Limitations in Corporate Governance Framework of AMP
Multinational corporations have to comply with various business ethics principles to ensure that they ethically perform their operations. The importance of effective compliance with corporate governance policies has increased significantly between corporations. While complying with these policies, the companies focus on evaluating the impact of their operations on different stakeholders to determine whether their actions are ethical or not (Khan, Muttakin and Siddiqui, 2013). This report will select the case of AMP Limited which is an Australia-based banking organisation to determine the importance of corporate governance and ethics policies. The case of AMP will be taken in which many whistle blowers of the company have reported that it involved in unethical practices and unfairly treating its employees. The corporate governance system adopted by AMP will be analysed in this report to determine the deficiencies to evaluate the circumstances which led the whistle blowers to report the actions of the enterprise. The policies implemented by AMP for protection of whistle blowers will be analysed in the report to determine whether these policies are enough to ensure the interest of stakeholders of the corporation. Strategies will be given in the report which should have been implemented by AMP to avoid the scandal.
AMP Limited is a major banking corporation in Australia, and it has implemented corporate governance and ethical framework which is focused on ensuring that the operations of the company are conducted ethically. The corporate governance structure of the enterprise is targeted towards fulfilling the interest of its stakeholders. The key stakeholders of the enterprise include customers, employees, the government, local communities, creditors, shareholders, and the environment. The senior level executives of the corporation focus on ensuring that the business strategies implemented by them are targeted towards fulfilling the interest of its stakeholders. The objective of the corporation is to enrich the lives of its customers and provide effective benefits for its employees to provide them development opportunities (AMP, 2018). However, there are various deficiencies or limitations in the corporate governance and ethical framework of AMP.
One of its key limitations is that it did not strictly follow by the management in the organisation. One whistle blower of the company reported that the working environment in the organisation is hostile and the management acts like dictators (Ward, 2018). They pushed their decisions on employees and did not care whether these policies are adversely affecting them or not. Moreover, it is reported by whistle blower that both mid and top level management acts unethically and unfairly while operating the business. They did not adhere to the guidelines and policies implemented by the Australian Securities and Investments Commission (ASIC). The corporate governance framework is not competent enough to stop these serious executives from acting unethically in the organisation. For example, the company charged the premium for life insurance policies from its customers who were dead. This mistake was highlighted in the investigation of the Banking Royal Commission after which it was investigated whether the corporation is charging any other fees from its customers. This was also not a small mistake because more than 4,600 deceased people were charged for their life insurance policy (Chalmers, 2018).
Culture/Circumstances which led to failure of corporate governance
Another example is the unethical behaviour of the CEO of the company with the compliance officer. The compliance officer noticed that the managers were openly discussing various ways and telling them to employees which they can use to bypass the laws enacted by ASIC. These rules violated the policies implemented by ASIC under the Future of Financial Advice (FoFA) under which employees were giving wrong financial advice to their clients (Vickovich, 2014). Under the investigation, it is reported that the CEO of the company and other executive officers were involved in interfering with the “independence” of the audit completed by PwC. The CEO, chairman, and other executives made a false claim regarding the independence of the audit to the ASIC due to which they might have to face jail time (Hilzenrath, 2018). These incidents are reported by the whistle blowers of the corporation to external authorities because no actions were taken by the management when these incidents were reported internally. These instances show that the corporate governance framework of AMP has failed substantially due to which the management and employees have acted unethically.
The investigation of the Banking Royal Commission showed that the corporation was involved in many unfair and unethical practices such as charging premium for life insurance policies from customers who are deceased and interfering with the independence of an audit. These incidents are reflection of the organisational culture which is adopted by AMP. The culture of the company did not prohibit or restrict employees or managers from acting unethically. The culture is implemented and supported by the senior level management and their actions, and in this case, they have themselves interfered with the independence of the audit. The whistle blower of the company provided that the CEO of the corporation did not take any actions to avoid the harassment at the workplace (Ferguson, 2018).
It is common in the culture of the corporation that the senior managers discuss different ways which are used by the employees to bypass the policies of FoFA while giving advice to customers. Due to these circumstances, the whistle blowers have to report these actions to outside authorities rather than reporting them to the internal management of the organisation. The failure of the corporate governance framework enables the senior and middle level management of the company to take decisions which are unethical and adversely affected the interest of stakeholders including customers, government, and employees (Berger, Imbierowicz & Rauch, 2016). Thus, the culture and these unethical circumstances contributed to the failure of the corporate governance framework of AMP Limited.
Mechanisms to Protect Whistle blowers
In the corporate governance structure of AMP, a whistleblowing policy is adopted by the management. This policy is implemented so that anyone who wanted to report the immoral or unethical operations of the corporation can safely report it to the internal management of the enterprise. The policy is also targeted to protect the whistle blowers of the company from unfair dismissal or discriminatory behaviour at the workplace (Loyens, 2013). As per this policy, integrity, professionalism, and honesty are the core elements of the culture of AMP based on which the rights of whistle blowers are protected. Anyone including current or former employee, contractor or supplier who is aware regarding wrongdoing in the company is allowed to report regarding the same to its management. In case the person did not feel comfortable to disclose his/her identity while reporting the wrongdoing, then to resolve this issue the company has provided the People & Culture Advice Line which is open for AMP employees (AMP, 2018). The employees can use this line to report the wrongdoing while ensuring that their identity is anonymous.
The whistleblowing policy of AMP is not sufficient to protect the interest of various stakeholders. Firstly, the policy did not provide the procedure which is mandatory to be taken by the management after a report is made for wrongdoing in the company. The person to whom the report is made did not have to send an application to senior management or take any actions regarding the same. Since no action is taken against the wrongdoing, the rights of various stakeholders are not protected through this mechanism (Sharma & Khanna, 2014). For instance, when a whistle blower wanted to submit a report to the CEO regarding workplace harassment and illegal activities of the managers, the CEO rejected to accept the report or take any action regarding the same. Most employees who report wrongdoing are more likely to be dismissed by the management without a proper reason. The corporation also failed to ensure that its operations are working effectively because it charged a premium from deceased customers which show the failure of its operations. The senior management has also interfered with the independence of the audit conducted by PwC. All these incidences show that the mechanism adopted by AMP is not sufficient to ensure that the interest of stakeholders is protected.
- Strict implementation of the corporate governance framework
The main reason due to which AMP has been involved in these unethical practices is because its corporate governance framework is weak which is not followed by its management and employees. Although the policies implemented by the company are targeted towards right direction, however, they are ineffective due to lack of strict implementations (Ntim, 2013). No strict action is taken against employees or managers who caught violating the corporate governance and ethical policies in the corporation. Therefore, the corporation would have avoided these allegations, if it would have strictly implemented the corporate governance framework.
- Awareness regarding ethical practices and policies
Protection to Stakeholders
Most of the members of AMP are unaware regarding ethical policies and practices of the company. They openly violate the corporate governance provisions because they are not aware regarding their negative implications. The employees also work in a negative and unethical environment since they are not aware of their rights. Thus, awareness regarding the ethical practices and policies would have avoided AMP from violating its corporate governance framework since employees and managers would not have engaged in unethical practices. The awareness can be increased by conducting sessions with employees and managers in which they learn about ethical practices in the company and how to avoid acting unethically. Training sessions can also be conducted by the corporation to taught employees and managers regarding effective compliance with corporate governance policies.
- Proper monitoring and reporting procedure
One of the key missing parts in the corporate governance framework of AMP is a proper monitoring and reporting procedure. Although the corporation made a statement regarding its corporate governance policies, however, it is not effective because of a lack of monitoring system. The actions of managers and employees are not monitored which makes it easier for them to violate the policies of corporate governance (Amran, Lee & Devi, 2014). If a monitoring and reporting procedure would have been adopted by AMP, then the actions of the CEO and other managers would have caught the attention of other parties who would have stopped their unethical practices.
Conclusion
To conclude, AMP and its management have been involved in various unethical practices due to the ineffectiveness of its corporate governance framework. The investigation of the Banking Royal Commission and reports of whistle blowers have shown that the senior management of the company acts unethically. They charged a premium for life insurance from deceased customers, harassed their employees and interfere with the audit report which is some of their unethical practices. The corporate governance framework of the company has many deficiencies which enable its management to indulge in unethical practices. The culture of the company also failed to address these issues which allowed the management to badly treat its employees and harass them at the workplace. Although the company has adopted a mechanism for protection of its whistle blowers and to encourage employees to report the wrongdoing of the company, however, this policy is not enough. No action is taken against the reports made by the whistle blowers, and they are also wrongfully dismissed from the company.
The key lesson learned from this case is that even after implementation of corporate governance policies, it is difficult for companies to act ethically while taking business decisions. It is learned that without an effective organisational culture which fosters strong relationship between employees and management, it is not possible for companies to act ethically. Continuous monitoring of the corporate governance framework is necessary to ensure that the management acts in an ethical manner. Various strategies could have been implemented by AMP in order to address these unethical issues. Strict implementation and compliance with corporate governance structure would have avoided the unethical behaviour of the management at the workplace and prohibited them from acting unethically. The awareness regarding the corporate governance policies should have been increased between the management and employees, and a proper monitoring and reporting procedure should have been adopted by the company to ensure that it acts ethically.
References
AMP. (2018). Corporate governance. Retrieved from https://corporate.amp.com.au/about-amp/corporate-governance
Amran, A., Lee, S. P., & Devi, S. S. (2014). The influence of governance structure and strategic corporate social responsibility toward sustainability reporting quality. Business Strategy and the Environment, 23(4), 217-235.
Berger, A. N., Imbierowicz, B., & Rauch, C. (2016). The roles of corporate governance in bank failures during the recent financial crisis. Journal of Money, Credit and Banking, 48(4), 729-770.
Chalmers, S. (2018). Banking royal commission: AMP continues to charge dead customers life insurance premiums. Retrieved from https://www.abc.net.au/news/2018-09-17/amp-charges-dead-customers-for-life-insurance/10255978
Ferguson, A. (2018). Stinking AMP reveals our soft line on corporate dishonesty. Retrieved from https://www.smh.com.au/business/banking-and-finance/stinking-amp-reveals-our-soft-line-on-corporate-dishonesty-20180417-p4za66.html
Hilzenrath, D. (2018). PwC Whistleblower Alleges Fraud in Audits of Silicon Valley Companies. Retrieved from https://www.pogo.org/investigation/2018/05/pwc-whistleblower-alleges-fraud-in-audits-of-silicon-valley-companies/
Khan, A., Muttakin, M. B., & Siddiqui, J. (2013). Corporate governance and corporate social responsibility disclosures: Evidence from an emerging economy. Journal of business ethics, 114(2), 207-223.
Loyens, K. (2013). Towards a custom-made whistleblowing policy. Using grid-group cultural theory to match policy measures to different styles of peer reporting. Journal of business ethics, 114(2), 239-249.
Ntim, C. G. (2013). An Integrated Corporate Governance Framework and Financial Performance in South African?Listed Corporations. South African Journal of Economics, 81(3), 373-392.
Sharma, J. P., & Khanna, S. (2014). Corporate social responsibility, corporate governance and sustainability: Synergies and inter-relationships. Indian Journal of Corporate Governance, 7(1), 14-38.
Vickovich, A. (2014). CBA whistleblower: bonuses to blame. Retrieved from https://www.ifa.com.au/news/13113-cba-whistleblower-fofa-won-t-fix-broken-system
Ward, J. (2018). AMP was a ‘dictatorship’, declares whistleblower. Retrieved from https://www.yourlifechoices.com.au/finance/banking-and-investment/amp-a-dictatorship-whistleblower
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