Provide arguments based on a “sufficient number” of theories of Corporate Governance, Corporate Social Responsibility (CSR) and/ or Creating Shared Value (CSV) to justify or criticise the actions and decisions taken while under the control of the board of directors.
Analyse these decisions and actions using ethical as well as justice and economic distribution theories.
This report will be the study of the corporate governance of the AMP. AMP is also the listed bank of the ASX. Thus, the AMP has to lay the principles and recommendation laid down by the ASX. The AMP in recent times got a lot of media attention due to their conduct that had been found to be in question in the report of the Banking Royal Commission. Banking Royal commission is a body that conducts an inquiry of the banks. It is set up by the crown on the recommendation of the government (Royal Commission, 2018). The AMP conduct will be analysed in the view of corporate governance and the corporate social responsibility. The Banking Royal Commission conduct into the banking and superannuation has found the conduct of AMP that has raised many ethical issues. These issues may be solved by implementing the ethical culture in the organisation. The ethics guide the companies in taking decisions responsibly and with certain obligations. Thus, the AMP had been recommended that various duties that had been breached by the employees of the AMP can be solved by implementing various policies in the company.
The Banking Royal Commission has conducted an enquiry in that various banks misconduct had been came into the question. In the report of Banking Royal Commission various scandals of the AMP was revealed (McGowan and Davidson, 2018). AMP is one of the biggest financial institutions of the Australia (AMP, 2018). The AMP financial advisors had been found to be in charging fees but the services has not been provided by the bank. The AMP in many circumstances has misled the ASIC by stating that fee for no service had been a process error and it was not a deliberate action (Hurchens, 2018). AMP was found to be deducting the service fees from the client’s accounts. The Banking Royal Commission got the various evidences that had showed that around 20 times the AMP had misled the corporate regulators. In a report, it was stated that the AMP would have to pay a bill of around $1 billion (David, 2018). The reports also stated that the AMP could be liable for the ASIC penalty. The AMP has done many more scandals and has also not monitored the accounts of the customers who has chosen to invest in the cash. The AMP has found to be in the major problem as the legal implication can also takes place for these acts. The AMP can be liable for the criminal penalties (Chung, 2018).
The corporate governance is the rules and regulation that guide the employees of the companies for the better efficiency and for the ethical culture. It provides the transparency in the culture and helps the shareholders to get the accurate information about the operations, finance, and the other departments of the company (Williams, Bingham and Shimeld, 2015). There are some theories that will guide the views on the corporate governance of the company:-
This theory of corporate governance will focus on the relationship of the agents and the shareholders. According to this theory, the directors, managers, officers and the executives are the agents of the company. In the view of this theory, the financial advisors of the AMP are the agents of the companies. This theory states that the shareholders are the principal of the company. In this view of the AMP shareholders are the principal. So in accordance with this theory the agents work in the interest of the principal means the directors, managers, executives must work in the interest of the shareholders. The employees of the AMP should have to work according in the interest of the shareholders but the company has failed to apply this theory. The employees of the AMP had been done certain breaches that been charging fees for no services and deducting amount from the clients account as the service charge. Therefore, the bank had paid many millions to their clients that have affected the shareholders of the company in the vast manner. This theory states the relationship between the shareholders and the management of the company. The AMP has not shown this cooperation between their management and the employees. Thus in the end it is the duty of every agent to work in the interest of the shareholders. The shareholders are the owners of the company who hire agents to work for their interest (Bosse and Phillips, 2016).
This theory of corporate governance is about the protection of the stewards and increasing the wealth of the shareholders. The stewards are the employees such as executives and the managers of the companies. The stewards have the responsibility of the company and they must perform in the interest of the shareholders. This theory is not an agency theory as because in this theory individualism is not been followed. The AMP advisors and the directors are the stewards in accordance with this theory. The financial advisors must work so that the companies interest will be fulfilled and the interest of the shareholders. The companies must also take care of their stewards. The AMP has the duty towards their management to protect them and to take care of their employees. In the view of this theory, the AMP has the duty towards their employees. The AMP has failed to apply this theory in their organisation and due to that in the inquiry of the Banking Royal Commission, various bad conducts had been found of AMP. Neither the stewards had worked in the interest of the company and neither the company. If the company has provided proper governance in the company than may be this situation has not been rise. These theories of agency and stewardship have focussed on the type of governance, if both these theories put together than it will give the better governance in the company (Madison, Kellermanns and Ranft, 2016).
According to the theory of Stakeholder, it states that the stakeholders are the variant of the concept of the stockholder. There are two types of the stakeholders in the company, firstly the primary stakeholders who have the direct stake in the company. Secondly, the stakeholders who has a public or has an special interest stake in the organisation that is more indirect. The stakeholder is a wider term that includes stockholders, general public, employees, customers, competitors, government, media and many more. The companies have the duty in accordance with this theory that they must take care of their stakeholders. Stakeholders should been the first choice for the company. The Companies goals are like to fulfil the requirements of the stakeholders. The AMP has also the duty to fulfil the demands of the stakeholders but the AMP was totally failed to fulfil the requirements of the stakeholders. The company has charged fees for the services they had not provided to the customers. Thus, the clients are the stakeholders of the company and the AMP has the duty towards them to provide services for the fees but the unnecessary fees been charged from them and not has provided any services. The company has faced a lot of criticism for their acts and for cheating their stakeholders. The bank has totally failed to apply this theory in the culture of their organisation. This theory motive was to consider the problems of the stakeholders of the company, as they should be put in priority. Sometimes company only focusses on the interest of the shareholders, they forgot the interest of the stakeholders, and the same had happened with the AMP. This theory states that the Stakeholders are as important for the company as the shareholders for the company (Pig?, 2017).
Corporate Social Responsibility
The Corporate Social Responsibility has the basic movement that has an aim is to encourage and aware the companies about the impact of the business they are engaged in on the rest of the society that includes their own stakeholders and the environment. The Corporate Social responsibility is worked on the business approach that contributes to the maximum development by providing the economic, social and the environment benefits of all the stakeholders . The AMP after their scandals been revealed in the Banking Royal Commission than it becomes necessary them to understand the value of Corporate Social Responsibility. The AMP stakeholders have been affected due to the company have less focusses on their corporate social responsibility. The company is run due to their stakeholders and if the stakeholders will not been focussed then it can affect the company in legal, social, political and the economic implications. Therefore, the company cannot run from its Social responsibility or it can create a major effect on the companies like AMP who are the one of the biggest financial institutions of the Australia (Bhattacharya and Sen, 2010).
Creating Shared Value
Creating shared value is the link between the competitive advantage and the Corporate Social Responsibility. It has redefined the role of the capitalism and the role of company in the society that has been written by Porter that there is deep link between the business strategies and also the corporate social responsibility. In the year 2012, Karmer and the Porter with the help of the global non-for profit advisory firm FSG founded the shared Value initiative. The AMP has failed to apply this theory in the organisation as they had not linked the competitive advantage and the corporate social responsibility (Gibbert, Leibold and Probst, 2002).
Corporate Governance Discussion based on ASX 2010 Principles and recommendation
The ASX in the year 2010 had made some Amendments in the principles and recommendations that are required to follow by the companies who are listed in the ASX. The companies listed in the ASX every year in their annual statement showed that they had compliance with the principles of the ASX. The companies who failed to comply with these principles can be liable for the penalties. These principles and recommendation suggest that the companies must lay the solid foundation for the companies that the delegation of work by the senior and junior executives can be done properly. The companies must structure the board properly so the duties and responsibilities can be discharged properly (AMP, 2018). The companies must promote ethical and the responsible decision-making. There must been an important for the company to safeguard the integrity in the financial reporting and for that it is required for the companies to establish an audit committee. The company is required to establish the timely and the balanced disclosure of all the important material that is in relation to the company. The company must respect the rights of the shareholders and must facilitate the effective exercise of these rights. The ASX also recommend that the companies be required to establish a sound system to manage and control the risk for the both internal and external risks. The last principle suggests that the companies must establish that the level of remuneration is sufficient and reasonable. The AMP has also listed in the corporate governance statement that they have followed with the principles and the recommendation of the companies. The AMP has showed that they had maintained good governance in their company but in reality, the company has failed to comply with the following governance policies. It can be proved from the evidences that has revealed in the report of the Banking Royal Commission (Safari, 2017).
The ethics always play an important role in the organisation that has an important part of the organisation. The ethics are the guidance to the company’s management to work with obligations and responsibly. The companies are required to implement ethical culture for that they can implement some of the theories of ethics. The AMP must also take guidance from these theories to improve the ethical culture in the company. These theories are explained below:
Justice and Economic Distribution
Justice and economic distribution can be seen from the two approaches. The two approaches of libertarian and Rawls view on the economic distribution and the Justice.
The Libertarian that has identifies the justice with an idea of liberty. He has also argues that an individual freedom that is the basis for determining that what is correct and wrong. The justice can consist in permitting each person to live as he/she pleases and it is free from all the interferences of the others. His approach was clear that till you have not interfered in anyone liberty than no one can disturb your liberty. Thus, the Amp has interfered the liberty of the clients and the millions of money had been charged from the clients for the services they had not provided (Martin, 2015).
The Rawls view is all surrounded by the Justice. These theories help the individuals to deal with the ethical dilemmas. The John Rawls had said in this that every individual has some extensive basic liberties that every individual has equal rights and is companionable with the related liberties for the others. The libertarian and Rawls had the same view that until the time individual does not infringe the rights of others until the time he or she can engage in the activities (Martin, Coolsaet, Corbera, Dawson, Fraser, Lehmann and Rodriguez, 2016).
Thus the AMP has not implemented the Libertarian and the Rawls view in the organisation therefore it is recommended that the Amp must apply this theory to improve their culture.
Deontology & Utilitarianism
These two theories of ethics will guide the AMP that can help companies to implement ethical culture in the organisation. This theory guides the companies to take decisions. It suggests that while taking any decision it is necessary for the company that it must take care of the duties and the obligations when the ethics are in play. In the view of this theory that upholding one duty is ethically correct that means when a person follow his or her obligations to the another individual. This theory says that the deontologist will always retain promises as a friend. This theory says that whoever follows a theory that produces consistent results because the decisions are based on the duties that has been set by the individuals. Therefore, the company are required to apply this theory in their culture to get good results. The AMP has also failed to apply this theory as this theory deals with the decision based on the obligation and duties that was not followed by the management of the company. The company has failed in every aspect of the theories guidance (Akhigbe and Zolnourian, 2018).
The Utilitarianism is based on the ability to predict the consequences of a certain action. This Theory is based on the two parts the first is act utilitarianism and the second is rule utilitarianism. Act Utilitarianism is regarded as the benefits for the many people and not for the self-motive or the societal constraints such as the laws. The AMP has not followed this theory and worked for the self-motive and not for the motive of their large number of clients. Whereas the Rule Utilitarianism takes the law into the account considered with the fairness. This is viewed as the fairness of being that benefits the number of people in the organisation. This theory gives the justice through the fairness. From the point of AMP this is not been applied in the organisation as the fairness on the part of the organisation had not been seen anywhere. Thus, it can be said that the AMP had been failed to apply these theories in their organisation. This theory can give the learning for the company the importance of the social responsibilities. The AMP must implement these theories for the better ethics and to understand the responsibility towards the society (Kahane, Everett, Earp, Farias and Savulescu, 2015).
The AMP conduct in the Banking Royal Commission has proved that the AMP has failed to apply the good governance and failed to obey the responsibilities towards the society. Therefore, it is required to recommend company so that the company’s governance and the ethical culture of the company can be improved. The companies can implement the ASX principles and Recommendation as not just in the statement of the company but also in the practical basis. The company can implement the corporate governance theories in the for the better governance such as Agency, stewardship and the Stakeholder theories. These theories as stated above can help the companies to improve their ethical culture in the company. The AMP can also implement some training programs for the management of the company. It helps the employees to know their duties towards the shareholders and also towards their stakeholders. The directors must guide that they have to work more than their area of expertise as the directors not been just limited to their expertise. The directors have the duty to manage and to monitor the activities of the employees. The cooperation between the management and the company must be good for the better results for the company. Thus, the environment of the organisation must be familiar so that the organisation needs been fulfilled (Tricker and Tricker, 2015).
The AMP is also recommended that the company to improve the duties and responsibilities towards the society by implementing the ethical theories in the company. The libertarian and Rawls view on the justice and economic distribution can help the companies to improve their ethical culture. The management must be guide with the duties and responsibilities towards the society.
It can be concluded from the report of Banking Royal Commission that various laws had been breached by the AMP. The company has not followed the good governance in the company. The Company has raised many ethical issues that can be solved by the ethical and governance implications. It can be analysed that the AMP employees has deliberately conducted the misconduct like charging fees for no services. The AMP has not fulfilled its responsibilities towards their stakeholders. The Stakeholders are an important part of the organisation that has been proved from the stakeholder theory and the effect on the AMP for non-compliance of the theory. The corporate governance of the AMP is required some serious changes and good policies to be implicated to regain the trust of the stakeholders. The AMP has also found to misled and hide the facts from the ASIC and for that the AMP was highly criticised.
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