Corporate governance assignment on the evaluation of corporate governance of Commonwealth Bank of Australia
Task: Write a 2000-word corporate governance assignmentwhere you will evaluate an organisation’s corporate governance practices, board structure including committees and board diversity against relevant principles, guidelines and theories. You will also investigate and analyse which legislation and corporate governance principles your selected organisation must comply with or voluntarily follows.
1. Introduction to the corporate governance assignment
Corporate governance plays an important role for all companies in managing and controlling their business structure and operations. Corporate governance is mainly managed by the board of directors of a company, which ensures the reliability of the business policies and procedures. Moreover, the main aim of the corporate governance assignmentis to measure the corporate governance practices and theories implemented by ‘Commonwealth Bank and ANZ Group’ in their business.
2. Corporate Governance-Theory and Practice
Corporate Governance is one of the most important factors that companies should keep in mind while conducting business. The concept tells about a system that companies implement to control and direct the workings. As per the corporate governance assignment in order to have good corporate governance in a company, the role of the board of directors, as well as the stakeholders, becomes vital. This section helps to understand the implementation of the stakeholder's theory of corporate governance by the Commonwealth Bank of Australia (CBA). The proper implementation of the “stakeholder’s theory” has helped the CBA to become one of the most successful companies in Australia. As per the view of Freeman et al. (2021, p.1765) in the corporate governance assignment, the concept of the theory shows that the relationships between a company's stakeholders, such as its customers, suppliers, employees, investors, and communities, are emphasised by the stakeholder theory of capitalism. The idea holds that a business should deliver value to all parties, not just shareholders. The proper implementation of this theory has benefitted the CBA to satisfy the stakeholders which can be profitable for the company. The implementation of the theory in the corporate governance assignmenthas also helped the company in the following way along withbenefitting the bank to maintain the main guidelines as well as principles of the theory.
The proper implementation of the “stakeholder’s theory”has helped CBA to provide better customer services. As stated by Uribe et al. (2018, p.1300), with the help of this theory, the bank has been able to successfully remove banking rules that impede financial inclusion. Apart from this, it has been found in the corporate governance assignment that the bank has been able to provide a helping hand to its customers along with benefitting the customers to overcome financial problems that customers face. Likewise, Jones et al. (2018, p.385), stated that the bank has been able to maintain a strong relationship with its customers and is able to answer the complaints that customers lodged. As per the corporate governance assignment the bank has also been able to make decisions that have offered benefits to the customers by enhancing their experience.
Stakeholdersof corporate governance assignment
One of the main principles of the stakeholder theory mentioned in thecorporate governance assignmentis to increase the value of the stakeholders. As per the guidance and legislation of Stakeholder Theory, CBA has been able to achieve that. According to McGahan (2021, p.1745), the bank has been properly able to understand the problems as well as the issues that the stakeholders faced. Thus, the bank to solve this problem implemented various forums like the “CEO Advisory Panel” as well as “Indigenous Advisory councils”. This has helped the bank to properly understand the social issues and as well as helped the bank to implement changes to solve the issues. According to the corporate governance assignment this has not only benefitted the bank to satisfy its stakeholders but also has enhanced the company to maintain a good relationship with the stakeholders that is vital for making good decisions.
Figure 1: Stakeholder’s theory
Another theory mentioned in the corporate governance assignmentthat CBA implements is the Resource Dependency Theory. According to this theory the directors of a company helps in properly utilizing the resources as per the need of the company. As per the guidelines and the legislation of Resource Dependency Theory, the Board of CBA tracks culture and cultural change activities using data and analysis from a range of sources, such as employee surveys on engagement and culture, strategic indicators, focus group discussions, audit reports, compliance reports, and whistle-blower reports. This implements the usage of the resources of the company to meet the requirements of the firm as per the corporate governance assignment.
3. Board Structure and Committee Analysisin the corporate governance assignment
Comparative analysis of board structure of CBA and ANZ Bank
As per the corporate governance assignment good corporate governance depends on the composition of the board. A proper board structure helps to understand how companies can perform. This section helps to understand the board structure of CBA and ANZ Bank and understand which is better.
The board structure of CBA mentioned in the corporate governance assignmentis a two-tier structure comprising the Chairman and the CEO. Similarly, Ayunithaet al. (2020, p. 3765), stated that the role of the Chairman is to primarily act as a liaison between the Board and management, keeping regular, open, and productive lines of communication with the CEO. The Chairman also represents the interested parties, such as stakeholders, legislators, and the public, the Board's and the Group's viewpoints. Even though the structure of the board of ANZ bank is two-tier, the role of the CEO is different. Conversely, Kostyuk and Barros (2018, p.28), stated that the Chairman investigates the proposed new appointment and assesses every circumstance separately. The Chairman of the company as per the corporate governance assignmentdecides on issues that will inevitably come up repeatedly with committees or board members.
The role of the CEO for the CBA as well as for ANZ bank is different. Likewise, Kolev et al. (2019, pp.1150) stated that the CEO of CBA monitors the top executive team and is responsible for ensuring that the Company's culture and values are upheld. The CEO also examines how choices or behaviours affect reputation. Conversely, Arniatiet al. (2019, p.188), stated that the CEO of ANZ bank assesses the criteria of reputation and risk, money and discipline, clients, and people and culture. As per the corporate governance assignment the CEO also understands the performance of the company and makes proper decisions.
Comparative analysis of board committee of CBA and ANZ Bank
The proper understanding of the board committee of CBA and ANZ bank helps to understand the responsibilities of both the companies as well as their functions in the corporate governance assignment. As stated by Kostyuk and Barros (2018,p.29), the board committee of CBA consists of an Audit committee that helps to guide the Board on matters relating to the Group Auditor, the Internal Audit Function, the External Auditor, and (in cooperation with the Risk & Compliance Committee) the Group's Risk Management Framework with a minimum of three “independent NEDs”. The committee also has a Nomination Committee which gives the Board advice on topics like the “nomination, election, and reappointment of non-executive directors (NEDs), director induction programmes, director independence evaluations”. The members should be three independent NEDs. Likewise, Arniatiet al. (2019, p.188), stated in thecorporate governance assignmentthat the committee has a “People and Remuneration committee” that helps the Board to implement the “Group's remuneration strategies, recognition initiatives, Group Remuneration Policy, and other people-related policies”. The number of members is two NEDs maximum.
On the other hand, Kolev et al. (2019, p.1160), stated that the committee of ANZ bank has a “human resource committee” whose aim is to give the Board guidance on issues involving compensation as well as other issues connected to talent and culture, such as “senior executive succession, diversity, culture, accountability, and consequence management”. According to the corporate governance assignment the number of members should be five appointed by the Board. The committee also consists of the “Risk Committee” whose aim is to help the company to understand the risks that the bank can face and helps to make strategies. Members should be at least 3 appointed by the Board.
The implication of the findings mentioned in the corporate governance assignmentis that the board structure of CBA as well ANZis appropriate and can easily implement corporate governance. This can be done for both the companies as the board structure is a two-tier system, the management of the work can be done properly which might help the companies to properly implement corporate governance. However as per the corporate governance assignment, CBA should focus on allowing more members in the committee which can help in making proper decisions.
4. Board diversity analysis
The board diversity analysis of both the companies whether it is main (Commonwealth Bank) or competitor (ANZ Group), can be measured by identifying the structure of the board of directors based on several factors. Moreover, the board of directors (BOD) is the group of persons that manages the smooth running of the financial services of the company. AS per the corporate governance assignmentBODs are also responsible for implementing the practices of corporate governance in the practical world for ensuring the higher reliability and viability of the work operations (Khatibet al.2021, p. 10). Moreover, board diversity is all about measuring the equality in the board structure of both the companies based on “Skills, experiences, gender, age, work pay, and Work independence”. Therefore, the explanation of the aforementioned factors on the board diversity of both the companies is provided below:
The board of directors of Commonwealth Bank consists of mixed skills individuals, which means the skills of some of its directors are high and some of them possess lower skills. Moreover, the main reason behind the mixed skills directors in business is all the directors are specialized in their areas of work. On the other hand, the board of directors of ANZ Group possesses higher skilled people that have the knowledge of reinventing the banking system of Australia. Hence, it is understood from the corporate governance assignmentthat the higher skilled directors are also important in business to manage the work operations as per the culture and purpose followed by the company.
The board committee of Commonwealth Group is associated with the mixed experienced directors in the business. As per the corporate governance assignment the main reason behind having mixed experienced directors in Commonwealth's business is to maintain the strategic thinking process in work. Hence, mixed experienced directors include the higher and lower experienced directors whose thought process is different and can create different new and reliable ideas for business (Fernández-Temprano& Tejerina-Gaite, 2020,p. 12). On the other hand, the board committee of ANZ Group is highly dependent on experienced directors in the business. Due to this, the CEO of the group has appointed a deeply experienced global banker that can play a crucial role in business for managing the work process effectively and efficiently.
According to the corporate governance assignment the board diversity in board committees based on gender is considered to be low for the Commonwealth's business because of hiring an appropriate percentage of both male and female executive managers. Moreover, the new goal and initiative of the company are to make about 47%-50% balance in the male and female structure of the company. Currently, they possess 41.7% women leaders in business, which they want to enhance in the future years to 47%-50%. On the other hand, diversity is less in ANZ Group based on gender since they have represented more women leaders in the past years till 2021. Moreover, they also wanted to increase the representation of women leaders in the business by 1.90% in the future years.
The board of directors committee of Commonwealth bank is associated with taxed-aged directors. This means some of the directors of the company are experienced and some of the directors are less experience. The main reason behind the combination as per the corporate governance assignmentis to bring different ideas and information based on the knowledge of each of the directors in the business. On the other hand, ANZ Group is associated only with the higher-aged directors in the structure since they believe that higher age brings higher experience in the business (Bakeret al.2020,p.2). This will be helpful in eliminating the difficult situations of business by providing sophisticated ideas. Therefore, both the companies have different aged directors in business for achieving the different business goals and objectives by bringing ideas and information.
The work pay of directors in both companies is different due to having different business structures and business operations. As per the data of corporate governance assignment the work pay of Commonwealth bank's directors on average is $159,000, $102,000 for senior managers, and $88,000 for managers. On the other hand, the work pay of directors of ANZ Group on average is $193,000, $164,000 for senior managers, and $142,000 for managers. The aforementioned information depicts that the work pay of the ANZ Group directors committee is higher than that of the directors of Commonwealth Bank (Khan&Abdul-Subhan, 2019,p.16). This is because the structure of directors of ANZ Group is associated with higher experienced people that charge higher compensation for their services. The implication of the above findings mentioned in the corporate governance assignmentis that ANZ banks has better board diversity that CBA. This helps to understand that the board as well as seniors of CBA bank should consider to diversify its board. This would help the bank to perform better.
5. Recommendation and justification
Based on the above-corporate governance assignmentdiversity, it has been found that Commonwealth Bank needs some improvement in its board position and structure. The main reason behind the recommendation is, during the outbreak of the Covid-19 pandemic in 2020, the directors of the company have failed to manage the situation because of having less capabilities and non-experienced directors.Due to this reason, the higher experienced people will manage a critical situation by providingtheir ideas and sharing their experiences in the business. In addition, one of the important recommendationsmentioned in the corporate governance assignmentthat the company needs to follow is to bring higher women leaders in business for eliminating gender inequality. The implications for the above-mentioned recommendation in the corporate governance assignmentis that CBA would be able to diversify its board which would help the bank to promote corporate governance in a better way and also would help the bank to provide better services to its customers as well as to the stakeholders.
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