Assignment on Business Ethics (Solved)

BUSINESS ETHICS 1
BUSINESS ETHICS
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Table of Contents
Business ethics............................................................................................................................................3
1.0 Introduction...........................................................................................................................................3
2.0 Background Information.......................................................................................................................3
3.0 Summary of the news article (“Trust deficit”)......................................................................................4
3.1 Key ethical issues identified from the news article...........................................................................4
3.2 Analysis of the ethical issues identified.............................................................................................5
4.0 Appropriate ethical decision making.....................................................................................................6
5.0 The ethical decision-making process...................................................................................................7
6.0 Conclusion.............................................................................................................................................9
References.................................................................................................................................................10
Appendix...................................................................................................................................................11
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Business ethics
1.0 Introduction
Financial services industry has great importance for the development of any nation.
However, the industry is also prone to unethical conducts by the directors, management and
other stakeholders in the complex governance of the industry. This paper aims at discussing the
ethical issues in relation to financial services industry with regards to the article by ABC news on
financial institutions “trust deficit”, analyzing the appropriateness of ethical decisions made in
the article and outlining ethical decision making process with regards to the most relevant ethical
philosophies in the context of the article.
2.0 Background Information
ASIC provided the Code of Banking Practice and the Credit Union Code Practice. These
codes deal with the aspects of fees disclosure, terms and conditions changes, guarantors’ rights
and debt collection (Pearson, 2009). The banking practice code stipulates that it is illegal and
unethical for banks to overly charge its clients or charge clients for services not delivered.
The promotion of financial products based on commissions, rather than their respective
benefits to the client has seen the financial services industry dominated by conflict of interest, an
indication of poor governance. Therefore, financial planners have an ethical duty to provide
honest information, transparency, and duty of care and to avoid self and conflicting interest in
delivering financial services (McDonald, 2014).
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3.0 Summary of the news article (“Trust deficit”)
Revelation by royal commission on financial services shows lack of trust in the banking
institutions in Australia, due to widespread unethical and unlawful practices in these institutions.
These unethical practices include charging fees where the law does not provide it, poor
transparency, self-identification and disclosure levels as far as identification, reporting and
dealing with ethical issues in the industry is concerned. Profit maximization has become the key
focus of the financial services companies, forgetting that they are in charge of managing another
people’s money. For instance, by the Commonwealth Bank charging fees on dead customers and
AMP and other big banks charging clients for services not rendered. Among its
recommendations, Royal commission suggested cooperation with the commission from the
financial services industry, ASIC strengthening its remedial measures to include making lawsuits
against the concerned institutions and elimination of brokerage commission in order to avoid
conflict of interests, as ways to deal with the situation. In the article, ASIC is criticized by the
Royal Commission on the basis of the actions it takes and the adherence to eliminate unethical
practices in the financial services industry. The commission suggests the use of court orders to
prosecute those involved in unethical malpractices in this industry, instead of the negotiations
undertakings, considering the repetitive cases of illegal conducts that have been experienced in
this industry that have contributed to trust deficit.
3.1 Key ethical issues identified from the news article
Australian Securities and Investment Commission (ASIC), identified the specific ethical
issues in the Australian market in relation to financial services planning and provision as:
emphasizing on product selling rather than tailored advice; recommendations to shifting to
paying the financial planners high commission without considering the benefits to the clients and
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encouragement to borrow and invest for the benefit of the management rather than their pursuing
their main goal of managing the investors’ money (McDonald, 2014).
The key ethical issue raised in this article relates to corporate governance of the
institutions. It has been a common theme in the recent corporate governance reform movement,
to instill transparency and accountability in the culture of companies’ governance in Australia,
(Jacques du Plessis, Hargovan & Bagaric, 2010). According to ASIC regulatory guidelines, the
company management and directors have a fiduciary duty to avoid conflict of interest and make
the necessary disclosure requirements as per the provisions of the regulations. Moreover, the
management of these institutions should ensure high transparency, self-identification and
disclosure levels of dealing with unethical practices in the institutions. This is attainable by
developing an effective internal control system that would, among other objectives, ensure that
the communication mechanisms in the organization are designed to facilitate confidential
reporting of ethical practices.
3.2 Analysis of the ethical issues identified
All directors must always pay attention to potential situational conflict of interest, like in the
case of Commonwealth bank charging fees on dead clients and AMP charging clients for
services not delivered. Australian Corporate Governance Working Group highlights that conflict
of interest exists when the interest of the company as a whole is not given precedence (Berghel,
2009). Conflict of interest is an unethical and illegal practice that breeds lack of trust from the
shareholders, employees and at large the clients of an organization. By the financial institutions
shifting their interests from managing the investors’ money to profit maximization, they breach
their obligations to the shareholders and to the organization as a whole to act utmost good faith
and bona fide to the interest of the corporation.
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Furthermore, the unethical actions leading to declining in trust in the financial services
sector can also be attributed to lack of accountability on the part of the respective companies’
management. Accountability would ensure that the company decisions are aligned with the
strategies of the organization thus avoiding unethical practices.
The effectiveness and credibility of an entire corporate governance system and company
oversight depends, to a larger extent, on the company making informed investments that can use
of their shareholder rights and effective exercising of the company’s ownership rights
(Publishing, 2012).
Additionally, poor levels of identifying, reporting and disclosing misconducts within an
organization lead to lack of confidence in the organization. This, in turn, results in increased
unethical practices within the concerned organization that finally created reduced trust in the
organization.
4.0 Appropriate ethical decision making
In making ethical decisions regarding ethical issues, it is important to consider the moral
intensity of the ethical issue. Bruin, (2015), argues that moral intensity depends on the magnitude
of the consequences of the actions and their probability of arising, as well as the concentration or
disparity of the consequences of the ethical issue on the people.
Ethical issues with high moral intensity bring about greater and more adverse consequences
than those of lower moral intensity. Therefore, a more drastic ethical decision is required to deal
with ethical issues of high intensity. Because ethical high moral intensity ethical issues begin
from those of low moral intensities, it is important to always employ drastic measures in dealing
with ethical issues regardless of their intensities.
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An appropriate ethical decision would help build a reputation and create trust in the
industry. Therefore, appropriate ethical decisions have not been made in regards to ethical issues
in the financial services industry, and it was an abuse to the banking practice code that requires
legal prosecutions against breaches of this code. This is evident from the article by the royal
commission’s criticizing the ASIC itself for negotiating undertakings rather than always taking
court actions to seek larger penalties, as this has led to repeated unethical and illegal practices in
this sector. For instance, when AMP bank was caught overcharging many customers as a result
of the director's interests, in 2006, ASIC, instead of taking the matter to court, it opted to force
the bank into signing negotiation undertakings. This repeated itself in case of Commonwealth
bank charging fees on dead customers, thus the continuous deterioration of ethical practices in
the financial services industry. Thus leading to more and more losing trust among the company
shareholders, clients, employees, the government and any other concerned parties, in the
Australian financial services industry.
5.0 The ethical decision-making process
In ethical decision making, different moral philosophies are applied, depending on whether
the decision to be made is personal or work-related. This is because the various factors that make
up personal moral philosophy are measured differently in business situations. Working corporate
culture is also an important aspect of corporate ethical decision making (Ferrel, Fraedrich &
Ferrel, 2013).
Moral decision making in line with the emotion versus moral philosophy involves a rational
intuition of moral principles such as justice, charity, and wisdom. This entails establishing the
best decision for the happiness of all. In the case of financial institutions, the decision making
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should impact positively on the organization as a whole, by having the shareholders’ interest at
the center, without favoritism or any other biased considerations.
According to Nill (2015), a philosophical, ethical decision-making process would entail:
Recognizing the moral issue- any ethical decision should be able to recognize the moral issue in
the organization. To achieve development of such a decision the decision maker is required to
recognize the moral or ethical implications of the issue. It requires the decision maker to
recognize that unethical practice has been done about such aspects as the regulatory requirements
of the regulating body as well as the national government and the organizational code of ethics
too. Common law may as well be important in recognizing the moral issue.
Making a moral judgment- the ethical decision should be able to help the organization in making
a moral judgment. Here, the moral intensity of the ethical issues would be determined to be able
to choose the most appropriate decision to take. Factors such as the degree, nature, and extent of
the ethical issue are considered in order to make an effective moral judgment, as different ethical
issues require different ethical decisions to be implemented.
Establishing a moral intent- the decision should have a moral intent. This can be attained through
identifying the intentions of committing the ethical issue in relation to the ethical implications of
the issue. The loopholes that may have led to the ethical issue is identified and whether or not the
issue has a possibility to recur is also analyzed in order to decide on the most appropriate cause
of action to undertake. Every ethical business decision should thus have a moral intent.
Engaging in moral behavior- this involves analyzing the available rules and regulations as well
as the existing state laws and any other laws to determine the remedy for the ethical issue. Here,
the concerned institution corrected on the issues of ethics and appropriate actions applied with
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regards to the issue in order to establish a lasting solution to the ethical problem. The person
involved in unethical practice will, therefore, be able to act in line with the ethical code of
conducts governing the particular organization.
Monitoring and Evaluation of the process- this helps uncover appropriate ethical considerations
in making business decisions. These considerations include: whether the decision complies with
the organization’s code of ethics; if the decision aims at promoting good and eliminating harms;
if the process helps the organization in discharging its duties as a corporate citizen; whether the
decision promote individual and organization’s rights; the impact of the decision in building trust
in the company with regards to the clients, shareholders and other concerned parties; and if the
decision helps in building company image or restoring the company’s reputation in cases where
it had been involved in unethical conduct.
6.0 Conclusion
There should be a moral, ethical decision-making process to build trust and reputation in
any industry. Owing to the great importance and contributions of the financial services sector in
the economic development of a nation, regulatory bodies such as ASIC need to develop drastic
measures, other than negotiations undertakings, to provide lasting ethical decisions with regards
to ethical issues in the financial services sector. Moreover, establishing effective internal control
policies and procedures would also help in dealing with the ethical issues in the financial
services sector of the Australian economy.
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References
BERGHEL, L. (2009) International Standardization of Good Corporate Governance: Best
Practices for the Board of Directors. Boston, MA, Springer US. Available at
http://public.eblib.com/choice/publicfullrecord.aspx?p=3080427 [Accessed on 17th May 2018].
BRUIN, B. (2015) Ethics, and the Global Financial Crisis: Business, Value Creation, and
Society. Cambridge University Press.
FERREL, O. C., FRAEDRICH, J. & FERREL, L. (2013) Business ethics: ethical decision
making and cases. Mason, OH, South-Western/ Cengage Learning.
JACQUES du PLESSIS, J., HARGOVAN, A. & BAGARIC, M. (2010) Principles of
Contemporary Corporate Governance. Cambridge University Press.
MCDONALD, G. (2014) Business Ethics. Cambridge University Press.
PEARSON, G. (2009) Financial services law and compliance in Australia. Cambridge,
Cambridge University Press.
PUBLISHING, O. (2012) Role of Institutional Investors in Promoting Good Corporate
Governance. Paris, Organization for Economic Cooperation and Development (OECD).
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Appendix
Article available at www.abc.net.au/news/2018-o5-17/asic-slams-banks-and-financial-
institutions-for-trust-deficit/9770674
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