1 ETHICAL ISSUES IN BUSINESS Ethical issues concerning business have been a major focus for experts across the globe and no matter how stern the measures taken are these issues surface most frequently in the media (Soltani and Maupetit 2015). Very recent news published in The Guardian, the leading English daily described similar incident concerning a renowned organization (Theguardian.com 2018). The news article mentioned Commonwealth Bank’s recent money-laundering scandal that took the Australian business community by storm. It must e noted that the Commonwealth Bank is the top bank in Australia and one of the top in the world. The news article focused on the failure of corporate governance on the part of the bank and the consequences it had to face. In this essay, the news article shall be further analyzed and the answers to certain questions will be given. These include the key ethical issues the article raised, whether it highlighted the most appropriate issue, whether it had the seven moral philosophies or not amongst others. The news article mentioned the fall in the profit of Commonwealth Bank after it was booked for money laundering. The bank is under the vigilance of AUSTRAC, Australia’s financial intelligence after it was revealed that the bank had 53, 700 breaches of Counter- Terrorism and Anti-Money laundering laws(Ft.com 2018). According to AUSTRAC, the bank permitted four syndicates involved in money laundering to use its smart deposit machines. Three among the four syndicates had links to the network of drug importation and distribution. One of the key issues highlighted by the article was that of corporate governance. While delineating the causes of the bank’s failure to register profit amidst controversies, the article mentioned that the bank had too little an amount saved for penalties imposed by the court. As a part of corporate governance, every company is bound to follow certain rules and standards by
2 ETHICAL ISSUES IN BUSINESS which the interests of the stakeholders and shareholders are balanced. Corporate governance comes under the ethical code of conduct followed by the organization (Allen 2017). Corporate governance involves Commonwealth Bank claims to commit to high standards of corporate governance where shareholders and stakeholders are informed regarding the bank is polices and functioning through effective and timely communication (Commbank.com.au 2018). However, in the news article it can be found that the organization was involved severe breach of corporate governance ethics(Pearson 2017). The bank, as already mentionedhas been allegedby AUSTRAC that it had failed to act on the suspicious activity of on its intelligent deposit machines. It is still uncertain whether any bank official had the knowledge of such activities or whether it was just a case of negligence of the bank. The article also raised issue of corporate governance stating that the bank failed to realize the seriousness of the negligence. In the article, it was mentioned that the Chief Executive officer, Ian Narev would step down as the CEO in order to avoid the spotlight. It must be noted that the scandal had hit CBA in 2017 and roughly a year after; the CEO decides to step down after heavy scrutiny from top Australian financial regulatory bodies (Heraldsun.com.au 2018). The ethicality of Narev’s resignation comes under question as he is allowed to get full year remuneration of 5.5 million Australian dollars although it was down from the previous year when he took 12.3 million dollars.The former CEO also took a pay cut of 55% in the last fiscal year. Narev’s role as the CEO is also questioned because it was not the first case when the bank was accused of fraudulent activities. Previously, CBA came under scrutiny when some whistle-blowers exposed the financial planning fraud that the bank was involved in. The executive board headed by Narev made little efforts to reply to its stakeholders. The recent scandal not only scarred the image of the bank, it also put the interest of its shareholders and stakeholders at stake. The bank had
3 ETHICAL ISSUES IN BUSINESS breached its corporation laws that require it to oblige by the disclosures especially to its shareholders. In a rather shocking move, the bank announced the appointment of Matt Comyn as the next CEO after Ian Narev stepped down. Matt Comyn is a chief suspect in the money laundering case and his appointment as the CEO raises serious ethical issues (Dailymail.co.uk 2018). The bank executive board made the decision internally to appoint Comyn as the next CEO without consulting with the shareholders. Comyn was involved in the money laundering scandal where his role in rolling out the defaulted intelligent deposit machines in the infamous case. The appointment questions the intentions of the bank, as it is obvious for any organization not to appoint any controversial member into the head of its operations. Rather the bank should have held a meeting with its shareholders and appointed a cleaner and deserving candidate for the post. As per the standard corporate governance ethics, the bank should have firstly paid heed to the warnings by the regulatory bodies of suspicious transaction activities in its branches. Further, the bank must have informed its shareholders and stakeholders about the issue through its online portal or by conducting an emergency meeting. The news article stated that the bank is most likely to pay a penalty of close to one billion dollars as demanded by AUSTRAC since it breached more than 53,000 laws of anti-money laundering and terrorism funding rules (ABC News 2018). Each breach is likely to cost 21 million dollars to the bank. Looking at the history of AUSTRAC’s investigation, the bank is likely to succeed with a settlement of not more than half a billion dollars.The article included the views of Helen Bird, an expert in corporate governance who mentioned that the bank failed
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4 ETHICAL ISSUES IN BUSINESS to make proper estimation of the penalty it would have to pay. The expert further added that the bank was not up to the mark in terms of handling the situation and assumed that it would easily get away with the allegations. As a legal action against CBA, AUSTRAC had expanded its civil penalty case against the bank. The bank has also faced legal actions against it as many of its partners are filing lawsuits against it. Ina recent case, an Australian law firm, Maurice Blackburn was reported to file a class action suit against CBA on behalf of its shareholders (In.reuters.com 2018). The lawsuit was filed because the bank had failed to reveal the extensive violations of anti-money laundering rules. Looking at the seriousness of the breaches, the legal action taken by Maurice Blackburn is largely justified as the shareholders have the right to know about their money and the company with which they are dealing (Abc.net.au, 2018). However, the legal actions taken by AUSTRAC could have been much stricter as it was not the first time the bank had breached laws and rules. In fact, the money laundering case that even involved illegal transactions by terrorist groups is a much grave issue and should have been dealt with in a sterner way. AUSTRAC has had a similar deal with Tabcorp when it let the company go away with a minor penalty of just 45 million dollars whereas the breaches by the company could have drawn penalties of at least 15,00 million dollars. The proceedings of the case demonstrated that in the present world, the value of compassion has lost its worth. The bank had so easily ignored the continuous warnings presented to it on several occasions and continued to let suspicious transactions take place in its branches. The bank officials did not consider the interests of the people who had put faith in it. The
5 ETHICAL ISSUES IN BUSINESS employees who were aware of the misdeeds of the banks also stayed quiet even after the case came to the fore. The employees might have held the view that since the management is stealing such huge amount of money through money laundering, they might also be benefitted by it. Here, the employees demonstrated their heteronymous morality that states that if management steals from individuals, individuals have the right to steal from them as well. Further, the governance of CBA intended to make more money and maintain its top position in the market even at the cost of its stakeholders and other people in general. The CBA management was concerned on minimizing its own negative costs rather than worrying about its customers’ losses. The individualistic-instrumental morality displayed by CBA put a question mark on the ethical sense of the contemporary business organizations. Making decisions that align with a company’s ethical code of conduct concerning areas like corporate governance, corporate citizenship and corporate social responsibility (CSR) is very crucial. The ethical-decision making process must involve the three main components including commitment, consciousness and competency (Chell et al. 2016). Commitment to make the right decisions notwithstanding the cost, consciousness to apply moral behavior to daily activities especially decision making and competency to gather and assess information, develop options and anticipate possible risks and consequences. Ethical decisions develop and maintain trust, show respect and appreciation, equality and are consistent with good citizenship. These aspects are extremely valuable to an organization as it is dependent on the relationships it creates with its shareholders, employees and customers. The interpersonal-normative morality makes individuals respect and trust the relationships they form. The Commonwealth Bank is known for its stronghold within the Australian financial sector because of its strong connection the customers. The bank has been able to deliver on most
6 ETHICAL ISSUES IN BUSINESS fronts as an ethically responsible organization except for a few glaring errors. The statement is true because despite its involvement in numerous scandals and controversies, the bank witnessed an upward trend in its profit especially in the last financial year. The decision-making process of any organization can be both ethical as well as effective. Decisions taken while maintaining the ethicality can be effective when the set targets are achieved. However, it is important to understand the choices made to achieve important goals. It implies that the management has to comprehend the distinctions between short-term and long- term goals. The goals of the organization must coincide with the rights and welfare of the individuals associated with it. Most importantly, the decision-making process should be based on the morality of universalism. According to (Klikauer 2015), the morality of universalism involves changeable, dogmatic universal moral principles and ethical decision-making.Ethical decision-making also involves the demonstration of true concern for the environment and the community. The recent trends in business shows that the leaders across the globe have realized the adverse influence of the increasing human activities and thus the CSR policy was introduced (Den Hond, de Bakker and Neergaard 2016). The leaders across the globe focused on the holistic morality of decision-making process and included ethics that concerned the environment and the earth. Maintaining ethicality, while making any decision either small or big is an obligation for any organization. The case of Commonwealth Bank Australia is a clear example of the consequences of bad decisions being made that is not related to either ethics or effectiveness. A look at the bank’s corporategovernance ethics,it is clearlyseen that the moralitiesof management are not clearly mentioned. The bank’s commitment is towards upholding the
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7 ETHICAL ISSUES IN BUSINESS framework that guides the functions of the organization. It does not include the universal norm that guides the functioning of humans towards other humans. In the end, it can be concluded that the news article about the breach of ethical code of conduct in a leading organization provides deep insights into the thinking of the modern leaders. It is evident from the case that the contemporary business setting does not give much importance to the concerns of the customers and implicitly involves in unethical conduct. Although some might argue that the organizations in today’s world have become more responsible, the recent happenings in big organizations prove otherwise. The essay provided an analysis of the news article that published the money-laundering controversy of Commonwealth Bank, which cause much distress for the customers and shareholders alike. The essay further provided a detailed the key ethical issues that were raised in the article that is corporate governance ethics. In addition, the legal actions and penalties imposed on the bank and its justification have also been provided in the essay. It concludes with the moral philosophies of management and personal views on decision-making process.
8 ETHICAL ISSUES IN BUSINESS References: ABC News. 2018.CBA faces 'very large' shareholder action on money laundering. [online] Availableat:http://www.abc.net.au/news/2017-08-23/commonwealth-bank-faces-shareholder- class-action/8833860 [Accessed 30 Apr. 2018]. Abc.net.au 2018.CBA faces 'very large' shareholder action on money laundering. [online] ABC News.Availableat:http://www.abc.net.au/news/2017-08-23/commonwealth-bank-faces- shareholder-class-action/8833860 [Accessed 30 Apr. 2018]. Allen, W.T., 2017. Our schizophrenic conception of the business corporation. InCorporate Governance(pp. 79-99). Gower. Chell, E., Spence, L.J., Perrini, F. and Harris, J.D., 2016. Social entrepreneurship and business ethics: Does social equal ethical?.Journal of business ethics,133(4), pp.619-625. Commbank.com.au2018.Shareholders-Corporateprofile-Corporategovernance- CommonwealthBankGroup.[online]Commbank.com.au.Availableat: https://www.commbank.com.au/about-us/shareholders/corporate-profile/corporate- governance.html [Accessed 30 Apr. 2018]. Dailymail.co.uk 2018.Commonwealth Bank promote controversial retail boss Matt Comyn to CEO.[online]MailOnline.Availableat: http://www.dailymail.co.uk/news/article-5324109/Commonwealth-Bank-promote-controversial- retail-boss-CEO.html [Accessed 30 Apr. 2018].
9 ETHICAL ISSUES IN BUSINESS Den Hond, F., de Bakker, F.G. and Neergaard, P., 2016. Introduction to managing corporate social responsibility in action: Talking, doing and measuring. InManaging Corporate Social Responsibility in Action(pp. 15-26). Routledge. Ft.com 2018.Commonwealth Bank admits multiple breaches in money laundering case. [online] Ft.com.Availableat:https://www.ft.com/content/f293993e-dfe2-11e7-a8a4-0a1e63a52f9c [Accessed 30 Apr. 2018]. Heraldsun.com.au2018.CBAchief”retiring”withinayear.[online]Heraldsun.com.au. Available at: http://www.heraldsun.com.au/business/cba-chief-ian-narev-to-step-down-within-a- year/news-story/ce3c0cbca3e1560d87336241994098c0 [Accessed 30 Apr. 2018]. In.reuters.com2018.Australia'sCBAhitwithclassactionsuitovermoney-laundering.... [online]IN.Availableat: https://in.reuters.com/article/us-australia-cba-moneylaundering/australias-cba-hit-with-class- action-suit-over-money-laundering-rule-breaches-idINKBN1CE08A [Accessed 30 Apr. 2018]. Klikauer, T., 2015. Morality, Competition, and the Firm: the Market Failure Approach to Business Ethics.Philosophy of Management,14(3), pp.223-228. Pearson, R., 2017. Business ethics as communication ethics: Public relations practice and the idea of dialogue. InPublic relations theory(pp. 111-131). Routledge. Soltani,B.andMaupetit,C.,2015.Importanceofcorevaluesofethics,integrityand accountabilityintheEuropeancorporategovernancecodes.JournalofManagement& Governance,19(2), pp.259-284.
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