Case Study on the Irrelevance of Best Practices in Corporate Governance

Abstract

A case study is presented on the irrelevance of corporate governance best practices in avoiding: major losses, identifying fraud, avoiding interventions by a regulator and the loss of reputation. As a result of a junior whistle blower the National Australia Bank (NAB) announced losses in 2004 from foreign exchange fraud. In 2001 the bank reported the largest loss in Australian corporate history from a 1998 US investment without any officer being held accountable. A Board member whistle blower in 2004 resulted in the staged removal of all directors and the Auditor as a result of the 2004 loss that was only one tenth of 2001 loss. As the securities of the bank were traded in the US, a financial expert was appointed to the board in 2003 to meet the requirements of the Sarbanes-Oxley Act. The bank otherwise conformed to the Australian Stock Exchange Corporate Governance Principles of best practices. It of corporate governance were ranked equal first in a 2002 University survey of the largest 250 Australian listed companies. The survey stated that it's standards could not be faulted. However, when the Australian Banking regulator investigated the 2004 fraud it reported that internal control systems failed at every level to detect and shut-down the irregular currency options trading activity.