Discuss About The Principles Contemporary Corporate Governance.
In today’s world, every organisation, company be it a sole proprietorship, partnership or a joint stock form of company, all of them operate in a risky and an uncertain environment. As a result of which risk assessment and proper implementation of principles of corporate governance is very much necessary.
In the words of one of the most prominent editor of ‘The Financial Times’, the importance of corporate governance is very crucial in embarking upon a novel frontier of competitive advantage and profitability. Corporate governance’s importance permeates from the very top of any organisation, right from the board of directors to the lowest operational level of any organisation. It refers to the ‘way a company is governed’ and is included in almost every activity undertaken by an organisation (Claessens and Yurtoglu 2013). Right from leadership communication to the formulation and implementation of strategic decisions, corporate governance is needed.
All profit making business as well as non-profit making business face the risk of various unexpected events taking place in the organisation ranging from any financial losses, scams and other fraudulent activities. Such activities could lead to huge losses for the organisation concerned. It thus becomes the duty of the concerned organisation to protect the interests of the various stakeholders of the company from such kind of risks (Bell, Filatotchev and Aguilera 2014. It is in these cases, that the usage of a risk assessment comes into existence.
In this given project assignment, the analysis and importance of the risk assessment procedures and the implementation of the principles of corporate governance in the Commonwealth bank of Australia has been done
As mentioned earlier, it refers to the set of principles, which projects the ways through which an organisation must be governed. It includes a set of principles, rules, commandments and regulations which govern the overall operations of the organisation. In a way, it works as the heartbeat of any organisation(Du Plessis, Hargovan and Harris 2018). All of its stakeholders, be it any customer, investor or any supplier is always connected through the strings of corporate governance, which is followed by the concerned organisation. Its importance is stated in a very concise form through the following diagram:
The Australian Security Exchange is the premier body which looks after all the security and stock related issues in the island continent of Australia. It works as a watchdog and keeps a close watch over the happenings across the financial market of Australia. It has also laid out principles of effective corporate governance, to ensure proper working of the Australian Companies. The Corporate Governance Council came into inception in the month of August, 2002. It was the responsibility of this council to bring together a group of stakeholders, consisting of business leaders, shareholders and various industry groups, with each one of them offering their own expert vision, insights and corporate experience in the formulation of corporate governance principles. Since then, this council performs the duty of developing a wide range of principles and providing timely recommendation regarding the implementation of the various principles of corporate governance, in the Australian companies, which are registered in the list of 300 companies registered under ASX.
Commonwealth Bank or CBA as it is widely known as, is the largest operational banking company in the island country of Australia. It operates in a multinational way and has its branches spread all over the globe, with a staggering 1100 plus branches. The bank mainly provides a wide range of financial services, including management of funds, superannuation, investment banking, broking services as well as various other kinds of business banking. Moreover, it is the largest company in the entire Australian Sub-continent (C BA, 2018). As a result of which, the company takes its reputation, which has been earned throughout the years of dedicated service, very seriously. Therefore, the bank takes a special interest in ensuring an all-round and holistic implementation of each and every principle of corporate governance as has been advocated by ASX.
The Commonwealth Bank of Australia along with its subsidiaries and bodies are very much committed in ensuring that a high level of corporate governance is followed. The board strongly believes that creation of a good corporate governance is the key to the long term success of the company. The creation and proper implementation of these standards of corporate governance has been the primary reason for the long term sustainability of the company. The core management aims to promote and protect the interests of each and every stakeholder of the bank, through proper application of these principles, standards, and rules of corporate governance set out by ASX. Keeping these things in kind, the bank periodically, all its corporate governance practices and policies in order to ensure the fulfilment of the various expectations of the different components of the bank (CBA, 2018). The company ensures that all the recommendations of ASX are being met and it periodically publishes a ‘Corporate Governance Statement’ in its Annual Report for each year, where the progress on the implementation of these principles can be seen and tracked. Being a company of such enormous repute, the company makes it a point to ensure the application of all the principles of corporate governance. In the subsequent paragraphs, a detailed explanation of the relevant principles and their application by Commonwealth bank has been mentioned.
Laying of strong foundations for management and oversight:The role of the board of directors of the bank is to take the strategic decisions of the bank, overseeing the bank’s activities, performance and other operations of the bank. The board and the company’s management stresses for a strong base on the basis of which proper implementation of the principles of corporate governance can take place. The holistic roles and responsibilities of the board of directors of the company are being defined below:
|
Director |
Role in the board |
|
Catherine Livingstone AO |
Independent Non-Executive (Chairman) |
|
Matt Comyn |
Executive Director |
|
Shirish Apte |
Independent Non-Executive Director |
|
Sir David Higgins |
Independent Non-Executive Director |
|
Brian Long |
Independent Non-Executive Director |
|
Andrew Mohl |
Independent Non-Executive Director |
|
Mary Padbury |
Independent Non-Executive Director |
|
Wendy Stops |
Independent Non-Executive Director |
|
Anne Templeman-Jones |
Independent Non-Executive Director |
|
Rob Whitfield |
Independent Non-Executive Director |
Proper structuring of the board in order to add value: Commonwealth has ensured that it has a high performing board for ensuring proper and robust governance of the bank. The company has an adequate number of non-executive and independent director, who can challenge the decisions of the boards at any point of time, if they feel, they are against the proper governance of the bank (CBA, 2018). The board also has four committees which are the audit, risk, remuneration and nomination committee, to look after the various intricacies of the bank from the top level.
Maintenance of ethics and responsibility: The bank has an exclusive code of conduct, which governs the activities of the concern. The bank’s commitments document contains all the relevant provisions of the code of conduct regarding the performance of duties keeping in mind the ethical discourse towards the welfare of the various stakeholders of the company (Jizi, 2014). Moreover, the company has a zero tolerance towards activities like bribery and corruption, which helps in ensuring the overall ethical standards of the company.
Protection of corporate reporting’s uprightness: The Company has four operational committees which are the Audit, nominations, remuneration and the risk committee. They look after each and every aspect of corporate working and reporting. The audit committee looks after each of the tasks related to auditing and checks them regularly, similarly the remuneration committee looks after the remuneration complaints and policies, the risk committee looks after the risk management activities and the nominations committee takes a note of the activities of the board.
Proper disclosure: Disclosure of vital material information is one of the most important task of any company’s management. Such concealment of important financial or any kind of material information is a major crime, and engaging in such kind of tasks, signifies that the company subverts the interests of the stakeholders. Key shareholder information mediums such as annual reports, yearly financial results, and corporate governance reports are periodically provided by to the stakeholders.
Honouring shareholder’s rights: The Company honours the rights of its shareholders and provides them a transparent and comprehensive report on a regular basis. This is done in the form of publication of annual reports, financial results in a quarterly or yearly basis. The company believes in providing adequate information to its shareholders, in order to help them to exercise their rights.
Recognise and manage risks: Commonwealth, being a prominent company in the Australian financial market is prone to subjected to various kinds of risks. The risk management framework of the company caters to the management of risks ranging from the risk of material misstatement and other financial risks.
Just and fair remuneration: The Company ensures that a fair and just amount of remuneration is provided to each and every employee of the company. For this purpose, the company has created a remuneration committee to look after this part of the job. They periodically review the various important provisions of the new wage laws of the government and ensure that the employees of the company are being fairly paid.
Risk assessment is one of the most important tasks which are performed by any organisation’s management in order to assess the various kinds of risk faced by the organisation. In today’s world, financial crimes have been on an all-time high. Today innocent investors are being duped by stating of material misstatements, which is leading to a significant loss of revenue for the investors. In order to ensure that no financial and fraudulent crimes tackle place, the company’s audit committee performs the job conducting a regular audit of the company’s financial statements. The various subsequent activities of the tasks related to risk assessment have been discussed below.
The company mainly performs its tasks in the financial market and is actually a bank in nature. It provides various kinds of financial services around the world. In this case, meeting the innovative and dynamic needs of the consumers and meeting their incessant expectations of the consumers. Commonwealth faces increasing risk from its competitors in the finance industry itself. As a result of which, the bank keeps working in developing new ways of delivering quality services to its customers. Being a banking company, the company caters to a wide variety of customers on a daily basis. The bank occupies a very significant portion of the market share in the financial sector of Australia.
The bank has recognised, since its inception that risk is the part and parcel of business. They have identified the various risks arising from financial and other crimes and as a result of which they have set up a separate group in order to address these concerns. This body is responsible for creating a risk nullifying framework, whose primary intention is to arrest the various risks arising from the day to day activities of the bank business. This body governs all the various parts of the company, where even an iota of risk can invade. Thus, it supervises all the strategies, plans, procedures and various other components.
By careful observation in the given common size income statement, it is pretty evident, that the interest income has decreased by 295 million, which is an alarming signal for the bank to oversee its banking operations. This needs to be addressed as soon as possible. Interest income is one of the most significant sources of income for any bank and if this drops even by a small percentage, then it requires serious attention from the management of the company. Despite a significant decrease in the interest income for the company, the effect on the net income of the company has not been very much significant, as it can be seen that the net income has increased by 701 million. This requires special scrutiny and in these kind of cases, careful observation from the auditor’s end. As the chances of manipulation in the books of accounts could be done in order to present a rosy picture of the financial health of the company in front of the investors
On careful analysis of the balance sheet of the company, it could be seen that the three has been a decrease in the investment and purchase of fixed assets of the company by 67 million. Then again, there arises a discrepancy, when both the common size balance sheet and the common size income statements are compared on a side to side basis, when the interest income of the company has decreased, there have been a significant increase in the cash of the company by a staggering 2550 million. If there has been a dip in the primary source of income for a banking company, thereafter if the cash income increases, then it raises a question about the authenticity of the preparation of the financial statements of the company.Ratios are one of the most important financial instruments in ant financial organisation. It assists in measuring the various financial aspects of the business. Be it the liquid ratios, income statement ratios, efficiency ratios or the specific efficiency ratios, each of them have a specific role to play in the measurement of the financial performance of an organisation. The liquid ratios like current and quick ratio, helps in assessing the short term credit worthiness of the company. The income statement ratio helps in assessing the financial health of the company by taking into account the income statement of the companies. The efficiency ratio assists in assessing the overall financial health of the company. In case of Commonwealth, the current ratio of the company has decreased a by 2 and it signifies that the bank has faced an issue in paying of its short term obligations. The quick ratio on the other hand has increased by 1 and it is a welcoming fact, as it signifies that the bank has enough assets which could be easily converted into liquid assets at a very short period of time. The income statement ratios have also improved by a significant margin, emphasising the good financial health of the banking company. Both the gross as well as the net margin of the company has been increased. Similarly, the overall efficiency ratios have also performed quiet well, in the wake of the recent allegations of higher board remunerations to the directors of Commonwealth. The auditor has to use his or her judgement is such of kind situations, where the company’s internal audit presents a pretty rosy picture to show everything being normal. The external auditor must follow his or her ethics and conduct an impartial audit in order to properly investigate the matter. The auditor must not be fooled with the sense of window dressing in such cases.
References:
About us. (2018). Commbank.com.au. Retrieved 25 April 2018, from https://www.commbank.com.au/about-us.html?ei=CB-footer_about-commbank
ArAs, G., 2016. A handbook of corporate governance and social responsibility. CRC Press.
Bell, R.G., Filatotchev, I. and Aguilera, R.V., 2014. Corporate governance and investors’ perceptions of foreign IPO value: An institutional perspective. Academy of Management Journal, 57(1), pp.301-320.
Claessens, S. and Yurtoglu, B.B., 2013. Corporate governance in emerging markets: A survey. Emerging markets review, 15, pp.1-33.
Commonwealth Bank of Australia – pg.22. (2018). Forbes. Retrieved 25 April 2018, from https://www.forbes.com/pictures/59248d2f31358e03e5596835/commonwealth-bank-of-aust/#35ac67705bc1
Corporate governance | ASIC – Australian Securities and Investments Commission. (2018). Asic.gov.au. Retrieved 25 April 2018, fromhttps://asic.gov.au/regulatory-resources/corporate-governance/
Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate governance. Cambridge University Press.
Jizi, M.I., Salama, A., Dixon, R. and Stratling, R., 2014. Corporate governance and corporate social responsibility disclosure: Evidence from the US banking sector. Journal of Business Ethics, 125(4), pp.601-615.
Preventionweb.net. (2018). Retrieved 25 April 2018, from https://www.preventionweb.net/files/45270_unisdrcnws2wg3riskassessmentandmang.pdf
Subscribe to The Australian | Newspaper home delivery, website, iPad, iPhone & Android apps. (2018). Myaccount.news.com.au. Retrieved 25 April 2018, from https://myaccount.news.com.au/sites/theaustralian/subscribe.html?sourceCode=TAWEB_WRE170_a_GGL&mode=premium&dest=https://www.theaustralian.com.au/business/financial-services/cba-at-risk-of-investigations-by-global-regulators/news-story/0b77a9682f86933be0b60540ae0727b1&memtype=anonymous
What is corporate governance?. (2018). Aicd.companydirectors.com.au. Retrieved 25 April 2018, from https://aicd.companydirectors.com.au/resources/all-sectors/what-is-corporate-governance
Commonwealth Bank and its Corporate Governance:
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