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Corporate Governance - Part 4

people talking

The Customer

As we have seen recently in Australia with the Banking Commission, the customer or client of the company can get left by the way side or, indeed, taken financial advantage of in the interest of the Board, the company and, disturbingly, on behalf of the shareholders. This is where it is prudent to inspect the purposes and motives of the board. It is also where the integrity as outlined previously should be employed.

The purpose and duties of the board should not include any practice that violates the integrity of the board either collectively or on an individual basis either knowingly or unknowingly. That may seem harsh but ignorance is no excuse for failing in ones duties as a board member. All the previous precepts outlined apply including honesty and maintaining an ethical standpoint. One should not, for example, as a board member, be encouraged and or expected to violate the community standards to which the board and the corporate body has agreed to. This would:

Violate one's integrity and accountability for making a moral decision
Incur a conflict of interest, where one's interest of being successful, for example, is at the expense of the client or customer of the company
Violating on's trust with the shareholders and the public
Potentially incur further regulation of the board's decision making process and activities

The above may produce a lack of trust in the company by the public, the shareholders and even one's peers resulting in a contraction of the company including a drop in the share price and perceived value of the company.

Indeed we have seen this exact scenario with AMP in Australia (AMP is a financial services company in Australia and New Zealand providing superannuation and investment products, insurance, financial advice and banking products including home loans and savings accounts) where it was found that the board had violated many of the principles found in this series of papers and suffered a severe drop in their share price to less than a third of their original price and have also suffered the loss of directors with over 60 percent of shareholders voting against the boards remuneration and with the revelation of severe misconduct that may yet still result in criminal proceedings against board members.

Not only AMP but other financial institutions, including the four big banks in Australia, have been exposed for financial malpractice and unconscionable behaviours on a grand scale which has resulted in at least one CEO (Commonwealth Bank) stood down and others may follow. These activities have also, predictably, resulted in a call for more strenuous regulation.

In view of the examples above it behoves every board to act with integrity, honesty and discipline to ensure they forward the purposes and goals of the company in a manner consistent with the principles laid down in those series of papers.

Doing so will go a long way to ensuring trust by the community and the clients and customers who, after all, are those which provide the company with the business and the value it aspires to have.

https://www.businessinsider.com.au/amp-annual-general-meeting-first-strike-2018-5
https://corporate.amp.com.au/shareholder-centre/shareholder-info/share-price-graph
https://www.smh.com.au/business/banking-and-finance/amp-directors-step-down-ahead-of-meeting-20180508-p4zdyv.html https://www.bankreformnow.com.au/news/banking-news/world-sees-australian-banks-exposed

Part 3 Corporate Governance can be found at Corporate Governance - Part 3
Part Five (Final) is available at Corporate Governance - Part 5

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