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Corporate Governance And Risk Reporting

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Corporate Governance And Risk Reporting

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1.Describe the actions taken and behaviour displayed by Senior Management throughout this saga in terms of Enterprise Risk Management.
2.”Show me a company’s various compensation plans, and I’ll show you how its employees behave” – Jack Welch, Former CEO of General Electric Examine the key areas of concern in TAB’s remuneration plan.
3.Critically evaluate the actions taken by ASIC throughout the course of the financial planning scandal, while highlighting difficulties ASIC might have faced during its investigations. 4.The media played an important role in exposing the fraud in TAFP. Discuss the role of the media in promoting good governance. Are there factors which limit its effectiveness? 
5.Briefly discuss the importance of a good whistleblower protection policy. Do you think the policy Sufficiently protected Bloe and his fellow whistle blowers? 6.TAB had an Excellent reputation amongst its Customers but TAFP severely damaged it.

Corporate governance is a set of mechanisms, processes and practices by which a company is directed and controlled. It involves taking into consideration the interests of all the stakeholders of the company such as shareholders, managers, employees, clients and directors, thus it is faced with the challenge of having to align these interests (Acharya et al, 2013). Corporate governance lays out the duties and responsibilities of all participants in a corporation and monitors their actions in compliance to its principles. Governance structure includes a set of rules, regulations and procedures regarding all the affairs of the company.
1.Enterprise risk management is the manner in which an organization’s activities are planned, organized and controlled in an attempt to minimize potential loss in its capital investments and earnings (Brustbauer, 2017).
The senior management of Terra Australis Bank (TAB) is fraudulent and unprincipled as it has provided management protection to some of the employees who are dishonest in their actions, for example Don. It also does not take into account complaints brought to it by the other employees of the bank who do not hold a high title. Some of the top leaders for example the bank’s Chief Executive Officer Sam Venus have remained inconspicuous meaning that they do not want to directly get involved in the operations of the bank. This has led the bank into a very risky position, reducing its earnings and almost losing its customers.
The risks involved include:
Financial Risk
This is a possibility of loss of monetary resources and uncertainty about their extent. TAB’s clients experience a loss in their finances which are subjected to high risk investments, even during the apparent state of financial meltdown.
The management of the bank could have avoided this type of risk by formulating better remuneration strategies for example basing amounts of bonuses and commissions received to the number of clients served (Berger et al, 2016) There should also be monitoring of employees’ actions and behavior as an internal control system and reviewing all analytical reports.
Operational Risk
There is clearly a failed system of operation in TAB which has and will continue to bring losses if not rectified. To mitigate this risk, the bank’s management should have clear set of principles and standards of operation and encourage their employees to follow them to the latter, failure to which there should be some kind of punishment
Sam Venus
Being in the position of Sam Venus, the CEO of TAB, I would have taken the first step of correcting the banks mistakes by issuing a public apology as well. I would not have stopped there, however due to the damaged reputation of the bank and lack of customer satisfaction. In addition to the compensation plan, I would set up a bank mission statement in an attempt to restore the damaged employee-customer relationship. In this exercise however, I would involve all the employees and value their opinion so that each one of them would be more willing to follow them and do their best in their work for their good and the good of the bank. The results of employee involvement would be to ensure that they will do the right thing even when no one is watching.
I would set up a well-developed compliance culture to encourage the employees to comply with the rules and regulations of the law as well as those of the respective department and the bank as a whole. Clients concerns would be the central focus of the bank as a service providing entity. The relationship between the employees and the clients would be based on trust and understanding.
Lastly, I would set up a risk response strategy to ensure that the clients’ money would no longer be invested in high risk projects which may not have high returns. In other words, I would devise strategies that focus on returns rather than risk. I would ensure there are regular committee meetings involving an expert who would help us understand how the risk response strategy is working and whether we are making efforts towards achieving our goals in responding to risk appropriately. There would be continued inspection and monitoring of the risk environment and performance of the risk mitigation strategy (McShane et al, 2011).
2.TAB’s remuneration plan has focused too much on risk instead of the returns received from the client’s investments. The amount of commission and bonus payable is directly proportional to the risk involved. This means that the higher the risk, the more the bonus payed to the employees who then respond by advising their clients to invest in highly risky projects whether or not they have high returns. This compensation strategy is not effective in the least bit because the employees do not thoroughly assess the risk levels of an investment asset before investing in it. This has severely damaged the relationship between the employees and clients developing mistrust thus ineffectiveness in the bank’s overall operation. Being in the management position of the bank, I would focus more of the employees’ attention on returns on investment and number of clients well served.
TAB has instilled in its employees an ambitious sales-driven culture which is quite aggressive and builds competition instead of cooperation among the employees. Each employee is individually focused on being the best and meeting his or her sales target without any care about who gets negatively affected in the process. The bank is encouraging on win-lose culture thus there is no cooperation among the employees of between the employees and the clients. This basically means that the bank cannot grow as a whole. I would insist more on cooperation and relationship building if I was in a leadership position in the bank.
3.Australian Securities and Investments Commission (ASIC) clearly does not carry out its activities until complaints are extended to them. Even then, the commission is very slow in its response and when it does respond, it is only to a small fraction of the complaints it has received. When Joe Bloe and Mary Jones took their concerns to ASIC, for example, they were brushed aside. ASIC’s first response to the scandal was in 2010 after several clients had suffered loss of their finances. The commission asked for the clients’ files to be handed over by the wealth management division of TAB, TAFP. It pressured the bank to devise a compensation scheme for payment to the affected clients but did not follow up on that in that the clients received minimal amounts. It also carried out an assessment of the risk management systems of the bank. Other than the above actions, ASIC did not do anything further to respond to complaints.
its investigation of the scandal which include.
Lack Of Good Financial Records
Some of the files were missing while others had been sanitized meaning that there was not a well laid-out financial recording system. Therefore, there would not be physical evidence of the misconducts of the management.
Uncompliance By The Management
TAFP’s management would be unwilling to cooperate with ASIC during the investigation because they are well aware that they are fraudulent and dishonest.
4.The media acts as a watchdog:
It publicizes all information acquired by the personnel, creating public awareness and therefore protecting the interests of the latter from malpractice. It exposes any dubious actions by an organization which changes people’s perspective. This ensures that services are provided in the correct manner. Media has played an important role in reducing the communication gap thus every person is able to acquire the latest available piece of information.
Its effectiveness has however been limited by various factors including:
Spread of rumors:
This occurs especially in social media where there is no prior thorough investigation before reports are produced. This reduces its effectiveness because misleading information may be spread to the public who then may lose trust in the media when truth finally comes out.
Lack of follow-up:
Media is mostly concerned with telling a story and not actually following up on it. In social for example, various participants post their concerns and if only a few people are interested in what they have to say or if that information does not reach the right people then that is the end of it (Bebchuk et al, 2009).
Yes. Social media plays an important role in enterprise risk management as it provides organizations with insight in changes in consumer tastes and preferences. The media also is not hesitant in exposing fraud in an organization. Many organizations are therefore forced to make smart risk management strategies due to the fear of losing their reputation and comply with the rules and regulations of the respective country.
5.A good whistleblower protection policy ensures that whistleblowers, those individuals who bring to light possible wrongdoings in an organization are protected, which leads to effective management (McCahery et al, 2016). It also ensures that employees adhere to the organization’s principles and offer an opportunity for resolving issues internally. Furthermore, it improves ethics in the organization and may bring about fairness.
In TAB the policy did not protect the whistleblowers because of the unprincipled and dishonest management. All their concerns fell into deaf ears of both the bank’s management and ASIC. It was not until their complaints came out to the general public that they were addressed.
Recognition to whistleblowers whose concerns are investigated and found out to be the truth. This could include rewarding them by promotion or increase in their salaries as a way of encouraging others to come forward with their concerns. Verification of these complaints must be done however, to ensure that they are credible.
6.Organizations face various challenges in their attempt to promote good governance, compliance and ethics. These include:
Lack of transparency:
For the principles of an organization to apply to the whole group there must be free flow of information. This is however seldom the case due to lack of a good whistleblower protection policy which may lead to misconduct and ineffective corporate governance.
Lack of participation in decision making:
If employees are not given a chance to participate in the decision making process of the company, they often feel left out and are therefore adamant on following the policies made (Berger et al, 2016).
Unresponsiveness by some departments:
Some department managers are very slow in reacting to issues brought to them by the employees, while some might just brush them off. This disrupts the ease of the flow of the governing system.
It would be impossible to identify people who are more likely to comply to the company’s ethics while recruiting without first having them onboard.
Good governance involves having a well-developed risk management system, ethics and compliance system as well as a remuneration system that promotes cooperation and relationship building among the employees. It involves good decision making practices to develop a set of corporate standards and principles for guidance.
Acharya, V. V., Gottschalg, O. F., Hahn, M., & Kehoe, C. (2013). Corporate governance and value creation: Evidence from private equity. Review of Financial Studies, 26(2), 368-402.
 McCahery, J. A., Sautner, Z., & Starks, L. T. (2016). Behind the scenes: The corporate governance preferences of institution.
Bebchuk, L., Cohen, A., & Ferrell, A. (2009).What matters in corporate governance?. Review of Financial studies, 22(2), 783-827.al investors. The Journal of Finance.
Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
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.
Saggar, R., & Singh, B. (2017). Corporate governance and risk reporting: Indian evidence. Managerial Auditing Journal, 32(4/5). 
Gordon, L. A., Loeb, M. P., & Tseng, C. Y. (2009). Enterprise risk management and firm performance: A contingency perspective. Journal of Accounting and Public Policy, 28(4), 301-327.6), 521-531.
Florio, C., & Leoni, G. (2017). Enterprise risk management and firm performance: The Italian case. The British Accounting Review, 49(1), 56-74.
Olson, D. L., & Wu, D. D. (2017). Data Envelopment Analysis in Enterprise Risk Management. In Enterprise Risk Management Models (pp. 105-117). Springer Berlin Heidelberg.
McShane, M. K., Nair, A., & Rustambekov, E. (2011). Does enterprise risk management increase firm value?. Journal of Accounting, Auditing & Finance, 26(4), 641-658.
Brustbauer, J. (2016). Enterprise risk management in SMEs: Towards a structural model. International Small Business Florio, C., & Leoni, G. (2017). Enterprise risk management and firm performance: The Italian case. The British Accounting Review, 49(1), 56-74.Journal, 34(1), 70-85.

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