Westpac Banking Corporation
Westpac bank is one of the largest banks in Australia. Apart from Australia, the bank operates in other countries such as New Zealand and the United States. By 2011, the bank had a customer base of 12.2 million. In Australia, Westpac is the second largest bank in terms of home lending provision. In terms of business lending, Westpac is the largest provider in the entire Australian banking system. To manage its core business activities and create value for all its stakeholders, the bank has an elaborate corporate governance structure. The governance structure helps the bank to identify prospective challenges and issues of concern to the stakeholders (Sinkkovics and Ghauri, 2009). The various issues of concern to the stakeholders and the features of Westpac’s corporate governance will be explored in this paper. Moreover, the paper will explore the challenges facing the bank and whether the current corporate governance structure can to address all the stakeholders’ issues.
To understand the issues affecting stakeholders, it is important to identify the various stakeholders, since each group has varied needs and interests with regard to Westpac bank. Westpac’s stakeholders include shareholders, customers, communities and employees.
Shareholders are paid at the end of every financial year in terms of dividends or earnings per share. Therefore, they are concerned with all the aspects of the bank that may affect the amount of earning per share. They are concerned with is the way the bank is managed. Having good policies to guide the management of the bank can increase its profits. The level of profitability attained by the bank determines the value of each share held by shareholders. When profits are high, the earnings per share increase while low profitability leads to low earnings per share (Clarke, 2007). The management of any organization may have personal interests within the organization they manage. For instance, managers are interested in the amount of revenues generated by their companies because they determine the amount of money available for their expenses. Since they are entitled to several benefits such as free holidays and private jets, they may limit the amount of money allocated to shareholders because it will reduce the amount available for the company to spend on them. These personal interests by the management, therefore, affect shareholders who expect to earn from their investment. Shareholders are, therefore, concerned with such an issue because it affects their interest in the bank. Another issue that concerns the shareholders is the manner in which financial reporting is done (Phillips, 2011). If proper mechanisms are not put in place, financial reporting can be misrepresented so that it fails to reflect shareholders’ interests (Mortensen and Fisher, 2011). Shareholders are aware of such possibilities and are concerned because poor financial reporting may hinder the bank from achieving its intended performance, leading to loss of their investment.
Westpac customers have genuine concerns relating to their savings because banking involves certain risks such as uncertain economic conditions. Since most of Westpac’s customers save and borrow money, any occurrence that may lead to the downfall of the bank has a negative impact on them. Those customers who save their earnings in the bank with the hope of getting a mortgage may lose it in case a risky venture by the bank leads to its bankruptcy. Those who get financial support from the bank to invest in businesses are likely to lose their businesses if the bank collapses. Another issue the customers are concerned with is the contribution of the bank towards the welfare of the communities within their operational boundaries. For instance, the customers are concerned with the contribution of the bank towards helping the needy and the less fortunate in the society (Young, 2011). Communities that live within the regions where Westpac operates have issues that relate to the bank. Like other corporate citizens, the bank should show its corporate social responsibility by contributing to the development of these communities (Elsdon, 2013). The Bank’s contributions can include sponsoring development projects or responding to their call in times of catastrophes or special events that may need financial support (Leszczynska, 2012). Moreover, the communities have issues with the impact of the bank on their immediate environment. Apart from the bank’s impact, the communities have certain expectations about the bank’s contribution towards environmental conservation.
Westpac’s employees are internal stakeholders who have their expectations towards the bank. One issue of concern by the employees could be equal chances of advancing their careers. Employees from various organizations are motivated by different aspects of their work. Some are motivated by financial incentives while others are motivated by developmental incentives such as career development. Employees expect equal treatment when chances of career development become available. Moreover, this expectation of equal treatment extends to employees of diverse cultural backgrounds. Westpac bank is an international corporation that has employees from many cultural backgrounds. These employees expect equal treatment, despite their diverse cultures. Moreover, the employees expect fair remuneration that reflects the level of commitment to their work (Simpson, 2006).
Westpac’s Corporate Governance
Westpac bank has an elaborate framework detailing how the bank relates with its stakeholders. Corporate governance defines all the mechanisms and polices enable the organization to relate effectively with its internal and external stakeholders (Westpac Official Website, 2012). One feature that is at the top of Westpac’s corporate governance is the board of directors. The bank has nine directors who constitute the board of directors. Out of the nine board of directors, only one is executive while the rest are non-executive. The presence of the non-executive board members gives the board credibility in the eyes of the shareholders because they can exercise objectivity and independence in their duties (Post, Lawrence and Weber, 2002). The board of directors has been mandated by the bank to bear several responsibilities, which will improve the relationship between the bank and its stakeholders. One main responsibility of the board is appointing the CEO and the Chief Financial Officer. Moreover, the board determines the levels of remuneration the two officers should get. The mandate of the board does not end there. The board supervises and monitors the performance of the CEO and other executive officers (Trönnberg and Hemlin, 2012). To remain effective, the board delegates its duty to its Audit Committee, which ensures the integrity of financial statements as well as conducting internal audits. These functions of the board position the bank strategically to address many issues of concern from its stakeholders. The fact that majority of the board members are independent non-executive director ensures that they are non-partisan in the management of the bank. Therefore, they are able to conduct a credible evaluation and supervision on the performance of the management without bias or favor. The separation of board members from the management creates faith in shareholders that the board represents their interests. When the board is independent from the management, it is able to put to check any personal interests that may negatively affect the interests of the shareholders. Moreover, the professional evaluation and monitoring conducted by the board ensures that financial reporting follows the right procedures and is free from fraud and unethical behaviors (Sheikh and Beise-Zee, 2011). This aspect of the corporate governance positions the bank to promote transparency at the international level. In 2006, The New Zealand branch was fined by New Zealand Commerce Commission because of having hidden foreign transactions. Such transactions can make the bank lose trust from its international shareholders. The presence of this board of directors ensures that policies regarding transparency and financial reporting are implemented locally and internationally. Consequently, the bank’s engagement with its international stakeholders is improved due to the transparent policies. Customers and foreign governments gain confidence with the bank and are more willing to cooperate with it.
The board of directors has the ability to delegate responsibilities and duties to different committees that carry out various tasks. The board has, therefore, mandated the Risk Management Committee to deal with all aspects of risk. This committee has the responsibility of recommending risk-reward strategy to the board, approving frameworks, processes for managing risks, setting risks appetite and deciding on whether to accept risks that are beyond management’s discretion of approval (Polonsky and Jevons, 2009). This committee is replicated in all the branches of the bank, both locally and internationally. The presence of this committee in every branch of the bank shows that the culture of the bank is applied to all its branches around the world. The committee monitors the bank’s risk appetite and aligns it with the risk profile of the bank. The bank’s CEO and the whole management implements the Bank’s risk management strategy and develops policies and control processes. The Bank is very concerned with risk because it understands that its customers have great risk concerns (McCallig, 2012). Westpac’s risk policies stipulate that risk is the responsibility of all the internal stakeholders. Therefore, every employee should work towards minimizing the negative effects of risks. This feature of the bank’s corporate strategy addresses the concerns of its customers. The delegation aspect of the bank positions it to deal with risks at the international level the same way it does with the local branches. Therefore, the bank is able to assure its international customers of good risk management strategies to avoid loss of their investment.
Westpac bank has corporate social responsibility policies. The policies outline that the bank accepts responsibility for its activities’ impact on society and is willing to conduct its businesses sincerely and ethically. The bank has taken part in many disasters’ aftermaths to give relief to those affected through donations. Moreover, the bank has undertaken a project to reduce the number of homeless people in Australia. This demonstrates how the bank’s policies address the issues of communities within its operational boundaries (Scherer and Palazzo, 2010).
The board of directors has also constituted a Board’s Remuneration Committee that ensures that employees are fairly rewarded depending on their responsibility and performance. The work of the committee is to review the bank’s remuneration policies and recommend to the board appropriately. The review is based on both the industry trends and internal dynamics such as the level of performance. This policy positions the bank to deal with the concerns of its employees (Sengupta, 2003). In addition, the board of directors has made policies that allow inclusiveness at the bank. The inclusiveness applies to both international and local branches since the bank aims at having one uniform culture worldwide. These diversity policies allow equal treatment of employees irrespective of their cultural backgrounds. Therefore, employees at the international level are likely to yearn to work for the bank due to its attractive remuneration policies.
One ethical challenge the bank may face on the global scene is lack of disclosure of information from its employees regarding their personal interest with the bank (Unerman, Bebbington and O’Dwyer, 2010). The policies of the bank require employees to disclose any personal interest that may interfere with their performance. Although the bank has several regulations directing employees on its expectations, this reporting depends on the willingness and the integrity of the employees. If employees fail to report such interests, the bank can only hope that it will catch them with time. Meanwhile, the bank may continue suffering due to these personal interests. Therefore, the current governance structure may not address this issue effectively.
Another ethical challenge the bank may face is the excessive expectation from communities in various locations (Little, 2012). The bank may be willing to contribute to its corporate social responsibility. However, participation in such ventures is limited by finances. When its participation is constrained by finances, the communities may not understand this challenge and may perceive the bank as unethical. However, the corporate governance can address these expectations by ensuring enough finances for corporate social responsibility.
Although there are policies that prohibit insider trading, there is chance that it may occur. Such behavior can taint the reputation of the bank and cause losses. The only effective way of preventing this unethical behavior is by scrutinizing employees before their employment (Reis, 2010). Such a measure, combined with the policies prohibiting insider trading can limit chances of its occurrence (Rossi, 2010). However, individual employee’s integrity is the only sure way of averting such unethical behavior. Discrimination against minority employees working for the bank is another ethical challenge. Although there are rules, all employees must understand the value of diversity and the need for inclusiveness. Since the corporate governance has diversity policies, it has can address this issue amicably.
Westpac’s corporate governance is well detailed and can address the various issues the stakeholders may have had. The presence of an independent board of directors has assured shareholders that their concerns are taken care of. The Risk Management Committee takes care of customers’ concerns while Corporate Social Responsibility policies have taken care of communities’ concerns. The Board Remuneration Committee has ensured that employees’ reward is fair. Ethical issues that the bank may face include insider trading, discrimination of minority employees and failure to meet communities’ expectations in terms of Corporate Social Responsibility.
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