Type of paper: Essay

Topic: Banking, Government, Governance, Corporation, Theory, Organization, Community, Development

Pages: 8

Words: 2200

Published: 2020/12/25

Identify at least three key features of your selected company's (Common Wealth Bank) corporate governance framework and how it positions the firm to engage with stakeholders on local and international levels. In a global context, what ethical challenges can you see for this firm that may or may not be addressed with its current governance arrangements?

Introduction

Corporate governance is a system which includes rules, practices and processes by way of which an organization gets directed and controlled. It necessarily involves the balancing of interests of many individual stakeholders for an organization. This is including shareholders, management, customers, government, financiers, suppliers and community.

Literature review

Corporate governance frameworks provide the necessary class of division of the theoretical frameworks like agency, stakeholder’s theory, resource dependency theory, stewardship theory, social contract theory, legitimacy theory and political theory. Under the governance of a system of organization divisions, organization itself and other forms of organizational development, the governing system of corporate governance follows either model of theory. Under the agency theory the framework focuses on separation of ownership and pedals. This results in principal agent problems due in respect of dispersed ownerships of a modern corporate. Here a board of directors is crucial monitoring device to minimize the principal agent problems. Agents are managers, principals are owners and boards of directors are monitoring mechanism. As noted by Kleiman (2015), there are the two factors of agency theory – corporations are reduced to two participants only, the managers and shareholders with clear and consistent interests. A second notion is humans are self-interested and disinclined to sacrifice personal interests for interests of others.
The stakeholder theory provides that corporate entity would seek balance with interests of diverse stakeholders to corporate such that there is some degree of satisfaction to each interest constituent to it. This theory is better than agency model since researchers also recognized lately the activities of corporate entity impacts to external environment require accountability of organization to wide audience than simply shareholders.
Under the resource dependency theory there is wide acceptance to fact of environmental linkages between firms as well as outside resources. From this perspective, directors provide connect of firm to external aspects by co-opting resources needed to survive. By this theory board of directors is an important part to absorb critical elements of environmental uncertainty to firm. Similarly network governance could reduce transaction costs associated with environmental interdependency. Therefore an uneven distribution of needed resources results in interdependence in organizational relationships with several resources becoming important with the relative shortage and extent to which these are concentrated in the environment.
Under the stewardship theory one asserts managers are good stewards who act in best interest of owners. The basis of theory is social psychology and behavior of executives. Steward’s behavior is pro organizational and collectivist which has higher utility than individualistic self serving behavior while his behavior does not depart from organizational interest as he seeks to attain the same objectives. Steward’s would balance tensions between different beneficiaries and other interest groups. It is about firm performance which satisfies requirements of interested parties in dynamic performance equilibrium for balanced governance.
The theory for corporate governance literature also includes social contract theory. It is observing the society as a series of social contracts between members of society where it undertakes social responsibility as a contractual obligation. Other views dominant are the firm owes to society, also managers make ethical decision making, which refers to macro social ( expectation to support local community by businesses) and micro social ( specific involvement) contracts. With the legitimacy model there is generalized perception that actions of entity are desirable, proper and appropriate with socially constructed system of norms and definitions. It is based on social contract between society and organization. A firm receives permission of operating from society and accountable to it.
Selected features of corporate governance like accountability, social norms, lead to community development, agency and contract laws development. Governance without norms is leading like a vehicle without destination and engine. Therefore the models and theories of corporate governance bring about the best in terms of the design of social customs and beliefs, while holding the organization, network and society relationships with dependency to be in a form of governance in confidence, and responsible terms.

Analysis

The organization chosen for the analysis is commonwealth bank which is Australia's leading financial institution which provides integrated financial services including retail banking, premium banking, business banking, institutional banking, funds management, superannuation, insurance, investment and share broking products and services. The Group is one of the largest listed companies on the Australian Securities Exchange and is included in the Morgan Stanley Capital Global Index. In October, 1911, the Labor Government of Mr. Andrew Fisher introduced a Bill to provide for the establishment of a Common- wealth Bank. The strategic strengths of banking lead to ever greater recognition in financial services. With scale and strong domestic presence it has the largest customer base in Australia. The story of the commonwealth bank is about power and prestige which holds sway even today. It started in 1910 and as a public limited company it provided the backbone to the country’s finance and institutions way back in 1920s before the war began.
The Bank was to have power to raise a capital of $2 million by the sale of debentures, at that time. The two approaches reserve fund / (redemption fund) for National debt servicing were formulated and background strategy for two to one arrangement was envisaged. The changeover to the act in 1927 and 1930 were certainly painful for organization. During the year 1931, three banks which set out to fight the deflation policy pursued by the Australian banking system as a whole, were smashed under that system. The banks in question were the Government Savings Bank of New South Wales, the Primary Producers’ Bank of Aus. Ltd. and the Federal Deposit Bank Ltd. Most of the regulations followed these acts while Mr. John Curtin who had come into office on October 7 1941, could have stopped this plunge into debt had he chosen to do so. The Bill for the Commonwealth Bank Act of 1945 and Bill for the Banking Act 1945 were promulgated. While on November 19, 1946, Cabinet Ministers decided after a nine hours’ discussion to recommend that Australia should ratify the Bretton Woods Agreements. So on date of 20th of March in year 1947, the International Monetary Agreements Bill, as a formal sanction to Bretton Woods Agreements, was passed. The Commonwealth Bank gradually assumed the role of a Central Bank and in 1959 this role ended with the introduction of the Reserve Bank Act of 1959 which saw the establishment of The Reserve Bank Australian Securities Commission on the same day. This was preceded by The Commonwealth Banks Restructuring Act 1990, which, among other things amended the 1959 Act to provide for the conversion of the Commonwealth Bank into a public company.

Identification and Assessment of at least 3 key features of corporate governance.

Under the study for corporate governance model of framework followed by the organization, there are at least three key features of corporate governance which are Committee composition, Shareholder rights and Community engagement. The boards of directors to the organization are defined with their varied responsibilities of managing strategic and financial objectives to overseeing and monitoring organization for risk and environment. There are minimum 9 directors to maximum 13 directors to the board. While the risk committee has members who intend to serve the organization interest in shouldering responsibility of looking into risk appetite, risk management framework for the whole organization. On the other hand the committee for audit is also present to take care of the procedure of tax and accounting risks and management. The audit committee necessarily has three members with the meetings and guidance to overall development of audit guidelines being prepared under varied facets and aspects of the annual audit plan. The standards of delivery of services and accountability invariably follows the directives on conflicting interests, shareholder interests, audit committee guidelines and risk management framework with continuous disclosure as well.
As noted corporate governance, (n.d.), the shareholder communication is important disclosure for the organization. It includes things such as interim reports, audit reports, annual reports, shareholder newsletters, group website, investor relations app and quarterly trading updates. This communication includes web casting, website for group, publications to shareholders so that this enables shareholder participation at group meetings.
As noted Plessis, McConvill, Bagaric (2005), the community engagement to the varied stakeholders to the governance framework at the organization purports to develop a semblance of ethical structure which ensures that workplace guidelines on fraud, maladministration, corruption and also waste is determinable to everyone. This enables the reporting and sustenance of corporate culture ethical policies to the best performance from everyone in community leading to healthy workplace and continuity of employee engagement to maximum. This also includes reporting for audit and shareholder disclosure policies transparency and development guidance. There has been developed a code of conduct for determining the values, morals and ethics upheld during meetings, between board of directors and CEO, employees alongside the communications.

For the bank other participants are also the customer, external auditors, and government which imply the external participants to the community. The relationships of the banking community to the external environment have been one of interdependency values, ethics and correlative existence which have developed over the decades to fruitfulness. As noted Carney, Gedajlovic, Sur (2010), there are numerous aspects to maintaining and overseeing this network of interdependencies where the audit and ethic committee work issues importance for negotiations, work induced relations, social community feelings on a large level and security of information and delegation of authorities.

Ethical challenges

For the organization, ethics dilemmas have not been limited to few. These are developing around reserves, acts, people banker, changes to reforms, reserves to investment profile, while on the other hand it has also been on operability of varied functions like flexibility, efficiency, customer-centric architecture from a 360-degree customer view, improving services and value. These agendas for improving left were also inducing certain other features which are like the accelerate go to market for innovative, feature-rich products, Streamline business processes and reduce operational failures and risks. These were important as a modern corporation with developing resources and responsibilities. As noted by E Gup (2007), it was also caused by need for legacy systems, real-time 24x7 banking with greater transaction visibility and direct account opening, fewer and simpler products with more feature choices, acceleration of campaigns, offers, and pricing launches from months to days. With the design of the corporate framework within the organization, the development of issues certainly necessitated the design of community development as an answer to upholding the framework; developing and materializing it solve the needs of the organization. As noted Bartoletti, Staten, Heather (2012), these developments from an answer of corporate governance did not only lead to information technology framework, intranet, and services expansion and also led to quality and commitment of stakeholders improving over time. The ethical dilemma of relationship and accountable actions before bias and prejudice were undertaken with utmost clarity and consistency with both external and internal environment changes, reforms, communication and guidelines with board of directors.
Conclusion As Psaros (2012) noted in the end, the commonwealth bank of Australia has developed a prestigious corporate governance model based on community and shared responsibility arising from need of hour, consistency of approach and design of material wealth services to customer from the bank. As noted Boyd (2015), the changes to group ownership, accountability to government and people changed with reforms and acts but the governance has remained intact leading it to have the largest customer base in the country today while having more than 4.2 bn $ reserves at its disposal as well.

References

Carney, Michael. Gedajlovic, Eric. Sur, Sujit. (2010). Corporate governance and stakeholder conflict. USA: Springer publications
E Gup, Benton. (2007). Corporate governance in banking; a global perspective. USA: Edward Elgar publishing.
Psaros, Jim. (2009). Australia corporate governance: a review and analysis of key issues. Australia: Pearson education
Boyd, Tony. (2015). Financial ethics must come from within [online] Available from: http://www.thebfo.org/BFO/media/contents/PDFs/2014-07-05-AFR-Tony-Boyd-Financial-Ethics-Must-Come-From-Within.pdf [accessed 20 March 2015]
Kleiman T, Robert. (2015). Agency Theory. [Online] Available from: http://www.referenceforbusiness.com/encyclopedia/A-Ar/Agency-Theory.html [accessed 20March 2015]
(N.d.). Corporate Governance in Commonwealth Authorities and Companies [online] Available from: http://www.anao.gov.au/uploads/documents/Corporate_Governance_in_Commonwealth_Authorities_and_Companies.pdf [accessed 20 March 2015]
Bartoletti, Dave. Staten, James. Belanger, Heather. (2012). Commonwealth Bank Of Australia Gets Service-Oriented Via Cloud Computing Transforms IT From Cost Center To Innovation Center By Leveraging Cloud And Policy-Based Orchestration. [online] Available from: https://assets1.csc.com/cloud/downloads/SM_ForresterCaseStudy_CBA.pdf [accessed 20 March 2015]
Plessis, Jean Du. McConvill, James.Bagaric, Mirko. (2005). Principles of Contemporary Corporate Governance. Australia: Cambridge University Press.

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