Corporate Governance

Abstract

The purpose of this study is to demonstrate that those companies which are more multinationals have higher corporate governance practices. While analyzing the two companies, Bozec’s recent empirical research on corporate governance was regarded. The first section of this study determines whether the companies are domestic or multinational and the second part of the study compares corporate governance practices of the two companies. The results justify precision of empirical research conducted by Bozec.

Introduction

• Introduction to the two companies

Australia and New Zealand Banking Group Limited (ANZ) operates in the areas of international banking and financial products and services, which is among the top 50 banks in the world. ANZ Limited first opened an office as Bank of Australasia in Melbourne in the 1830s. (ANZ 2008). ANZ Limited shares are listed on both the Australian and New Zealand stock exchanges. Even though the company operates primarily in Australia and New Zealand, its other operations can be seen across the Asia Pacific regions and some other countries, including the UK and the US. ANZ operates in the course of five major divisions: Personal, Institutional and New Zealand Businesses, Partnerships & Private Bank and Group Center (Factiva 2008). ANZ’s profit after tax for the last financial year was $4,180 million which was up by 9%. There was also 9% increase in the dividends per share and 12% increase in revenue.

Firstfolio Group Limited (FFF) is an ASX listed firm which is fastest growing and most innovative financial services companies in the market. FFF Limited focuses on property finance and associated services and offers these services to professionals such as solicitors, accountants and mortgage brokers (Firstfolio 2007). FFF Limited operates in the course of two main divisions: Mortgage aggregation and wholesale lending and mortgage management. “In October 2007, it acquired a majority interest in Bricks & Mortar Securities Pty Ltd., which holds 18.33% of the shares in Lawfund Australia Pyt Ltd” (Factiva 2008).

• Interaction to the two companies with global market environment

The study of “Us Market Integration and Corporate Governance Practices: evidence from Canadian companies” tried to analyze the relationship between market globalization and corporate governance practices. Bozec (2007) examined the relationship of the sample companies with the US markets on these three subsequent scopes: financial market (US cross-listing status), product market (US exports) and multi-markets (US operations) and resulted that greater US market interaction is associated with higher corporate governance ratings. We can also use these three dimensions to see whether ANZ Ltd and FFF Ltd have interactions with global market environment

1) Financial market: ANZ Ltd shares are listed in both Australian and New Zealand exchanges. We can get company details, daily prices, company announcements, exchange traded options, dividends, price history charts, warrants and closing prices from web sites of the both exchanges. “ANZ Ltd is a major participant in the world’s Financial Markets providing specialist services in Foreign Exchange, Interest Rates, Commodities, and Structured Products” (ANZ 2008). However, FFF Ltd shares are listed only in Australian Stock Exchange.

2) Product market: There are strong evidences that ANZ Ltd has huge investments and other activities in some countries in the world. For instance, in 2005 it launched strategic coalition with Sacombank in Vietnam. In 2006 it completed 20% investment in China (Tianjin City Commercial Bank) .In 2007 it accomplished leading international bank status in Dow Jones Sustainability Index and completed investment in Malaysia (AMMB Holdings Berhad), China (Shanghai Rural Commercial Bank), and Vietnam (Saigon Securities Incorporation) (ANZ 2008). However, even though FFF Ltd has investments which make it one of the fastest growing companies in the market, these investments are limited within Australia.

3) Multi-markets: ANZ Ltd has 1,265 international spots of representation and it has operations other than in Australia such as New Zealand, Asia, the Pacific, UK/Europe, the USA and India. For example, it opened a representative bureau in New Caledonia in 2005 (ANZ 2008). However, FFF Ltd has branches only in Australia and it does not operate in another country (Firstfolio 2007).

It is clear that these three dimensions prove interaction of ANZ Ltd with global market environment and therefore, it is a multinational company. Whereas, FFF Ltd is a pure domestic company which does not have any operations, investments or relationship with other countries and their economies.

• Corporate governance categories to the two companies

While Bozec (2007) was examining his study, he used a set of corporate governance best practices which was ranked by Report on Business (ROB). According to ROB, these categories are board composition, compensation, shareholder rights and disclosure. This study will also follow the same structure for the two companies.

1) Board composition: Board composition includes some elements such as independence of the board of directors, the audit committee, the compensation committee and the nominating committee, duality structure, relationship between directors, engagement of the CEO versus other outside commitments, performance evaluation of the board, meetings of the board without management and number of board meetings (Bozec, 2007).

a) Board composition for ANZ

It is possible to obtain a lot of information about corporate governance structure from the annual report of ANZ Limited and its own web page. For example, there is a director independence criterion separately from the annual report. In this criterion the board concerns a standard in making its determination in the case of a material relationship which may affect independence of a director (ANZ 2008).

Looking at the ANZ board meetings, the date of next year’s committee meetings are decided from the previous