Australian Corporate Governance Environment Review

Having the factors of the fraud presented, it is important to answer the questions that would help the board nurture better governance and thus reduce the possibility of future frauds. The fundamental question is: “why is the fraud not prevented?” or “what part of the organisation contributed to the fraud?”

The Australian Corporate Governance environment

To answer the question, it is necessary to consider the influence of the overall Australian Corporate Governance environment. Compared with other major economies, Australia has a governance culture that is more dependent on trust, which in certain situations leads to credulity on their own employee’s good behaviour, and thus results in insufficient supervision. Evidence relevant to this characteristics can be found in the KMPG Australian Fraud Survey and comparison between countries.

As shown in the survey results, although directors agreed that fraud in Australia has grown larger in the industry, the majority of directors thought it’s not their organisation’s problem, which indicates the excessive confidence and trust on the the good behaviour of their own employees.

Besides the credulity issue within organisations, Australia has less regulation power on corporate governance, both in terms of standard guidance and regulatory activities. The Corporation Act 2001 referred to the rules related to internal corporate governance as “replaceable” (Part2B.4, Corporation Act 2001) meaning that companies may choose not to follow. For public companies ASX only issued a recommendation of principles for good corporate governance (Corporate Governance Recommendations and Principles 3rd edition, 2014), which on one hand is reasonable due to the diversity of industries, but on the other hand is not effective for enforcing the rules for internal governance.

The situation can be made more obvious when compared to USA and China. USA carried out the Sarbanes-Oxley Act to provide a detailed guideline to implement good...