Critical Evaluation of CBA’s Practices and Financial Decisions as per the CSR Principles

This report critically evaluates the financial management policies and practices of CBA in respect to their social responsibility and social outcomes of their actions. The ethical violation of CBA has discussed in detail in the report in reference to corporate social responsibility principles, ethical codes, principles and theories.

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Principle of Finance

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Contents
Introduction......................................................................................................................................3
Critical Evaluation of CBA’s Practices and Financial Decisions as per the CSR Principles..........3
Importance of Sustainability and Social Responsibility Outcomes for CBA..................................4
Ethical Principles Breached by CBA...............................................................................................4
Discussion of Ethical Violations with Reference to Ethical Theories.............................................5
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

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Introduction
The Commonwealth Bank of Australia (CBA) is a multinational bank involved in
providing various types of financial services that includes retail, business, institutional banking,
funds management, insurance, investment and broking services. It is attributed to be one of the
largest Australian listed companies on the Australian Securities Exchange. CBA’s insurance arm
is CommInsure that was established in the year 2002 and has become one of the largest life
insurers in Australia. CommInsure is actively involved in providing insurance products and
income protection to about 4 million customers with main product offerings of life insurance and
immediate annuities. However, the brand image of CBA was negatively impacted due to the
presence of unethical and illegal practices in its insurance arm. CommInsure insurance policies
were highlighted to be fraudulent as it has provided medical policies that were out of date. The
occurrence of such a scandal in CBA after its money-laundering scandal further negatively
impacted its brand image to a large extent. In this context, the present report aims to critically
evaluate the financial management policies and practices of CBA in respect to their social
responsibility and social outcomes of their actions. The ethical violation of CBA has discussed in
detail in the report in reference to corporate social responsibility principles, ethical codes,
principles and theories.
Critical Evaluation of CBA’s Practices and Financial Decisions as per the CSR Principles
The financial management policies and practices of CBA were heavily criticized after the
identification of the fraudulent activities ion the bank related to money laundering. However, the
latest scandal that occurred in the CommInsure, insurance arm of CBA, has emphasized the need
for CBA to review it financial management policies and practices. It has been ascertained by the
ASIC investigation that CommInsure was involved in selling of the life insurance policies having
outdated medical definitions for major diseases such as heart attack and rheumatoid arthritis. It
has also been identified in the investigation that CommInsure need to make major improvements
in its claim handling processes such as better interaction with the customers and improved
training programs for the claim managers. Therefore, CommInsure was alleged for providing
misleading and deceptive information to its customers and therefore breached ethical norms and
principles. The government has imposed penalties for the bank die to the presence of misconduct

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in its insurance arm related to claim handling under the Unfair Contracts Terms legislation
(ASIC releases findings of CommInsure investigation, 2017).
Thus, it can be said from the practices and financial decisions of CBA that it is not
effectively complying with the Corporate Social Responsibility (CSR) principles and practices.
The bank has although maintained CSR policies in relation to promoting the development of
environment and society but its actions has not able to produce a positive social outcome for its
stakeholders. The adoption of CSR policies requires businesses to contribute to social welfare as
a major obligation of their business. It is concerned with maximizing the value for stakeholders
rather than profit generation as that observed in the case of CBA. The bank is largely focusing on
wealth creation rather than protecting the interests of its stakeholders as analyzed from its
fraudulent financial practices. CSR principle focuses on achieving social outcomes through
business as per the utilitarian principle of ethics which states that an ethical choice results in
promoting the good for maximum number of individuals. As such, the ethical course of action
for a business is that which results in delivering maximum value for its stakeholders. However,
CBA has not adequately integrated the CSR beliefs and principle in its purpose and mission
which is responsible for the occurrence of such unethical and fraudulent practices in the bank
(Longstaff, 2016).
Importance of Sustainability and Social Responsibility Outcomes for CBA
CBA is a leading bank of Australian and therefore is largely responsible for protecting the
interests of its wide stakeholder groups such as investors, customers, employees and government.
The bank is involve in providing wide range of financial service to its clients and therefore it is
highly important that bank places emphasis on the integration of sustainability and social
responsible practices for stakeholder value creation. The presence of CSR policies and practice is
essential to ensure transparency in its business operations so that bank is accountable for all the
decisions taken by it. The social outcomes can be achieved by CBA only through the use of CSR
practices that promote the development of all its stakeholders. The maintenance of customer
beliefs over the business practices is of utmost concern for CBA to sustain its position and
continue its growth and development (Commonwealth Bank Implements Sustainability Policies
and Practices, 2018).

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The business practice and procedures adopted by CBA impacts to a large number of
people and therefore it is essential for the bank to meet the varying interest of its stakeholders by
delivering socially responsible outcomes. It has the responsibility of promoting financial stability
within the banking sector and thus the presence of fraudulent practice within the bank can
negatively impact the overall working of the financial system of the country. The importance of
sustainability and socially responsible outcome for CBA can be effectively understood by its
economic, legal and ethical responsibilities. The economic responsibility relates to its critical
role in promoting financial innovation for promoting growth whereas legal responsibility refers
to its crucial role in minimizing the financial risks through promoting regulation in the financial
system. At last, the ethical responsibility involves meeting the stakeholder expectations through
carrying business on the ethical principle of integrity, fairness, respect and transparency
(Lentner, 2015).
Ethical Principles Breached by CBA
The occurrence of misleading and deceptive business practices in the CommInsure, the
insurance arm of CBA, has highlighted various ethical concerns and challenges faced by the
banking organization at present to maintain its sustainable growth. The banking organization has
violated ethical codes of conduct and practices that were established by it for promoting
transparency and accountability in its business operations. It has violated the following ethical
codes of practice and conduct of continuously working towards improving the practices and
services of the financial service industry. Also, there is ethical breach relating to providing
detailed information to the clients regarding the financial service provided by CBA through the
use updated brochures and written information. This is because the medical definitions under the
life insurance policies of CBA were outdated and thus it has not effectively complied with its
ethical obligation of providing effective information disclosure to the clients. CBA has also
breached its ethical conduct regarding acting fairly and reasonably and effectively meeting the
commitment made between the bank and its clients (The Conversation, 2017). However, the
occurrence of CommInsure scandal has highlighted that the bank is not effectively meeting its
commitment towards the clients as it has failed to meet their expectations by providing them
deceptive insurance products and policies. It also maintained in its ethical conduct that the
banking organization will comply with all the relevant laws relating to financial services.

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However, it has not complied effectively with the law relating to Consumer Protection by selling
them false insurance policies and therefore has caused the breach of law. CBA has also failed to
comply with its ethical code of conduct relating to ensuring that its staff members are
appropriately trained and are competent enough in carrying out their responsibilities. However, it
has been proved by ASIC investigation that its claim managers were not appropriately trained to
sell the insurance policies to the clients (Code of Banking Practice, 2018).
Discussion of Ethical Violations with Reference to Ethical Theories
The ethical violations that occurred in the CBA can be explained adequately in reference
to ethical theory of deontology. As per the ethical theory of deontology, the morality of an action
taken by a business organization can be judged on the basis of standard set of rules and
procedures. Thus, the theory emphases that a business organization has a moral obligation to act
in a reasonable manner as per the duty or obligation based on standard rules and legislation.
Thus, the duty and responsibility of a business organization towards its stakeholders can help in
developing an ethical course of action that direct it to act ethically and comply effectively with
standard set of rule and regulations. CBA ethical violation presents a case where a business
entity has not effectively met with the regulatory compliance and thus has failed to act morally
and ethically. On the other hand, the theory of utilitarian ethics can be utilized by the CBA in
developing and selecting an ethical course of action (Parsons, 2016). The theory has stated that a
business entity must select the course of action that results in promoting the welfare of large
number of people and as such it can act ethically and reasonably towards its stakeholders
(Longstaff, 2016).
Conclusion
Thus, it can be stated form the overall discussion held in the report that CBA recent
financial practices are not in accordance with the CSR beliefs and principles. As such, it is
essential for an organization to integrate CSR beliefs and principle in its business activities for
acting ethically and morally.

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References
ASIC releases findings of CommInsure investigation. 2017. [Online]. Available at:
http://asic.gov.au/about-asic/media-centre/find-a-media-release/2017-releases/17-076mr-asic-
releases-findings-of-comminsure-investigation/ [Accessed on: 8 April 2018].
Code of Banking Practice. 2018. [Online]. Available at:
https://www.commbank.com.au/content/dam/commbank/about-us/download-printed-forms/
CodeofBankingPractice_ADB2555_0604.pdf [Accessed on: 8 April 2018].
Commonwealth Bank Implements Sustainability Policies and Practices. 2018. [Online].
Available at:
https://www.commbank.com.au/about-us/news/media-releases/2015/commonwealth-bank-
implements-sustainability-policies-and-practices.html [Accessed on: 8 April 2018].
Lentner, C. 2015. Corporate Social Responsibility in the Banking Sector. [Online]. Available at:
https://www.asz.hu/storage/files/files/public-finance-quarterly-articles/2015/
a_lentner_szegedi_tatay_2015_1.pdf [Accessed on: 8 April 2018].
Longstaff, S. 2016. Can Ethics Survive in the World of Banking and Finance? Lessons from
CommInsure. [Online]. Available at:
http://www.abc.net.au/religion/articles/2016/03/09/4421566.htm [Accessed on: 8 April 2018].
Parsons, P.J. 2016. Ethics in Public Relations: A Guide to Best Practice. Kogan Page Publishers.
The Conversation. 2017. Why bankers so often fail to comply with policies and regulations.
[Online]. Available at: https://theconversation.com/why-bankers-so-often-fail-to-comply-with-
policies-and-regulations-82159 [Accessed on: 8 April 2018].