The Fallout from Poor Corporate Governance
A company with effective corporate governance is one that is directed with accountability, fairness, and transparency.
It involves balancing the interests of a company’s many stakeholders – including shareholders, management, customers, suppliers, financiers, government and the community - and promotes trust, compliance, and sustainable organisational growth. But what if your organisation is lacking in this area?
The good news is, poor corporate governance can be improved with the right training and strategies.
What Poor Corporate Governance looks like
Poor corporate governance can manifest in a number of ways, such as:
Lack of transparency: Failure to provide accurate and timely information to stakeholders.
Inadequate board oversight: A board that does not effectively oversee company management, possibly due to a lack of training, independence, or expertise.
Conflict of interest: Board or management decisions that are influenced by personal gain rather than the interests of the company and its stakeholders.
Poor risk management: Inadequate processes to identify, manage, and mitigate risks.
Causes of Poor Corporate Governance
It’s important to understand the root cause of poor corporate governance within an organisation, in order to resolve it. Underlying causes may include:
Ineffective board: Lack of skills, independence, or due diligence among board members.
Negative company culture: A culture that prioritises short-term gains over sustainable growth and ethical considerations.
Regulatory environment: Insufficient regulatory oversight or enforcement can lead to lax governance practices.
Market pressure: Intense competition and profit pressures can lead companies to engage in risky or unethical practices.
High-Profile Examples to Learn From
Several high profile cases in Australia highlight the consequences of poor corporate governance:
HIH Insurance: The collapse of HIH in 2001 is one of Australia’s most famous corporate failures, leading to the formation of a Royal Commission. Investigations resulted in the imprisonment of several of the management team in relation to fraud, mismanagement, and poor risk control. Total losses of the collapse were estimated to be $5.3 billion.
Commonwealth Bank of Australia (CBA): In 2018, CBA faced numerous allegations of breaching anti-money laundering laws and counter-terrorism financing laws, largely due to inadequate oversight and risk management systems. The bank admitted to failing to monitor and report millions of dollars of suspected money laundering linked to criminal drug syndicates – resulting in a whopping $700 million fine plus legal costs.
AMP Ltd: The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in 2018 revealed that AMP had charged its clients millions of dollars in fees without providing a service in return, and repeatedly misled the regulator, ASIC. AMP was fined $14.6 million and forced to pay back $627 million to affected customers.
The Impact of Poor Corporate Governance
As the above examples show, the repercussions of poor governance can be severe, affecting all aspects of a company and its stakeholders and may include:
Financial losses: Significant financial losses for shareholders, employees, and creditors.
Reputational damage: Long-lasting damage to a company’s reputation, affecting its future business prospects and ability to attract investment.
Legal consequences: Fines, legal fees, and other costs associated with litigation and regulatory scrutiny.
Operational disruptions: Loss of key personnel, reduced employee morale, and operational inefficiencies.
Good Governance Solutions
Understanding the foundations of good governance - and acting accordingly - is crucial for any company looking to excel (and which company isn’t?).
At MJSP Management Consulting we understand the broader impact of board training as a vehicle for improving corporate governance. Our highly experienced workplace specialists can tailor training designed to sharpen your leadership skills, keep you informed on current regulations and compliance issues, and future-proof your organisation through strategic planning, oversight, and direction.
We work with organisations looking to establish and maintain effective Boards and Corporate Governance processes, with services including:
Governance workshops
Board training
Support with developing Constitutions and Rules
Performance monitoring and reviews
Immediate advisory on governance related issues, and more.
If you’re eager to see your company shine through ethical leadership, strong oversight, and effective risk management – contact us today.