Corporate governance failure and its impact on National Australia Bank's performance

The National Australia Bank (NAB) is the largest financial services institution listed on the Australian stock exchange and is within the 30 most profitable financial services organisation in the world. In January 2004, the bank disclosed to the public that it had identified losses relating to unauthorised trading in foreign currency options amounting to AUD360 million. This foreign exchange debacle was classified as operational risk, the risk of loss resulting from inadequate or failed processes, people, or systems and reiterated the importance of corporate governance for banks. Concurrent issues of National Australia Bank’s AUD4.1 billion loss on US HomeSide loans in 2001, the degree of strength of their risk management practices and lack of auditor independence, were raised by the US Securities and Exchange Commission in 2004, reinforcing the view that corporate governance had not been given the priority it deserved over a number of years. This paper will assess and critically analyse the impact of corporate governance failure by management and Board of Directors on NAB’s performance over the years 2001-2005.

Corporate governance failure and its impact on National Australia Bank's performance

The National Australia Bank (NAB) is the largest financial services institution listed on the Australian stock exchange and is within the 30 most profitable financial services organisation in the world. In January 2004, the bank disclosed to the public that it had identified losses relating to unauthorised trading in foreign currency options amounting to AUD360 million. Thisforeign exchange debacle was classified as operational risk, the risk of loss resulting from inadequate or failed processes, people, or systems and reiterated the importance of corporate governance for banks. Concurrent issues of National Australia Bank's AUD4.1 billion loss on US HomeSide loans in 2001, the degree of strength of their risk management practices and lack of auditor independence, were raised by the US Securities and Exchange Commission in 2004, reinforcing the view that corporate governance had not been given the priority it deserved over a number of years. This paper will assess and critically analyse the impact of corporate governance failure by management and Board of Directors on NAB's performance over the years 2001-2005.

Governing employees in the "Bank": a discourse analysis of strategic change

This paper reports the findings from a study of ‘Transform’, a Bank’s strategic change program. The study was carried out by developing and applying a discursive model of strategic change to Transform. Findings are presented about how Transform was constructed from ‘grand discourses’ of business and science that were drawn on by senior management, and how a ‘local discourse’ of the self was formed at the intersection of these grand discourses. This paper is concerned with how senior management has attempted to govern employee identity and practices through the construction of Transform. In this respect Transform can be understood as a discourse which was designed to regulate identity and influence employee practices by constructing and disseminating a particular reality for the Bank and its employees.

Corporate governance, board responsibilities and financial performance : the National Bank of Australia

This paper examines board responsibilities and accountability by management and Board of Directors in relation to the National Australia Bank's (NABs) performance. The NAB, an international financial service provider within the top thirty most profitable banks in the world, is compared with the Australian major banks. The evidence suggests that NABs poor performance was consistent with a lack of accountability, poor corporate governance and board dysfunction associated with fraudulent currency trading and the subsequent AUD360 million foreign currency losses. The NAB's performance is investigated by utilising accounting-based measures of profitability and cost efficiency as proxies for performance. Following the foreign currency trading losses in 2004 the NAB under-performed the other major Australian banks in terms of profits, cost to income ratio and growth in assets. In terms of profitability and cost efficiency NAB had the lowest ROE and ROA with a 19.7% fall in net profit and the highest cost to income ratio of 5 7.4% of any of the five largest banks. This case study provides an Australian example of poor corporate governance and suggests that financial institutions and regulators can learn from the NAB's experience. Failure to have top-down accountability can have significant impact on over-all performance, profitability and reputation. In particular, it suggests that management and Boards need to review their risk management procedures and regulators need to be more pro-active in their prudential oversight of financial institutions.

Grameen Bank's social performance disclosure : responding to a negative assessment by Wall Street Journal in late 2001

Purpose: The aim of this paper is to establish a linkage between negative global media news towards Grameen Bank (GB), the largest microfinance organisation in the developing world, and the extent and type of annual report social performance disclosures by GB, over the nine-year period 1997-2005.

Design/methodology/approach: Content analysis instruments are utilised to analyse GB annual report social disclosure.

Findings: The study finds that GB's community poverty alleviation disclosures account for the highest proportion of total social disclosures in the period 1997-2005. The results of this study are particularly significant in relation to poverty alleviation – the issue attracting severe criticism from the Wall Street Journal (WSJ?) late in 2001. The community poverty alleviation disclosures by GB are significantly greater over the four years following the negative news in the WSJ than in the four years before. The results suggest that GB responds to a negative media story or legitimacy threatening news via annual report social disclosures in an attempt to re-establish its legitimacy.

Originality/value: This paper contributes to the literature because in the past there has been no research published linking global media attention to the social disclosure practices of major organisations in developing countries.

Central bank independence and governance in the South Asia

This paper constructs the central bank independence and governance (CBIG) index for eight South Asian countries and examines their relationship with inflation. This CBIG index is constructed following the unique model developed by Ahsan, Skully and Wickramanayake (2006). This index consists of total 26 variables; all variables together form the overall index and different sub-sets of these variables construct sub-indices (eg. legal; political; price stability objectives; exchange rate policy; monetary policy and deficit financing; and accountability and transparency).
Several countries have improved their CBIG in last fifteen years. The war torn Afghanistan have established a new central bank act in 2003 which has improved the standard of CBIG in the region. In recent time Nepal has made remarkable improvement in its ranking by allowing improved independence to its central bank. Bangladesh has taken lead in term of gradual CBIG improvement in last fifteen years. Sri Lanka, Indian and Pakistan are three countries always maintained a standard level of CBIG. Bhutan and Maldives showed less improvement among the countries. This paper also examines the statistical relationship between CBIG indices and inflation. The results indicate that there is a positive relationship between CBIG and inflation in the region which in contrary to normal expectation that inflation is one of the robust proxy of actual CBIG.

The 1947 bank nationalisation scheme : a prehistory of issues management?

Industry-wide crises emanating from legislative proposals are rare in Australia, and can be classed as once in a generation events, and so merit consideration and research. Currently, there is one such debate over the Mineral Resources Rent Tax, proposed by Prime Minister’s Julia Gillard’s government. Prior to this, the closest comparable event was the 1974 proposal for the establishment of a universal health insurance scheme. The 1947 proposal, by the Ben Chifley-led Labor Government, aimed to nationalise Australia’s banks, and it brought a crisis of massive proportions to Australia’s conservative financial service industry. Although the High Court of Australia finally found Chifley’s proposed legislation unconstitutional, the banks realised they must win in the court of public opinion, generate press coverage in favour of their position, and help defeat the Labor Government at the 1949 election. At the time, and for some decades to come, this was the most expensive and largest public relations campaign waged in Australia. After such a campaign there could be few Australians who could claim that they had not been exposed to the powers of public relations in a modern world. This paper looks at what can be learned from the banks’ collective response to the proposed nationalisation. It does so by applying contemporary issues management evaluation techniques.