by
Chris Bajada and Rowan Trayler
UTS Business School
University of Technology Sydney
Broadway NSW 2007
Abstract
The aim of this paper is to examine how rules and recommendations for enhancing corporate governance are practiced and second, whether these rules and recommendations are clearly interpreted and monitored.
The focus is on the provisions bearing upon the governance for banks laid down by regulatory authorities including the Bank for International Settlements (BIS) and the Australian Prudential Regulation Authority (APRA). The paper will discuss the corporate governance principles set out by BIS and requirements laid down for listed public companies in Australia and then the specific Australian requirements associated with financial services firms of which the most important entities are the banks. The paper will focus on the Australian banks providing an analysis of the available evidence on the workings of their boards as well as critical appraisal and implications of the requirements.
The main purpose of this contribution is to review the relationships between observed practices and the rules of engagement allowing the offering of financial services. The paper finds that while in essence the corporate governance rules are being followed, the true intent of the governance principles are not necessarily being implemented in the spirit in which they were proposed. Substantial questions include the validity of the independence and the sufficient time required of board members. Other questions arise about the rules themselves, especially their meaning, practicality and suitability in a dynamic setting. These reflect on the measures necessary to secure adherence to requirements. Equally important are matters about the steps the regulatory authority might take to achieve the desired outcomes, essentially securing financial stability and ensuring integrity.
This study provides an insight into the challenges of implementing corporate governance regulation and ensuring its intent is met. This leads us to believe there needs to be developed a set of well-defined metrics to enable the proper evaluation of whether the various corporate governance rules have been suitably applied. The paper also proposes that there is scope for expanding the role of the external auditor to comment on the key responsibilities of directors, for example, their claim of independence. The development of metrics would allow the external auditors to suitably benchmark practice against the rules of good corporate governance.
Keywords: Corporate Governance; Banking; Board Structure