Banks are not just institutions for finance; they are also the fundamentals of an economy. The National Australia Bank is one of the largest financial amenities institutions that has been listed on the stock exchange of Australia. The NAB is among the 30 most lucrative monetary services organization globally. However, in the year 2004, January, the bank revealed to the world the acknowledgeable losses it had incurred in association to conducting an unauthorized business in a foreign currency that amounted up to AUD360 million (Gompers, Ishii, and Metrick, 2007). The foreign exchange disaster was categorized as an operational threat, the menace of loss that is as a result of failed or inadequate systems, processes or people and this echoed the significance of the role of the bank’s corporate governance (Tricker, 2010).
Good Corporate Governance is defined by a well-governed and a well-managed business, where the leaders are responsible for the organization’s performance as well as the decisions made (Carver, 2011). There are several characteristics of good corporate management, and they are;
In this report, the National Australia Bank is discussed.
The concurrent problems of the National Australia Bank that is the year 2001 loss of the AUD4.1 billion on the Home Side of the US, the strong degree of the bank’s risk management performances and absence of the auditor independence, were discussed by the US Securities and Exchange Commission in the year 2004. The discussion reinforced that, the bank had failed to give corporate governance the maximum priority, over some years (Horrigan, 2010). It is indicated that the board and management of the National Australia Bank had ineffective board committees, unproductive audit procedures and lack of liability. Therefore, the interior control structure’s integrity was easily breached. Thus the National Australia bank failed to observe the doctrines of noble corporate governance. The board’s dysfunction led to humiliating monetary losses, a substantial decline in the firm market evaluation and credibility loss. For these reasons, it is vital to think through the matters of corporate authority concerning the effect on the greater banking sector, the community, the economy, the organization concerned as well as the impact to other institutions.
Poor governance submissions made to the Banking Royal Commission about the National Australia Bank
Good governance involves the use of common sense during the process of accountabilities, roles, and responsibility assignment. The practice involves differentiation between the responsibilities and roles of the management and board; it also requires the assurance of appropriate processes and structures to be placed in the position to meet the required responsibilities. The failure of NAB is in its threat management organizations, followed by the culture in existence which the regulators describe as a surrounding where the major concern is the profit, while the other limitations are overlooked (Chait, Ryan, and Taylor, 2011). The framework of the internal governance of NAB is satisfactory. However, the faults are at the implementation process of the existing precautions instead of designing the safeguards. The losses are attributed to the operating system of the NAB environmental system where there is the poor observance of the controls and systems of threat management; this indicates a weakness in the procedures of the NAB’s internal control (Thomson, and Jain, 2007).
A good corporate control requires an external oversight that comprises the auditors that conduct routine scrutiny of the corporation, to guarantee that the institution conducts its tasks appropriately (Waddock, 2008). In line with the requirements of the ASX for the leading two-hundred listed societies to create an interior audit commission, NAB formed an audit board in 2003 known as the Principal Board Audit Committee (PBAC). The panel was meant for investigating and discussing all the high-risk matters raised by both external and internal auditors. The CEO and the Chairman of the organization were part of the new audit board and despite fact that the committee is responsible for analyzing the practices of threat management of NAB, no meeting was conducted, in 2003. The issued warning regarding the practices of the risk management were never covered (Carver, 2011).
Upon incurring a $360 million loss of the foreign currency, PwC was appointed by the bank to explore the irregularities in trading the foreign currency and alongside APRA reviewed the practices of the bank. Immediately issues arose concerning the independence of the report of PwC as PwC became the ‘external experts’ in the case, thus the independence of the investigation conducted by PwC was compromised as there was great bondage between PwC and NAB and the exploration could result in conflicts of interest (Tricker, 2010).
The matters of accountability and transparency are what enabled nab to dodge over the rebellious director Walters who had raised various concerns about the effectiveness of the committee. Irrespective of the allegation accuracy of Cathy Walters about the independence of the report written by the PwC, the NAB Panel botched the idea of handling accountability and the NAB committee allowed the CEO, Cicutto Frank and the chairperson, Charles Allan, to leave the board hurriedly before the PWC report was released (Van den Berghe, and Levrau, 2008). While the idea of allowing the CEO and Chairperson to leave the board quickly, protected them from the public scrutiny, the Panel was left without anyone to take accountability for the happenings that had transpired at the National Australia bank within the previous three years (Taylor, Asher, and Tarr, 2017). The market needed retribution for the former HomeSide losses which the NAB committee had failed to deal with in the year 2001 adequately. Currently, the company is facing great charges due to lack of transparency in its dealings; NAB has broken the ASIC law eighty-four times from 2014 to 2017 since it had failed to make the Australian Securities and Investments Commission aware of the charges-for-no-service scandal in the authorized deadline. NAB has also been accused of violating the laws of superannuation through failing to promote the economic interests of the consumers on the My Super goods and misleading the clients towards paying the superannuation fee wrongfully (Kolk, 2008).
NAB incurred frequent financial consequences as a result of the failure of the risk committees and the NAB board’s failure to analyze, explore and report the risk matters that were noted by various foreign exchange company players and regulators. NAB was asked by APRA to confirm and device a series of the eighty-one remedial acts together with the on-site regulation imposed until the full implementation of the actions. The approval of nab to make use of an interior model in determining market threat capital was inhibited, and the options desk for currencies was barred to corporate trading until all the APRA areas of concern were discussed and settled. The main reason for the company’s losses is due to the lack of an effective leadership system, that is the problem of the new CEOs and even chairpersons. An aspect that has led to falling in the British operation margins of the company, as well as exploitation from the company’s competitors basing on the damaged reputation of the NAB whereby the competitors target the NAB customers (Tricker, and Tricker, 2015).
In the Institutional and Corporate banking division market, there were various substantial gaps in the monitoring functions of the back offices; the weaknesses involved the absence of appropriate controls for finances as well as other control practices. The area’s culture inclined towards suppressing the bad news rather than being open and transparent when it came to the problems the company was facing (Nanto, 2009). There were several warning signs to the company both from the other marketing participants and from inside of NAB, however, despite all the signals very little attention was placed towards mending the company risks.
Sound corporate control is essential in boosting the efficiency of a bank as well as improving the profits of the shareholders and the bank itself. However, studies illustrate that various aspects, for example, the amount of panel consultations, the participation of a greater number of stakeholders in the meeting room decisions and whether the committee has independent associates or not does affect the outcome of the bank’s goals. The principles of Good Corporate Governance set by the Australian Securities Exchange (ASX) intended to enhance the governance methods of the banks, therefore ensuring improved control over the management of the banks. The principles are emphasized by the ASX as the system has discovered the benefits of maintaining sound corporate governance to boot the state of banks in Australia (Van Ees, Gabrielsson, and Huse, 2009).
The principle states that the board associates need to represent and understand the various interests of the groups and people who have shares in the society. The shareholders are all the participants that ensure the survival of the company; the theory also explains that the panels have to recognize the critical investors whose commitment is vital for lasting value establishment. The participant agency theory concludes that the managers are part of the agents for every investor and not the owners (Donaldson, and Preston, 2005).
Power can be described as the skill of influencing the other individuals in association with panels. The differentials of power amongst the board associates affect the outcomes and processes of a corporation. The implications of the power of board principle for accepting the governance of the board argues that there is a significant difference between the business literature myths and the business practice realities (Horrigan, 2010). The organizational directors offer advice, maintain discipline and deliver decision-making during crisis occasions. However, the directors are unlikely to practice impact over the approach or to inquire discerning queries or in actuality take the CEO’s charge of the selection process. This fits where the directors are not needed for too much involvement in the company’s practices due to the managerial hegemony outline (Waddock, 2008).
The NAB is one of the most influential banks in Australia, however, the bank has undergone various consequences due to failure to adhere to the good corporate control principles, the consequences include;
In the year 2004 January, it was revealed that there was unauthorized business at NAB using the foreign currency, the trading led to a projected loss of about AUD360 million. The financial losses incurred by the company on the options of currency were caused by the dealers positioning the option portfolio of the foreign currency of NAB in the US dollar’s position. The dealers anticipated that the foreign currency could fall in the position of the United States dollar that happened during the mid of 2003, to stabilize and reverse the volatility of the currency (Grote, and Marauhn, 2006). However, instead of closing the trade options as the market was against them, the traders decided to conceal their real positions. Thus the positions were deteriorated before their discovery and reporting to the bank’s management board by the junior workers. The then CEO of the bank, Frank Cicutto, explained that the dealers involved in the scandal exploited the flaws present at the internal practices of the bank in hiding the trade losses and protection of the bonuses. Due to poor adherence to the principles of sound corporate governance, NAB experienced consistent economic losses. Presently, the company’s misleading the customers has attracted a fine of more than $90 million to refund the wrongfully charged superannuation clienteles and therefore an additional commercial loss to the company (Nanto, 2009).
The banking royal directive lawyers recommended the National Australia bank to face the criminal burdens due to the bank’s superannuation treatment of customers. NAB was to face illegal changes for deceptive conduct and misleading the customers since the company wrongfully charged the superannuation customers. It was assumed that the superannuation form of NAB, MLC, together with its guardian, Nulis, might have misdirected the consumers under the act of ASIC by forgetting to tell the customers that they didn’t need to pay the plan service charge (Laeven, and Valencia, 2012). NAB also admitted for breaking the ASIC law eighty-four times from 2014 to 2017 since it had failed to make the Australian Securities and Investments Commission aware of the charges-for-no-service scandal in the authorized deadline. NAB has also been accused of violating the laws of superannuation through failing to promote the economic interests of the consumers on the My Super goods. The bank has to refund $90 million to 300,000 and above superannuation associates who were wrongfully charged and never acquired the financial advice they expected.
Lack of transparency at the NAB encouraged a rise in the cases of political misunderstanding within the organization. The director of NAB, Mr. Thorn, was the auditor for the financial services at PwC, and PwC had gained a $17 million fee from NAB in the year 2003, this is the evidence of the close relationship between the two institutions and therefore compromising the independence of the report of the PwC’s investigation on NAB (Schich, 2010). The report was then left for open criticism, principally when Cathy Walter, a board associate, raised apprehensions about the probity and independence of the research carried out by PwC. The issue brought about misunderstanding such that the bank’s chairperson and CEO left the organization before the release of the PwC report, leaving the institution with no one to lead the members in the right direction (Chait, Ryan, and Taylor, 2011).
The breach of the auditor independence faced by the nab marked the social consequences faced by the company. Due to the foreign exchange dealer losses incurred by the company, the institution faced a great media bombardment; the organization was scrutinized to determine if it was unsuccessful in complying with the requirements of the Exchange Commission and Securities of the USA of the auditor freedom (Ghoshal, 2005). The breaching of the auditor freedom in the company raised concerns and therefore destroying the business’s image, the financial loses tarnished the outlook of the bank, therefore, incurring great social penalties including loss of the corporation’s customers to the competitor organizations. Currently, the scandals at the business including the violation of the superannuation laws are greatly affecting the firm’s social standards, and it has incurred clientele loss to other companies such as the ANZ company (Painter, Dunham, and Quackenbos, 2011).
Conclusion
Thorough corporate control has been identified to be associated with the enhancement of the efficiency of a bank; it also ensures profitability of the banks and the investors. However, there had been an increase in the collapsing rates of the prominent Australian companies, therefore leading to an increase in the government and public concern over the absence of appropriate public accountability and management procedures (Tricker, 2010). Good corporate control structures inspire the establishment of values and provision of accountability, thus enhancing the restoration process of the effective functioning of the corporations in Australia.
References
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