Corporate Governance & Risk Management

Question: Discuss about the Corporate Governance Risk Management. Answer: Introduction Corporate governance refers to a framework of practices, rules, and processes by which a firm is directed and controlled (Tricker, 2015, p. 30). It mostly involves balancing the majority of the company's stakeholders such as suppliers, stakeholders, customers, management, financiers, community and the government. On the other hand, risk management is the recognition, evaluation, and prioritization of risks accompanied by organized and economical utilization of resources to reduce, survey and control the possibility and effect of unfortunate events (Olson, 2008, p. 95). Therefore, this paper seeks to evaluate the case study presented that is based on real events involving an Australian bank by responding to the given questions. Actions were Taken and Behavior Displayed by Senior management Regarding Enterprise Risk management. Joe Bloe, a newly hired financial planner, managed to discover Donald Vanvos illegal means of notching sales and informed the financial planning manager. To his astonishment, the manager ignored the claim since Don was believed to have management protection because of his ranking as a top earner for Tera Australian Bank (TAB). The move shows the fraudulent nature of the administration and incompetence because of covering up for the accused considering that embezzlement of the bank's financial resources and exploitation of customers was happening. The investment portfolio of clients began to drop thus raising complaints, and Bloe again approached the middle management to have the issue resolved. Instead, he was given a nonchalance and evasive response. The administration simply showed disregard of Bloes claims. TABs resolution to embark on a formal investigation was a noble action though the growing public pressure prompted it. The senior management facilitated the processing of clien ts by legal department to obtain protection of legal privilege in the likely event of a lawsuit. Some of the dishonest financial planners were allowed to resign and leave for other companies alternatively giving them the boot to avoid "bad press." Whistleblowers' anonymous email forced TAB group security to conduct an investigation within TAFP that revealed the majority of Don's client files were missing. The management decided to increase the officials annual bonuses amidst gloomy media stories of incurably ill victims who had lost their life savings because of the rogue planners. The scheme by TAB to bear minimal expenses in the compensation by isolating each victim to have limited knowledge regarding the greater plan of things, that is, to divide and conquer was unethical. After the conclusion of the investigation, Don is suspended for fraud and compliance failures. Frustrated clients continued to file complaints against the bank demanding for explanations. And since Tera Austral is Financial Planning (TAFP) which is a subsidiary found under the wealth management division of TAB needed someone to discourage the clients from following up their complaints. It reinstated Don and promoted him to become a senior financial planner. The move showed the dishonest behavior and illicit nature of the bank's management responsibilities. The actions and behavior of the banks management posed high risks. For instance, embezzlement of a companys resources can lead to financial and management crisis in the long-run (Tourani, 2010, p. 71). The bank risked being closed down permanently by the federal government. In this case, the bank customers risked losing their entire savings due to misappropriation of its financial resources. The bank's reputation was also on the verge of being damaged in addition to uncertain economic repercussions. TAB's customer satisfaction ratings have incurred a substantial drop from first place at the beginning of 2014 to the third position in September 2014. It would make the management to lose one-quarter of their long-term rewards. Poor risk management practices can lead to potentially absurd outcomes (Fraser, 2010, p. 300). For instance, the initiation of TABs new compensation plan contributed to new claims emerging daily. The banks top management inadequate responses such as cover-ups, dec eit, and ignorance aggravated the situation (Friedman, 2011, p. 51). For example, presently, a compensation of A$ 52 million has already been paid out, with up to A$ 250 million needed in due course. Being in Venus position, I would develop a financial integration and compensation system that bring together all the key stakeholders by targeting the affected clients. It would aim at finding out the amount of embezzled funds and defining the necessary procedures of tracing them to compensate the victims. I would also follow up the filed complaints against Don and his associates to make sure that justice prevails and redeem the image of the bank in the public domain. To avoid a similar scenario in the future, I would draft a clear framework of financial planning which the officials will follow in their respective positions. It would include a monthly auditing of the banks transactions of financial planning. Principal Areas of Concern in TAB's Remuneration Plan Pay refers to compensation or payment received for services and employment and includes the basic salary and economic benefits or bonuses given to an employee during employment (Sheenan, 2012, p. 135). One of the issues of concern about the bank's remuneration plan is that more than half of its financial planner's sum of annual compensation relied on short-term incentives like bonuses. The second issue is pegging commissions on the risk levels of investment property sold. The third issue is persuading the employees through the unforgiving notion-meet your sales target or give up your rice bowl. The mentioned issues nurtured an aggressive culture amongst the TAB's financial planners through enthusiastic sales- driven coupled with exceedingly short-term remuneration incentive plan. It made Don and his colleagues' obsessed with the uninspired pursuit of bonuses with a scant place for honesty. The changes that I would introduce to minimize agency conflicts on remuneration is restructuring the current payment scheme to incorporate other aspects such as transparent appraisals based on both performance merit and ethical code of conduct being upheld by employees. Evaluation of ASIC Actions during the Financial Planning Scandal The fact that Australian Securities and Investment Commission (ASIC) received a report from the whistleblowers and opted for discussions with TAFP shows some level of incompetence and biases. It resulted in the standard solution to supervise Don closely and subjecting his advice to vetting before approval. Instead, they should have established an independent commission to investigate the claims thoroughly. Since ASIC is commonly seen as one of the most untrustworthy regulators in the finance industry, it might have crippled its efforts in the fight against fraudulent financial institutions. ASIC has established an office of whistleblowers to facilitate swift response to claims and began an organization-wide advancement exercise regarding its communications and translucency shows its renewed desire and commitment to executing its mandate. The ASIC could face various problems in conducting their investigation like hostile individuals, misleading claims, and incompetent investigators am ong others. Role of the media in Promoting Good Governance Good governance describes how public institutions administer affairs of the society and control public resources (Solomon, 2007, p. 340). Such policies help in fostering participation by citizens through reporting on aspects of decision making processes and granting stakeholders a voice in that practice. They assist in promoting human rights denouncing violations and increasing awareness among citizens about their rights. The media also encourages vigilance towards the rule of law and helping reduce poverty levels by increasing accountability of both governments and businesses (Norris, 2010, p. 33). It acts as the watchdog against corruption and preventing the exclusion and marginalization of the poor (Scott, 2014, p. 150). There are some factors which limit the effectiveness of media such as denying its freedom, threats to media personalities on different subjects, stringent and unfavorable media policies (Howley, 2010, p. 94). These factors have compromised the critical role of media in ensuring good governance. The social media can also participate in enterprise risk management by sharing crucial information about unlawful practices they may observe in their particular member corporates. They may also provide their views on possible measures of combating such issues. Importance of Whistleblower Protection Policy They provide employees with a safe route for reporting issues or complaints regarding wrongdoing within the company (Vaughn, 2012, p. 253). Such policies encourage early reporting to the employer or top management and promote immediate identification of the problem thus minimizing the potential losses incurred. It will also discourage employees from making complaint externally. For instance, directly reporting to the media since their complaint will be taken seriously and appropriately investigated. Bloe and his colleagues were not sufficiently protected by the whistleblower policy because they were left defenseless after their covers got blown. Whistleblowing can be encouraged through conduct training, establishing means of reporting wrongdoing like setting up hotlines and offering financial incentives for valid whistleblowing (Schermerhorn, 2011, p. 66). Challenges Faced by Organizations in upholding Excellent Reputation Company rules can't guarantee self control about ethical decisions. Another challenge is being an open book since giving too much information too soon could jeopardize the process of change. References Fraser, J. R. S. . S. B. J., 2010. Enterprise risk management. Hoboken, N.J: Wiley. Friedman, J., 2011. What caused the financial crisis. Philadelphia: University of Philadelphia Press. Howley, K., 2010. Understanding community media. 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