To assess you understanding of the critical success factors in corporate governance and risk management.
CASE STUDY: TERRA AUSTRALIS FINANCIAL PLANNING LIMITED (TAFP)
The following case study is based on actual events involving an Australian bank. The reasons for changing some aspects of the case are, first, to highlight matters relevant to corporate governance and enterprise risk management, and, second, to focus your attention on the generic issues rather than encourage you to search for analyses of actual cases which you can then summarise as responses to the questions asked.
In other words, the emphasis in this assessment is on interpreting the ‘facts' of the case in light of the concepts discussed in the unit.
Therefore, you are not asked to do any investigative work for this case. There is no need for you to look up ASIC records, newspaper reports, court judgments etc. What you must do is analyse the case as it is presented, and respond to the questions drawing on your learning in this unit.
Case overview
Terra Australis Financial Planning Limited (TAFP), the financial planning arm of Terra Australis Bank (TAB), was involved in a huge fraud scheme from 2003 to 2012. Rogue financial planners at TAFP manipulated their clients' files and forged documents to invest their clients' monies in extremely high-risk investments, with the aim of earning higher commissions and bonuses. Such fraudulent financial advice caused hundreds of Australians to lose their life savings, some running into millions. Despite tipoffs by whistleblowers within TAFP, the Australian Securities and Investments Commission (ASIC) was criticised for being inexplicably slow and inadequate in its response. Meanwhile, TAFP's efforts to compensate the victims were also criticised as covering up for their rogue planners while trying to bully their victims into settling for minimal compensation.
The objective of this case is to assess the impact of "pay for performance" on behaviour; governance in company groups; management's and directors' roles in ensuring compliance; the role of regulators and the media in corporate governance; whistleblower protection; the link between governance and ethics; and what constitutes an effective enterprise risk management strategy.
QUESTIONS
Each question is worth a potential 5 marks of a total potential assessment mark of 30 Attempt all questions
1. Describe the actions taken and behaviour displayed by senior management throughout this saga in terms of enterprise risk management. Discuss if these actions and behaviour were not only inappropriate but potentially high risk, and whether they aggravated the situation. If you were in the position of Sam Venus, what would you have done differently during the crisis to address the risk involved, and what might you put in place to mitigate similar future risk?
Note: in order to answer this question properly, you need to identify the risks involved, as well as suggesting ways of managing them.
2. "Show me a company's various compensation plans, and I'll show you how its employees behave" - Jack Welch, Former CEO of General Electric
Examine the key areas of concern in TAB's remuneration plan. To what extent do you think these influenced the corporate culture and employee behaviour in TAB? What changes, if any, would you make to the remunerationplan to minimise agency conflicts?
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 TAFP. Discuss the role of the media in promoting good governance. Are there factors which limit its effectiveness? Can social media also play a role in enterprise risk management? If so, how?
5. Briefly discuss the importance of a good whistleblower protection policy. Do you think the policy sufficiently protected Bloe 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. TAB had an excellent reputation amongst its customers but TAFP severely damaged it. What are the challenges faced by an organisation like TAB in promoting ethical behaviour, compliance and good governance throughout the group?
Attachment:- Case Study.pdf