Commonwealth Bank of Australia - Governance in the Globalizing World - Case Study Example

COMMONWEALTH BANK OF AUSTRALIA: GOVERNANCE IN THE GLOBALIZING WORLD Name Course Tutor Date Introduction Corporate governance is not a new concept in the business world. It refers to the processes, people, and range of activities that are instituted to ensure that there is formalized and proper as well as direction oriented stewardship of any firm’s assets (Gnan et al, 2013). It also involves accomplishment and execution of various processes that ensure to ensure that the executive use their time, talent and resources effectively even in the absence of the owners of the firm. These processes can be highlighted as risk management, marketing and operational strategies, internal control mechanisms, conformance to set regulations, public relations, communication and financial reporting (Gnan et al, 2013). The aim of this report is to evaluate the corporate governance framework of Commonwealth Bank of Australia as well as the ethical issues that the company has or is likely to face in regard to the corporate governance framework present. Literature Review Corporate Governance Framework Boards of organizations with good corporate governance frameworks have a better understanding of their ultimate role which is oversight of every process that is aforementioned. This framework must have attributes that direct the organization towards effective governance as well as tools that are competent enough to manage governance risk. There are two main aspects of corporate governance framework. These are the stakeholders, shareholders and agency approach or theories as per some literature. The framework just envisages how the firm is controlled and owned. However, for the scope of this report only two will be discussed; stakeholder and agency approach. Agency Approach or Theory This approach or theory has been identified by various literatures to be the core theory explaining corporate governance. Kholeif (2009) asserts that in this approach, the shareholders are placed on top of the stakeholders in terms of their preferences making them the resilient persons in the company. The approach is based on the evaluation of the link between the directors, managers and the rest of the executive and the owners as well as the agents of the organization in question (Salami et al, 2014). In the event there are conflicting interests of the owners and the agents then it means the company has to shift its strategies and goals to attain efficiency (Gnan et al, 2013). To shoulder off all the problems associated with this approach, then necessary mechanisms have to be instituted such as redesigning the risk bearing mechanisms, and monitoring of the new design in all undertakings of the firm. The shareholders being the most important individuals have the mandate to vote out incompetent managers and thus exercise control over the company (Gnan et al, 2013). Stakeholders Theory or Approach Contrary to the agency and shareholder theories or approaches, the stakeholder theory is more of a managerial approach being that it envisages how the management will operate rather than addressing the notions of economists and administration theorists (Gnan et al, 2013). Stakeholders may be viewed as any persons who are interested in business; they could be groups, or organization or even individuals that are affected directly by the business processes (Kim & Nofsinger, 2007). Additionally, the actions of these stakeholders can also affect the business processes. Freeman (2010) asserts that the stakeholders can either benefit or be harmed, and their rights violated as well or in the contrary garner respect from various organizational operations. Stakeholder theory proponents argue that the stakeholders’ interest is the one that is most important for the organization (Gnan et al, 2013). The stakeholders could include the employees, non-governmental organizations, the peers in the industry, and the community among others (Salami et al, 2014). The only concept evident here is that responsibilities of the company are owed to the stakeholders. Features of Corporate Governance There are myriad of features or elements of corporate. This paper will give an overview of transparency and disclosure, board diversity, and shareholder rights, as features of corporate governance. Transparency and Disclosure This is one of the arsenal aspects of corporate governance. Its growth and demand at the level of globalization is amazing. It is majorly catapulted by the need of information by business owners, creditors and other groups that are interested parties aimed at increasing business. In the context of firms four main channels enable efficiency in transparency and disclosures (Choi et al, 2012). They include; annual, financial, corporate social responsibility (CSR) and securities exchange reports. Therefore, to promote the above tenet of corporate governance, it is essential that any given firm have its own independent members on the board as well as audit or control committees (Salami et al, 2014). Through this concept the investors, stakeholders and shareholders are able to make sound decisions pertaining financial allocations as well as capital investments (Choi et al, 2012). Transparency governs the ability to make known the truth to the general public or people who rely on it. The most important fact to note is that all the reports stated above ensure that there is disclosure of any activities of the company, whether be it business or community related (Choi, et al , 2012). The most important report that investors depend on to make decisions is the financial report. As such the financial statements of any given company and so is the others, should be timely, transparent and truthful, reflect materiality, complete, accessible and have relevant information (Choi et al, 2012). Board Diversity Diversity simply just means different (Valsan, 2013). Corporate board diversity would therefore mean that there is difference based on demographics such as age, gender, generation, race, sexual orientation, and physical attributes among others (Gup, 2007). It may also be looked at the gender balance in the board if all other attributes are overlooked. With globalization and thus technological advancements there has been a need for organizations to restructure their board of directors so as to fit in and possibly be the employer of choice (Valsan, 2013). Research published in different literature suggests a direct link between the value of any given firm and board diversity (Gup, 2007). This is because the different people hailing from various backgrounds sum up their knowledge and ideas thus an integrated problem solving approach (Valsan, 2013). As a result of board diversity, innovation and creativity becomesthe order of the day in the firm. Shareholder Rights These rights are usually protected by law; alignment to them makes corporate governance attainable in an organization. The shareholders have the right to vote over any company decisions; this could include voting in and out of the executive committee members, acquisitions and mergers of the firms or even assets liquidation of the firm (Howell, 2015). The voting process is usually scheduled to be during the annual general meetings (Gup, 2007). Any shareholder regardless of what status or race have the mandate to vote either through proxy in the event they are absent or in person if they are available (Howell, 2015). Other technological advancement tools such as email and telephone may also be used for the same purpose. Secondly, shareholders have the right to inspect all the fiscal statements of their corporations. The shareholders can on the basis of these statements decide to buy more shares or sell the ones already in their names (Gup, 2007). The shareholders are also entitled to dividends that are determined by the corporate officers (Howell, 2015). All the shareholders have the right to be given the dividend if it is being distributed by the company. The shareholders also have the right to sue if they feel and have evidence that their rights have been breached (Howell, 2015). Overview of CBAs Governance Framework Commonwealth Bank of Australia boasts of an effective corporate governance framework that is reflected in all its corporate governance reports (CBA, 2015). The organization has a board of directors that is answerable to shareholders concerning any governance and performance issues. The responsibilities of the board as well as their roles are well stipulated in the company charter one of them being oversight of the affairs and business of the organization (CBA, 2015). For simplicity the board is further divided into independent directors and CEO. Under the board lies the board committee. These board committees include the audit committee, board performance and renewal committee, risk committee, and remuneration committee (CBA, 2015). There is also the company secretary whose major role is to the board via the chairman on matters regarding the boards proper functioning (CBA, 2015). The board is headed by the chairman who has a direct working relationship with the CEO and also represents shareholders and the general fraternity. Engagement of Local and International Stakeholders at CBA The bank engages the government through mandatory provision of progress reports quarterly, consultations on how to roll the corporate plan, briefings and partnerships with various departments of the Australian government so as to deliver more to the customers (CBA, 2015). The second stakeholder is the customers who are engaged differently depending on the level. For the major corporate and government customers there are usually discussions with the representatives from such groups when releasing Federal budgets (CBA, 2015). For small to medium sized enterprise customers there is an undergoing partnership with Google so as to integrate them in business activities. There are also e-commerce channels so that both local and global customers’ view is heard. There are also online feedback mechanisms where there is information interchange. There is also the video stamp campaign and other marketing awareness campaigns. The board has annual meetings where it gets insights form the investors, government, and regulators. For the engagement of the media CBA launched 2013 Victorian Country Press and Country Press NSW Awards and the 2014 Federal parliamentary Press gallery (CBA, 2015). The organization also has a media relations strategy that covers areas such as basic postage rate, annual results and any other inquiry. The community is engaged through a variety of community based projects, and a series of community discussion all over Australia (CBA, 2015). The other challenge could be fair working conditions, meaning provision of non-discriminatory working environment. Health and safety of the workers from any hazard should also be guarded. Ethical Challenges Facing Commonwealth Bank of Australia Ethics delineates an individual’s judgment on what is wrong and what is right. At the center of any successful company there has to be the wrong side (Kim & Nofsinger, 2007). This wrong side could entail ethical issues that really affect the business processes and therefore performance of the organization (Kokemuller, 2015). The sum total effect of breach of ethics is negative publicity of the organization. Some of the ethical challenges likely to be faced by CBA include technology, transparency, and fairness in working conditions and health and safety (Tan, 2013). With the rise in technology at an escalating rate, most organizations are faced with the challenge of keeping track of their employees (Kokemuller, 2015). Some organizations have the tendency to dig into their employees account at work (Kokemuller, 2015). There have been cases of accounting based scandals making it effective for companies to operate in transparency and with accountability (Kokemuller, 2015). There has been the recent scandal due to poor reporting strategy that led stakeholders to make investments in risky avenues at the commonwealth bank (Janda, 2014). Corporate Governance Issues in Vodafone Transparency and Disclosure There are various instruments that are used in financial disclosure in CBA (Commonwealth Bank of Australia, 2015). The most common is the financial statement that is released annually (CBA, 2015). The contents of the financial stamen are lucid. The financial statements records the following five year financial summary, income statements, balance sheets, statements of comprehensive income, statement of cash flows, changes in equity, sand notes that accompany the financial statements elucidating the technicalities. There are also CSR reports apart from the annual reports. The reports are timely, relevant and written in an understandable format (CBA, 2015). Board Diversity Commonwealth bank is one of the big banks in Australia that appreciates diversity in its board. The diversified board ensures equal representation of men and women. The diversity culture was established in 2005. The diversified board shares answers on complex issues. The employee in the board is given unified identity through shared vision and values (CBA, 2015). The board has a sense of pride and has established CBA as the employer of choice. Gender diversity is also evident in the board. The reports all indicate that the board is diversified and so are the employees and this alone makes the organization a good performer over its peers (CBA, 2015). Shareholder Rights The different types of shareholders’ rights are elucidated on the company’s website. The rights include participation in annual general meetings, reception of reports, dividend and dividend investments and reinvestment procedures, issues in shares and buying back of shares. The shareholders have the rights of being informed of any of the above processes through letter, email or phone calls (Commonwealth Bank of Australia, 2015). Conclusion Evident in the report corporate governance entails a lot of tenets. The success of a corporate organization depends very much on the governance framework instituted and how the features are attended to. There are also ethical challenges that affect various organizations whether prosperous or not and have negative impacts on the publicity of such organizations. For sustainability and performance these issues have to be ironed out. The company also has different ways of engaging with stakeholders as well as different rights of the shareholders as explored in the report. Other companies both budding and well established should emulate the corporate governance strategy of the organization. Bibliography Choi, J. J., Kim, S.-J, McKenzie, M., & Sami, H. 2012. “Transparency and governance in a global world”. Bingley, U.K: Emerald. Commonwealth Bank of Australia. 2015. Shareholder rights and benefits | MyWealth Commonwealth Bank. Retrieved from https://www.mywealth.commbank.com.au/learn/managing-investments/shareholder-rights-and-benefits?referrer=ManagingInvestments CBA. 2015. Retrieved from https://www.commbank.com.au/about-us/shareholders/corporate-profile/corporate-governance.html Gnan, L., Hinna, A., & Monteduro, F. 2013. Conceptualizing and researching governance in public and non-profit organizations. Bingley, U.K: Emerald. Gup, B. E. 2007. Corporate governance in banking: A global perspective. Cheltenham, UK: Edward Elgar. Freeman, R. E. 2010. Stakeholder theory: Cambridge University Press. Howell, R. 2015. The Shareholder's Rights in a Corporate Governance | Chron.com. Retrieved from http://smallbusiness.chron.com/shareholders-rights-corporate-governance-61933.html Janda, M. 2014. Commonwealth Bank boss Ian Narev says sorry for multi-million-dollar financial planning scandal - ABC News (Australian Broadcasting Corporation). Retrieved from http://www.abc.net.au/news/2014-07-03/commonwealth-bank-responds-to-financial-planning-inquiry/5568504 Kim, K. A., & Nofsinger, J. R. 2007. Corporate governance. Upper Saddle River, NJ: Pearson/Prentice Hall. Kholeif, A. 2009. CEO duality and accounting-based performance in Egyptian listed companies: A re-examination of agency theory predictions. Research in Accounting in Emerging Economies, 8, 65-96. Kokemuller, N. 2015. Common Types of Ethical Issues Within Organizations | Chron.com. Retrieved from http://smallbusiness.chron.com/common-types-ethical-issues-within-organizations-15238.html Lan, L. L., & Heracleous, L. 2010. 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