COMMONWEALT BANK OF AUSTRALIA: ROGUE ONE

PART I. INTRODUCTION

Commonwealth Financial Planning Limited (CFPL) is the financial planning arm of

Commonwealth Bank of Australia.

The Commonwealth Bank of Australia is an Australian multinational bank with businesses

across New Zealand, Fiji, Asia, USA and the United Kingdom. Commonly referred to as
the Commonwealth Bank (or CBA or Commbank), it provides banking, life insurance and related
services for individuals, small businesses and medium sized commercial enterprises. The Bank provides
corporate and general banking, international financing, institutional banking and stock broking and
funds management such as superannuation product. It was founded in 1911 by the Australian
government, the Commonwealth Bank is one of the "big four" Australian banks, with National
Australia Bank (NAB), ANZ and Westpac. The Group is one of the largest listed companies on the
Australian Securities Exchange and is included in the Morgan Stanley Capital Global Index.

The Australian Securities & Investments Commission (ASIC) is an independent Australian

government body that acts as Australia's corporate regulator. ASIC's role is to enforce and regulate
company and financial services laws to protect Australian consumers, investors and creditors

Commonwealth Bank of Australia members of management

Ian Narev - Managing Director and Chief Executive Officer

Annabel F. Spring - Group Executive, Wealth Management

Anna Lenahan - Group General Counsel and Group Executive, Group Corporate Affairs

Barbara Chapman - Group Executive, Chief Executive and Managing Director ASB

David Cohen - Group Chief Risk Officer

David Craig - Chief Financial Officer

Kelly Bayer Rosmarin - Group Executive for Institutional Banking and Markets

Matt Comyn - Group Executive, Retail Banking Services

Melanie Laing - Group Executive Human Resources

Rob Jesudason - Group Executive, International Financial Services,

David Whiteing - Group Executive, Enterprise Services and Chief Information Officer

Adam Bennett - Group Executive, Business and Private Banking

Vittoria Shortt -Group ExecutiveMarketing and Strategy

PART II. BODY OF THE CASE STUDY

Commonwealth Financial Planning Limited (CFPL), the financial planning arm of Commonwealth
Bank of Australia (CBA), was involved in a huge fraud scheme in the period of 2003 to 2012.

Rogue financial planners at CFPL manipulated their clients files and forged documents to invest
their clients money in extremely high-risk investments, with the aim of earning higher commissions and
bonuses. Such fraudulent acts caused hundreds of Australians to lose their life savings, some running
into millions. Despite warnings by whistleblowers, the Australian Securities and Investments
Commission (ASIC) were appraised for doing no decisive action in the reports faxed to them. Meanwhile,
CFPLs efforts to compensate the victims were also criticized as covering up for their rogue planners
while trying to intimidate their victims into settling for minimal compensation.

The case study discussed the issues such as effect of remuneration plan of CBA in its company
culture and employee behavior, management actions in ensuring compliance, role of media in corporate
governance, and ethics.

PART III

STATEMENT OF THE PROBLEM

1. Describe the actions taken and behaviour displayed by senior management throughout this saga.
Discuss if these actions and behaviour were inappropriate and whether they aggravated the situation. If
you were in the position of Ian Narev, the CEO, what would you have done differently during the crisis?

2. Show me a companys various compensation plans, and Ill show you how its employees behave -
Jack Welch, Former CEO of General Electric

Examine the key areas of concern in CBAs remuneration plan. To what extent do you think these
influenced the corporate culture and employee behaviour in CBA? What changes, if any, would you
make to the remuneration plan?

3. In the Senate Inquiry Final Report, ASIC was described as waiting for complaints, investigating a
minute proportion of them, and prosecuting even fewer. 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 CFPL. Discuss the role of the media in
promoting good governance in your country. 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 Morris and his fellow whistleblowers? What further improvements can be made
to encourage those who are aware of wrongdoings in an organisation to come forward, instead of
remaining silent?

6. CBA had an excellent reputation amongst its customers but CFPL severely damaged it. What are the
challenges faced by an organization like CBA in promoting ethical behaviour, compliance and good
governance throughout the group?

PART IV.

#1

First, ASIC opted for discussions with CFPL, which resulted in the joint solution to closely supervise
Don and subject his advice to vetting before approval. However, months passed and there was no sign
of ASIC taking decisive action to obtain evidence from CFPL.

CBA was also pressured to devise a compensation scheme to soothe the affected clients. In November
2010, CBA finally proposed a voluntary compensation scheme for the victims.

These solutions done by the management were inappropriate and just aggravated the situation.

An internal resolution to the matter would never succeed as the management themselves were covering
up for the planners fraudulent acts. The management must propose a compensation scheme which is
just and rational to each of the victims. CBA must strictly implement proper management and
compliance in their policies and rules especially in terms of illicit acts.

#2
Commonwealth Bank of Australias total annual remuneration depended so much on short-term
incentives such as bonuses. Commissions were fixed on the risk levels of investment assets sold, hence
financial planners had an incentive to encourage their clients to choose for as risky an investment
portfolio. Because of this, the culture of CBA was nurtured with aggressive sales-driven point of view,
which leads employees to commit fraudulent activities in their own benefit.

CBA must change other points in their remuneration plan. They must not focus on pay for
performance system. CBA must have a fixed salary price for their employees, but still giving some
benefits and incentives to the people who reached their targets. This plan will still make their employees
strive harder but in a good way.

#3

In the Senate Inquiry Final Report, ASIC was described as waiting for complaints, investigating a minute
proportion of them, and prosecuting even fewer. 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.

The Australian Securities and Investment Commission (ASIC), sent a warning notice to CFPL, indicating
that 38 of its planners had been classified as a critical risk for non-compliance with appropriate
financial planning advice protocols. Morris and his colleagues fax many reports to ASIC, but there are no
movements taken.

ASIC failed to take decisive action after it had been informed by a number of whistleblowers that the
activities of certain lenders in the financial planning arm of the Commonwealth Bank (Commonwealth
Financial Planning Limited ("CFPL")) and the environment in which they operated generally, was of grave
concern and endangering the position of vulnerable clients. It is not the result of inadequate legislative
powers being given to ASIC. The manner, in which ASIC has dealt with complaints from individuals who
have lost money as a result of fraudulent or ill-explained lending processes and complaints from
whistleblowers, is inadequate. The volume of submissions received by this Inquiry detailing the financial
loss and trauma suffered is indicative of a serious problem in the way in which ASIC manages its own
investigative, regulatory, prosecution and penalty powers. The result of AS I C's misuse of its powers is a
loss of faith in the rule of law because of the inability of the law to protect vulnerable members of the
community. The existence of a regulatory body that fails to exercise its powers in an effective
accountable way gives rise to a false sense of security and reliance by the public.

#4

Governance implies the ways through which citizens and groups in a society voice their interests,
mediate their differences and exercise their legal rights and obligations. Good governance includes ideas
of greater participation by civil society in decision making, instituting the rule of law, anti-corruption,
transparency, accountability, poverty reduction and human rights.
The role of the media in promoting good governance is clear. All aspects of good governance are
facilitated by a strong and independent media within a society. Only when journalists are free to
monitor, investigate and criticize the public administrations policies and actions can good governance
take hold.

Media can inform people giving them the voice to be heard and heeded to. Democracy requires that
people should have the right to know the activities of the government, especially the decision of the
government that affects their life, liberty and property. Information is important for people to make
choices regarding their participation in the State, the market and the civil society. Sufficient information
helps people to decide rationally and take the right course of action beneficial to them. Media-both
print and electronic-thus helps people to know what is happening around the world, socialize them with
the values of diversity and prepare them with the elements of modernity. By publicizing information the
media also make public services more responsive to the people.

But there are still factors which limit the effectiveness of promoting good governance using social
media. The readers of information promoted using media may have different perceptions and point of
view in the message that the media wants to share which may lead to wrong decisions and actions.
Promotion of good governance using media sometimes may harm the reputation of the different people
involved, so before sharing it in media it must be accurate and must be based on facts.

#5

Whistleblower protection policy is a Legal protection from discriminatory or disciplinary action for
employees who disclose to the competent authorities in good faith and on reasonable grounds
wrongdoing of whatever kind in the context of their workplace.*

Whistleblower protection is integral in fostering transparency, promoting integrity, and detecting

misconduct. Past cases demonstrate that corruption, fraud, and wrongdoing, as well as health and
safety violations are much more likely to occur in organizations that are closed and secretive. In many
cases, employees will be aware of the wrongdoing, but feel unable to say anything for fear of paybacks,
concern about acting against the organizations culture, or lack of confidence that the matter will be
taken seriously. The negative implications of this are far-reaching for both organizations and society as a
whole. Effective whistleblower protection supports employees in blowing the whistle on corruption,
fraud or wrongdoing.

Informed individuals need to be confident that they can report alleged misconduct, potentially unsafe
products or dubious practices in Australia's corporate world and for their reports to be taken seriously
and dealt with accordingly.

Instead of remaining silent, a person who is aware of any wrong doings must be encourage to spill out
the details of any illegal act done by other person. The whistle blower policy must be fair in all people of
different levels in life. This policy helps the authorized person to know any fraudulent activities or
irregularities in any course of their business for them to be more aware in things they still need to fix
and develop. Whistleblowers must not be afraid in telling the facts he/she knows because if he/she
remains silent for a long period, the issue will be more crucial and it can affect not only the company or
organization, but also the employees and the customers.

PART V. CONCLUSIONS AND RECOMMENDATIONS

In order to prevent such issues that Commonwealth Bank of Australia is facing, the company must first
modify their remuneration system which is the main cause that lead its employees in committing
fraudulent activities. The company must implement a fixed salary system rather than sales-based salary
culture. Benefits and incentives will still be given to employees who reached their targets and those
with good performances.

Second, the Board or the management must adopt a comprehensive framework of corporate
governance guidelines, designed to balance properly performance and conformance. This enables the
Commonwealth Bank of Australia (CBA) and its related bodies corporate (Group) to undertake, in an
effective manner, the prudent risk-taking activities which are the basis of its business.

The management must also implement properly their policies and laws especially in terms of fraudulent
activities. They must not ignore or disregard non-compliance and unlawful activities even though it
benefits the entire company.

The Australian Securities & Investments Commission (ASIC) which is an independent Australian
government body that acts as Australia's corporate regulator, should develop an internal management
system that fosters a receptive culture that would ensure that misconduct reports or complaints
indicative of a serious problem lodged with ASIC are elevated to the appropriate level and receive due
attention. Our group also recommends that the corporate whistleblowing regime must be strengthened
to encourage whistleblowers to come forward.

The Australian Securities & Investments Commission (ASIC) which is an independent Australian
government body that acts as Australia's corporate regulator, must exercise its powers in an effective
and accountable way in order for the public to be secured.

Commonwealth Bank of Australia must make Internal control programs that should be monitored and
revised on a consistent basis to ensure they are effective and current with technological and other
advances. If you do not have an internal control process or fraud prevention program in place, then you
should hire a professional with experience in this area. An expert will analyze the companys policies and
procedures, recommend appropriate programs and assist with implementation.

Lastly, we also recommend that the company must advance its system in terms of customers files. They
must notify first the customer involved whenever his/her files are being used in some transactions.
Upon verification, that is the only time that his/her files or information are allowed to be accessed