIC did sit for discussion with the management of TAFP that resulted in the introduction of “closely supervise” the actions of Don. On 24 March 2010, ASIC ordered TAFP to provide all the files of the clients about the undergoing investigation. With the help of this investigation, ASIC confirmed that Don was involved with huge fraudulent activities in the process of financial planning (Benn and Dunphy 2013).

The main difficulty ASIC would have faced at the time of investigation was to collect concrete evidence of the fraudulent activities of Don in financial planning. It was not possible for ASIC to take prompt action against the company in the absence of proper concrete evidence. For this reason, ASIC was criticized due to its late action in the whole matter (Bottomley 2016).     

Media has an important role in the promotion of good governance. It needs to be mentioned that participation is required for good governance; and an independent and pluralistic media fosters in participation as it is critical in the decision-making process. The importance of laws and regulations cannot be ignored for the implementation of effective governance. In this context, independent media plays an important part in the promotion of vigilance toward the implementation of laws and regulations for effective governance. Apart from this, media has the ability to create awareness about corruption so that transparency and accountability within the organization can be established for effective governance (Liu and McConnell 2013).

However, there are factors that limit the effectiveness of media that is rules and regulations from the government. There are instances where the introduced regulations from the government body seize the power of media in promoting good governance (Tricker and Tricker 2015).

Social media plays an integral part in enterprise risk management. First, it helps in the identification of early trends in issues related to brand reputation. Second, it helps in the identification of specific group of consumes who is facing issue in the organization. Third, it assists in the identification of business processes having flaws in them. Most importantly, it helps in the identification of employees involve in fraudulent activities (Liu and McConnell 2013).

Role of Australian Securities and Investments Commission (ASIC) in Handling the Issue

The presence of good whistleblower’s protection policy has utmost importance. In order to encourage the whistle blowing, companies are required to have strong legal measures for the protection of the whistleblowers from retaliatory action. This will help the whistleblowers in the identification of malpractices in the business organizations like fraud, violation of regulations, health and safety related issues and others (Wolfe et al. 2014). For this reason, the importance of communication cannot be ignored in the implementation of whistleblower’s protection policy.

From the provided case study, it can be seen that the whistleblower’s protection policy in TAB is not sufficient. The main reason is the concern of Joe Bloe on his protection as whistleblower as he lacked faith on the whistleblower’s protection policy of the company and ASIC.

Instead of remaining silent, there is a need for the implementation of effective policies for the protection of the whistleblowers. For this reason, there is a need for the policy of confidentiality in order to keep the whistleblowers safe. After that, there is a need for the implementation of communication policies that will secure effective communication between the whistleblowers and the companies (Peffer et al. 2015). These areas need to be improved. 

Business organizations like TAB face some major issues in the promotion of ethical behavior, compliance and corporate governance. Personal self-interest is a major challenge in the promotion of ethical behavior as employees involves in unethical practices like fraudulent for their own benefits like gaining high incentive and others. After that, inability of the management of the companies to implement ethical code of conduct is another major hindrance in the promotion of ethical behaviors. Apart from this, lack of effective organizational culture is another challenge in the promotion of ethical behavior (Crane and Matten 2016).

Apart from ethical behavior, companies also face challenges in the compliance. From the provided case study of TAB, it can be observed that the employees of the company did not comply with the required rules and regulations due to the fulfillment of their own personal benefits. For this reason, it is the responsibility of the companies to evaluate different compliances to the employees. The absence of this evaluation can also be considered as a major challenge in the promotion of compliance (Minus 2013).

Apart from the above two, companies also face challenges for the promotion of good governance. For this reason, there needs to be a good relationship between the board of directors and executive officers. The absence of this relation can be considered as a major challenge in the promotion of corporate governance. Lack of compliance with the regulations of corporate governance is also considered as a major challenge in the promotion of corporate governance (Crane and Matten 2016).

References

Benn, S. and Dunphy, D., 2013. Corporate governance and sustainability: Challenges for theory and practice. Routledge.

Bottomley, S., 2016. The constitutional corporation: Rethinking corporate governance. Routledge.

Chance, D.M. and Brooks, R., 2015. Introduction to derivatives and risk management. Cengage Learning.

Crane, A. and Matten, D., 2016. Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

der Merwe, V. and Marthinus, S.J., 2013. Remuneration’s role in the EVP decision-making process (Doctoral dissertation, University of Pretoria).

Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability: Empirical insights into the development, leadership and implementation of responsible business strategy. Journal of Business Ethics, 122(1), pp.145-165.

Liu, B. and McConnell, J.J., 2013. The role of the media in corporate governance: Do the media influence managers’ capital allocation decisions?. Journal of Financial Economics, 110(1), pp.1-17.

Minus, P.M. ed., 2013. The ethics of business in a global economy (Vol. 4). Springer Science & Business Media.

Peffer, S.L., Bocheko, A., Del Valle, R.E., Osmani, A., Peyton, S. and Roman, E., 2015. Whistle where you work? The ineffectiveness of the Federal Whistleblower Protection Act of 1989 and the promise of the Whistleblower Protection Enhancement Act of 2012. Review of Public Personnel Administration, 35(1), pp.70-81.

Sadgrove, K., 2016. The complete guide to business risk management. Routledge.

Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Wolfe, S., Worth, M., Dreyfus, S. and Brown, A.J., 2014. Whistleblower protection laws in G20 countries: Priorities for action. Blueprint for Free Speech.