BAC306-Corporate Governance Practices at the Company AMP Limited
You are required to write a report, which addresses the relationship between corporate governance and corporate performance. As a means of illustrating this relationship, you are to conduct a critical analysis of the problems in corporate governance and ethics at AMP and identify how the principles of corporate governance and ethics failed.
Did anybody blow the whistle? What mechanisms are in place to protect whistle blowers in Australia and are these mechanisms sufficient to protect the various stakeholders?
Specific areas to be addressed are:
1.Identify the deficiencies in the system of corporate governance and ethics at AMP.
2.Describe the culture/ circumstances which led to the events taking place.
3.What mechanisms are in place to protect whistle blowers and are these mechanisms sufficient to protect the various stakeholders?
4.Recommend strategies that should have been implemented so as to avoid the scandal.
5.Detail the lessons to be learned from this case study.
Answer:
Introduction
Corporate Governance and ethics are the core values on which the business operations thrive, and the entities survive in the long run. These are often regarded as the framework that directs, guides, and controls the actions of the board, employees, and the overall entity (Mason & Simmons, 2014). These are essential because there is a wide range of stakeholders, which are affected by the businesses of the entities. The entity AMP Limited is a company based at Australia and New Zealand, providing a range of services namely, insurance, financial consultancy, superannuation, and investment products and the banking products like home loans and savings account as well. The shares of the entity are listed on the Australian Stock Exchange, as well as the New Zealand Stock Exchange. One of the striking characteristics of the entity is that it has one of the largest bodies of shareholders in Australia; this is because the entity had started its operations as a mutual society and on the event of its demutualisation, all the policyholders had received the shares of the company (AMP, 2018a). However, the operations of the entity have been in the news since the Banking Royal Commission has initiated inquiries. Thus, the scope of this report is to assess the relationship between corporate governance and corporate performance of the entity. The framework used for the analysis is the corporate governance and ethical theories, and ASX principles. The report concludes with the recommendations for improving the said area of operations and for overall development of the organisation.
Background of the incidents
Recently the Baking Royal Commission had initiated investigations against the operations of the major firms in the financial sector of the country. A number of firm’s operations were found to be violating the corporate governance and ethical principles, including that of AM
P Limited. The company was accused of charging life insurance premiums of approximate amount of $1.3 million on account of superannuation from the profiles of about 4600 deceased individuals (Neil, 2018). The investigations revealed that there was an error in the system of the entity, due to which the deductions on account of superannuation of the deceased did not stop. In another incident, earlier this year the firm was involved in a financial scandal, which included payment of hefty fees and charges, by the customers, resulting into the eroding of the cash investments and losing of the retirement savings.
One of the customers of the entity had received an investment return of about 0.47 percent in the year. The net return in terms of the amount was $381.59, which was received after the deduction of the direct fees of $76.85, the management costs of $1,666.72, and a rebate of $20.10 (Lannin, 2018). The overall sums combined of fees and charges were high enough to deliver the negative returns to thousands of customers. In response to the same, the Banking Royal Commission had instructed the entity and the trustees of the AMP’S superannuation products to cut the fees charged and refund an approximate of $5 million to around 12,500 customers. The cash investments made by these customers are reported to be $43 million in the AMP super accounts (Hutchens, 2018). Whistle blowers of the company have reported that the senior executives of the enterprise are aware regarding these issues; however, they did not take any actions to stop the same. They failed to act ethically in order to ensure that they avoid negatively affecting the interest of the stakeholders of the enterprise.
Shortcomings in Corporate Governance Policies
AMP Limited has implemented a corporate governance structure which is focused on implementing ethical policies in the organisation. The objective of this structure is to prioritise the interest of customers in the company and ensure that the top level management is not misusing their position and powers. Various roles and responsibilities are implemented by the corporate governance structure on the top level management to ensure that they focus on the interest of different stakeholders while conducting the operations of the business and forming future business strategies. Along with the corporate governance structure, the company has implemented a whistle blower policy which assists whistle blowers in hiding their identity while reporting unethical practices of the company or its management (AMP, 2018b). However, there are various shortcomings or deficiencies in these policies since they did not stop the top executives from behaving in an unethical manner.
The investigation conducted by the Banking Royal Commission highlighted that the senior level executives have indulged in unethical behaviour by charging life insurance premium from deceased customers and losing the retirement saving. The main objective of the corporate governance structure is to ensure that the interest of customers is not violated, however, this goal is violated by the company which shows that shortcomings in its corporate governance structure. The corporation has also failed to comply with its whistle blower policies since the serious management did not take any actions to protect the whistle blowers or take any actions for the issues which were reported by them (Financial Review, 2018). The ethics policies of the corporation are not complied by its directors since they focus on increasing the revenues of the enterprise rather than conducting its operations ethically.
Culture/Circumstances which led to the events
The organisational culture adopted by AMP is not based on ethical policies and principles. The senior level management of the enterprise did not respect the laws implemented by the Australian government and the Australian Securities and Investments Commission (ASIC) to ensure that they avoid violating them. While forming business policies, they focus on increasing the earning of the enterprise rather than implementing policies which reinforce the interest and benefits of all stakeholders. The whistle blowers of the company reported that the managers openly discuss regarding different ways which can be used by them to bypass or overlook the policies implemented by ASIC for which civil penalty was imposed (ASIC, 2018). They were also aware regarding the facts that the company is charging high-interest rates from its customers; however, they did not take any action to stop the same.
The organisation culture is hostile as well in which if an employee raises his/her voice against these unfair practices, then he/she is dismissed without any reasonable ground. The managers act like a dictatorship under which they force other workers to act unethically in the organisation while doing their job. In internal audit and monitoring system is not effective due to which the company was not able to identify that it is charging life insurance from deceased customers (Duran, 2018). There is no ethics committee in the corporation which oversees all these operations to ensure that the company is not acting in an ethical manner. Due to all these circumstances and hostile organisational culture, AMP Limited was invested under the Banking Royal Commission, and the unfair practices of the corporation were found.
Whistle blower policies and whether they are sufficient to protect stakeholders
As discussed above, AMP Limited has adopted a whistle blower policy which is focused on ensuring that the identity of the whistle blower is protected to ensure that they did not get harm or get unfair dismissal. The whistle blowers can call on a hotline provided by the company on which they can report regarding the unethical practices of the management while keeping their identity hidden (AMP Capital, 2018). Due to these policies, the corporation aims to encourage its employees to report any unfair or unethical operations which they face in the organisation. The whistle blowers are protected as well, and they have the option to report the unethical practices to their senior management. However, these policies are not sufficient for ensuring that the interest of all stakeholders is protected in the company. The primary issue with these policies is that the senior managers are not liable to take any action if an unethical practice is reported by the whistle blowers.
Generally, they avoid taking any actions since the senior executives did not encourage them to do so. Many times, the employees are dismissed unfairly if the report the unethical behaviour of the company. For instance, a whistle blower reported that she provided information regarding the workplace harassment and unethical behaviour of the company in which the senior managers were openly discussing ways to avoid the laws implemented by the ASIC. A report was sent by the whistle blower to the CEO of the company, however, the CEO rejected to accept the report or take any actions regarding these issues (Financial Review, 2018). Since no action was taken, the customers were continued to charge higher administration costs. It shows that the whistle blower policies implement by AMP are not sufficient enough to ensure that the interest of stakeholders of the corporation. These policies did not enforce the management to take any action when an unethical practice is reported to protect the interest of stakeholders (Aggarwal, 2013).
Recommended Strategies
The following mentioned strategies should have been implemented by the top level management of AMP to avoid the scandal by ensuring that they act in an ethical manner.
Ethics training program
AMP Limited has not implemented an ethics training program which provides training to both the management and employees to ensure that they act ethically. The main ethical issue faced by the company is caused because the senior executives were acting in an unethical manner themselves. These executives were encouraging employees to act unethically while doing their job to increase the profits of the company. They were opening disclosing methods which can be used by them to avoid the laws implemented by ASIC to ensure that the corporations act in an ethical manner. Therefore, a training program would assist the managers in ensuring that they did not act ethically while operating their business. The employees would also be able to effectively handle the situation in case they face any unethical or unfair practice. Based on the training, the managers would take ethical actions to ensure that they are not indulging in unethical practices such as charging life insurance premium from deceased customers or harassing the employees (Beeri, Dayan, Vigoda-Gadot & Werner, 2013). The employees would also be able to report the practices to the top level management to put a stop to them. Thus, a training program would have avoided the scandal faced by AMP in the investigation of the Banking Royal Commission.
Monitoring of action
Another key issue with the corporate governance and ethical framework of AMP is that the company did not implement a monitoring structure to oversee the operations and decisions taken by its top level management. For instance, the whistle blowers policies were not monitored by an ethics committee to ensure that after reporting of an incident, appropriate action is taken to avoid the issue. The managers were openly discussing ways with employees in order to bypass the laws implemented by ASIC which shows that a monitoring process would have avoided the scandal. If a proper structure were followed by the company in which the decisions and policies of the top level management were being monitored by an ethical committee, then it would have avoided the ethical issues faced by the organisation. The whistle blowers would not have to report regarding the operations of the company to outside authority if the managers were thoroughly monitored by an ethics committee. Therefore, due to the lack of effective monitoring practices in the corporation, the managers were able to act unethically and violate the law (Filatotchev & Nakajima, 2014). This issue could have been avoided by monitoring the operations of the enterprise.
Corporate Social Responsibility Framework
AMP Limited has not implemented an effective corporate social responsibility or CSR framework which is focused on timely disclosure in the company. Under this structure, the company would have to make a statement regarding its ethical and unethical practices. Although a similar statement is sent by the enterprise, however, this statement did not include complete information regarding its operations. Moreover, no action is taken by the enterprise based on this statement to avoid the ethical dilemmas faced by the enterprise. Thus, a CSR framework would have ensured that the company would have acted ethically while conducting its operations.
Conclusion
AMP Limited has failed to take appropriate and ethical decisions to protect the interest of its stakeholders. The investigation conducted by the Banking Royal Commission showed that the corporation engages in many immoral and unethical practices under which it charges high and unfair fees from its customers. These issues are faced by the enterprise since there are many shortcomings in its corporate governance policies due to which it becomes easier for the manager s to act unethically in the organisation. The policies implemented by the corporation to protect its whistle blowers are not sufficient to ensure that the interest of stakeholders is protected. Various strategies are recommended which should have been implemented by AMP in order to avoid the unethical practices. Firstly, training should be given to the management in order to ensure that they are unable to differentiate between ethical and unethical behaviour in the workplace. Secondly, a monitoring system should have been implemented to ensure that the actions of the managers and employees are being monitored to ensure that they did not act unethically and take actions when an immoral practice is reported by an employee. Lastly, the company should have adopted a CSR framework under which it should have made continuous disclosures to ensure these issues are being addressed appropriately to end the unethical behaviour at the workplace. The lesson learned from this case is that effective implementation and compliance with these policies would have avoided AMP from engaging in unethical practices. The lesson is that companies should not just implement corporate governance policies; they should also ensure that these policies are followed by the management and employees while doing their job to act ethically
References
Aggarwal, P. (2013). Impact of corporate governance on corporate financial performance. IOSR Journal Of Business And Management (IOSR-JBM), 13(3), 01-05.
AMP Capital. (2018). Whistleblowing Policy. Retrieved from https://www.ampcapital.com/asia/en/about/legal/whistleblowing-policy
AMP. (2018a). Who we are and what we do. Retrieved from https://corporate.amp.com.au/about-amp/what-we-do/what-we-do-key-facts-our-history
AMP. (2018b). Corporate governance. Retrieved from https://corporate.amp.com.au/about-amp/corporate-governance
ASIC. (2018). ASIC takes civil penalty action against AMP Financial Planning for alleged failures relating to insurance advices. Retrieved from https://asic.gov.au/about-asic/news-centre/find-a-media-release/2018-releases/18-188mr-asic-takes-civil-penalty-action-against-amp-financial-planning-for-alleged-failures-relating-to-insurance-advices/
Beeri, I., Dayan, R., Vigoda-Gadot, E., & Werner, S. B. (2013). Advancing ethics in public organizations: The impact of an ethics program on employees’ perceptions and behaviors in a regional council. Journal of Business Ethics, 112(1), 59-78.
Duran, P. (2018). Australia's AMP charged life insurance premiums to dead clients – inquiry. Retrieved from https://www.cnbc.com/2018/09/17/reuters-america-australias-amp-charged-life-insurance-premiums-to-dead-clients--inquiry.html
Filatotchev, I., & Nakajima, C. (2014). Corporate governance, responsible managerial behavior, and corporate social responsibility: Organizational efficiency versus organizational legitimacy?. Academy of Management Perspectives, 28(3), 289-306.
Financial Review. (2018). Whistleblower reveals more unethical behaviour inside AMP. Retrieved from https://www.afr.com/brand/chanticleer/whistleblower-reveals-more-unethical-behaviour-inside-amp-20180510-h0zx4g
Hutchens, G. (2018). AMP to compensate super investors after fresh humiliation at royal commission. Retrieved from https://www.theguardian.com/australia-news/2018/aug/16/amp-admits-fees-were-so-high-100000-super-investment-made-a-loss
Lannin, S. (2018). Banking royal commission: AMP to refund super customers who lost money to fees and charges. Retrieved from https://www.abc.net.au/news/2018-08-16/amp-to-pay-back-customers27-fees/10129660
Mason, C., & Simmons, J. (2014). Embedding corporate social responsibility in corporate governance: A stakeholder systems approach. Journal of Business Ethics, 119(1), 77-86.
Neil, M. (2018). AMP charged dead people for life insurance. Retrieved from https://www.thecourier.com.au/story/5648709/amp-charged-dead-people-for-life-insurance/?cs=
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