corporategovernance.docx
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corporategovernance.docx
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corporategovernance
TitleSheet
TheReportQuestion
Corporategovernance,howacompanyisrun,isbecominganimportantissueforcompaniestoconsiderduetonumerousrecenthigh-profilecorporatefailures.Asaresult,businessesarestartingtouseacorporategovernancestatementasawaytocommunicatetheircorporategovernancepracticesandpromotetheirethicalcredentialstointerestedparties,suchasshareholders.Thisstatementisoftenincorporatedintothecompany'sannualreport.ToassistwiththedevelopmentofgoodcorporategovernanceandclearcorporategovernancestatementstheASXCorporateGovernanceCouncilhasdevelopedasetofprinciplesandrecommendationstoguidecompanies.
Whatiscorporategovernanceandwhyisitanimportantissueforcompanies?
SelecttheprinciplesintheASXCorporateGovernanceCouncil’sCorporateGovernancePrinciplesandRecommendationsthataremostrelevanttoyourBABC001industry.Foreachprincipleyouselect,explainthemainfocusoftheprincipleandwhyitisrelevanttoyourBABC001industry.EvaluatehowwellyourBABC001company'scorporategovernancestatementcommunicatesinformationontheprinciplesyouselected.
Tableofcontents
EXECUTIVESUMMARY
Thepurposeofthisreportwastointroducecorporategovernanceanditsimportance,togetherwiththeASXprinciplescloselyrelatedtofinancialservicessandevaluationoftheANZ’scorporategovernancestatement.ThisreportisbasedonacademicpaperandtheASXguideline.FindingsindicatethatcorporategovernancereferstothesetofmechanismswhichcaninfluencethedecisionmakingprocessandtheASXprinciple3,7,8arecloselyrelatedtofinancialservicesandANZ’soperation.Inconclusion,corporategovernanceisbeneficialforcompanytooperatesmoothly,gainpublicreputationandavoidpotentialhazard.Inaddition,financialservicesandANZshouldinparticularpaycloseattentiontoethicaldecisionmaking,riskmanagementandfairremuneration.
1.INTRODUCTION
Duetotheeconomiccrisisin2008,companiesinfinancialservicesvaluemoreoncorporategovernanceinrecentyears.Corporategovernanceisthoughthighlyofinfinancialservicesandmanyfinancialenterprisesestablishtheirowncorporategovernanceregulations.However,problemsstillexistintheiroperationandtheydonotfullycomplywiththecorporategovernancewhichtheystate.Althoughcorporategovernanceisapowerfultoolforfinancialenterprisestokeeptheiroperationsmoothly,theyalsoneedtoevaluateitsimplementationofcorporategovernance.Thisreportwilldefinecorporategovernance,explaintheimportanceofcorporategovernance,introducetheASXprincipleswhicharecloselyrelatedtofinancialindustry,andevaluatetheimplementationofcorporategovernanceinANZ.
2.THEDEFINITIONOFCORPORATEGOVERNANCEANDITSIMPORTANCE
Inordertoavoidscandalslikeearningsmanagementhappeningagain,companyintensifiesthesupervisionoftheadministrationitself.Corporategovernancethenspreads.
2.1Definitionofcorporategovernance
AccordingtotheASX(2010),corporategovernanceisinterpretedastheskeletonofcompanies’internalandexternalregulations,togetherwiththepowerimplementationanddistribution.Itcontainscompany’sobjective,riskmanagementandappropriatedecision-making.Additionally,corporategovernanceinvolvesthesetofmechanismsthatinfluencethedecisionsmadebymanagerswhenthereisaseparationofownershipandcontrol(Larckeretal.,2004).
2.2Theimportanceofcorporategovernance
Corporategovernanceaimsatcreatingvalueforcompanies.Effectivecorporategovernancecanhelpcompaniesobtainpublictrustandconfidence.Itisimportantforcompaniestoannounceastrongpromisethattheycandealwellenoughwithagencyproblemstoconvincepublicandgainreputationinthepublic(Bitner&Dasher,2007).Inaddition,appropriatecorporategovernancecanhelpcompaniesoperatesmoothly.Bitner&Dasher(2007,para4)pointoutthatwellimplementedcorporategovernancecanhelpcompaniesbalancerisksandprofits.Besidesreputationandbetteroperation,corporategovernancecanalsohelpcompaniesavoidpotentialhazard.AccordingtoLicciardo(2011,para9),appropriatecorporategovernanceframeworkcancontributetocompanies’avoidanceofpotentiallossofreputationandconfidenceinmanagement,helpingcompaniesfinanceeasier.Therefore,appropriatecorporategovernancecanleadcompaniestobetterreputation,operationandavoidanceofunnecessaryloss,whichisimportanttocompanies.
3.PRINCIPLESCLOSELYRELATEDTOFINANCIALSERVICESS
3.1Backgroundoffinancialservices
Formalfinancialservicescandatebackto17thcenturywhenthefirstnationalcenturybank,BankofEngland,establishedin1694.Atfirst,financialinstitutionsonlyprovidefinancialsupportforgovernment.Duetotheincreasingdemandoffinancialcapital,financialservicesbegantoprovidepersonalservice.Now,financialserviceshavebeenoneofthemostimportantindustriesintheworld.However,owingtothecharacteristicofhighrisk,financialservicesinvolvedintomanytroublesforexampletheeconomiccrisis.Toensurethenormaldevelopment,financialservicesshouldacttighteronthecomplianceoftheASXprinciples.
3.2Ethicalandresponsibledecisionmaking
AccordingtotheASXprinciples3(2010),companiesshouldproactivelyimplementethicalandresponsibledecisionmaking.Bitner&Dasher(2007)pointoutthatitisthefirstprioritytocreateacultureofdissent,whichmeansconductcode.Throughcreatingconductcode,companiescanestablishanintegrityvaluebasedsituationforthewholecompanies,facilitatingresponsibledecisionmaking.Itmaybetruethatirresponsiblestrategycangainshort-termbenefitforcompanies.However,companiesshouldnotbemyopic.Theyshouldfocusonlong-terminterest,whichisbasedonthetrustofthepublic.Bhattacharyaetal.(2008)pointoutthatcompanieswithpositivereputationcangainreputationshieldtodeflectnegativesentiment.Inordertoobtainlong-termbenefits,companiesshoulddoresponsibledecisionmaking.
3.3Riskmanagement
Ineconomiccrisis,manybankswentbankruptcyduetoitshighriskinvestment.Therefore,itiscriticaltopromoteadequateriskmanagementinfinancialservices.TheASXprinciple7(2010)requiresthatcompaniesshouldestablishadequateriskmanagementandinternalcontrol.Companiesshouldusethefirm’sriskappetitetodeterminewhichriskshouldbeacceptedandwhichshouldbemitigatedoravoided.AccordingtoGatesetal.(2012),riskmanagementaddsvaluethroughremovingtailoutcomesandreducingearningsvolatility.Financialserviceindustryisahighriskindustry,whichiseasytocreateeconomicbubble.Thus,appropriateriskmanagementcanhelpcompaniesavoidbankruptcyandreducingitspotentiallosses.
3.4Fairandresponsibleremuneration
Inrecentyears,manyremunerationdiscriminationshappenedinfinancialservices.Topmanagers’hugecompensationislikelytoharmshareholdervaluecreation(Goergen&Renneboog,2011).TheASXprinciple8(2010)recommendsthattheremunerationshouldbereasonableandclearlyrelatedtoperformance.However,althoughduringeconomiccrisisbankingsufferedalot,bigbankslikeJPMorganandGoldmanSachsstillpaidtheirexecutiveshighsalarywhichisaboutonethousandtimesasmuchasordinarystaffget.Thehugedifferenceinsalarybetweenexecutivesandordinarystaffmayresultindissatisfaction.Inaddition,accordingtoGoergenandRenneboog(2011),topmanagersmayreceivecompensationbeforetheyruncompanieswell,whichwillaggravatethedissatisfaction.Companiesinfinancialservicesshouldfocusmoreonthisissuethanotherindustry,duetothefactthattheymayeasilycreatehugedifferenceinsalary.
4.EVALUATIONIMPLEMENTATIONOFCORPORATEGOVERNANCEINANZ
4.1BackgroundofANZ
Australia&NewZealandBankingGroupLimited(ANZ)isoneoftheBigFourbanksinAustralia.Itshistorycandatebackto19thcentury.Now,ANZhasacompletecorporategovernanceandperformwell.
4.2Overallevaluation
InANZ’scorporategovernancestatement,itannouncesthatANZhasfullycompliedwithalltheASXprinciplesandalltheprinciplesarementioned.ANZshowscomprehensiveunderstandingoftheASXprinciplesandsetouteffectiveregulationsbasedontheASXprinciples.Additionally,thelanguageANZusedinitscorporategovernancestatementiseasytounderstand.Ingeneral,ANZperformswellincorporategovernancestatement.
4.3Appropriatedecisionmaking
InordertomeettheASXprinciple3(2010)whichrequirescompaniesdoresponsibledecision,ANZ(2013)setstwomainconductandethicscodes.Oneisforemployeesandtheotherisfornon-executivedirectors.ItscoderequiresthatallmembersinANZshouldperformhonestyandintegritywheneverandwherevertheyare.FromANZ’sannouncement,ANZhasappliedtheASXprinciplestoitsoperations,whichisasatisfiedscenarioforANZtomakebetterachievement.
4.4Riskmanagement
RiskmanagementinANZisfamousinbanking.Itsriskmanagementwasvotedasthebestpracticeinglobalbanking.TheASXprinciple7(2010)askscompaniestoestablishadequateriskmanagementandANZdoesdistinguished.ANZ(2013)thinksthatrisksrelatedtofinancialinstrumentsareanimportantpartofrisksinitsoperation.ANZclassifiesrisksintodifferentsectionsandexplainitsstrategiesindetailinitsannualreport.ItsmainfocusisonthecreditriskandANZusesconcentrationanalysistoevaluatetherisk.Inthissection,ANZperformsdistinguished
4.5Remunerationpolicy
TheASXprinciple8(2010)requirescompanytoensurethefairnessofremuneration.ANZdividesrem
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