1MANAGEMENT Table of Contents Introduction:...............................................................................................................................3 Organizational Overview:..........................................................................................................4 Case Analysis:............................................................................................................................5 Kantian Perspectives:.................................................................................................................9 Utilitarian Perspectives:.............................................................................................................9 Conclusion:..............................................................................................................................10 References:...............................................................................................................................12
2MANAGEMENT Introduction: The importance of the ethical business practices is observed to be notably high for majority of the organizations in the modern business world and that is pretty visible with the enhanced urgency from the part of the senior management of the organizations in the conducting their business in an ethical manner. With a precise focus on the effect of the unethical business practices over the companies in the aspect of the reputation, the increasing importance for the much required incorporation of the ethics in the business practices of the organizations is easily understandable. Grace and Cohen (2015) are able to comment on the success of the incorporation of the ethics in the business activities of the organizations with the claim that the incorporation of the ethics in the business activities of the organizations have the potential to improve the corporate image of the organizations and in addition to this, the ethical practices from the part of the organizations is crucial in avoiding any sort of reputational damage for the organizations. Apart from this, improvement of the corporate image of the company plays a crucial role in the increment of the preferences of the customers towards the organization which helps the companies in increasing the sales of their companies. The paper discusses regarding the impact of the unethical business practices of one of the largest bank of Australia, Commonwealth Bank. In addition to this, the paper also provides a brief overview of the mentioned organization and the business operations of the organization. The paper portrays the importance of the corporate governance and the ethics in the improvement of the corporate performances. With a precise focus on the business operations of the mentioned organization, the paper analyses failure of the principles of corporate governance and ethics. In elaborating the ethical issues which affected the business activities of the mentioned
3MANAGEMENT organization, the paper is able to pout strong emphasis on theUtilitarian and Kantian perspectives. Organizational Overview: As mentioned earlier, the mentioned organization is one of the largest multinational banks in the nation. The organization operates in the baking and the financial services industry. The organization was initiated in the year 1911 and is currently headquartered in the city of Sydney (Commbank.com.au, 2019). The strong presence of the organization with more than 1100 number of branches and more than 4300 number of ATMs, the organization is able to serve their customers across the customers (Commbank.com.au, 2019). With a precise focus on the business activities of the organization, it is pretty evident that the excellent leadership of the current management team of the organization is responsible for the improvement of the financial stability of the organization. The organization is currently managed by the chairman of the organization,Catherine Livingstone and the CEO and managingdirectoroftheorganization,MattComyn(Commbank.com.au,2019).The visionary leadership of the management team of the organization has enabled the company to generate a revenue of A$26.005 billion in the year 2017 along with a net income of A$9.881 billion in the same year (Commbank.com.au, 2019). Many of the business analysts of the nation also consider the service excellences of the 51,800 number of employees recorded in the year 2017 to be one of the important factor responsible for the success of the organization (Commbank.com.au, 2019). However, in recent years, the organization is observed to be affected with the increasing incidents of the unethical business practices and the impact of such incidents is pretty prominent on the business operations of the mentioned organization. One such major case that affected the reputation of the company and the business activities of the mentioned
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4MANAGEMENT organization is observed to be theTransactions Monitoring Law Violations from the part of the company that took place in the year 2017 (Coyne & Coyne, 2019). Case Analysis: It is understandable that the ethics play a major role in the success of the modern business organizations. The corporate performances of the organizations is observe to be significantly influenced with practice of the ethics in the business activities of the companies. The practice of the ethics in the modern business world is seen to be crucial in increasing the accountability of the employees towards their activities. As the employees are the first line of the organization, the ethical business practices from the part of the employees of the organization reflects the strength of the corporate governance that the organization is able to employ. As mentioned earlier, the incorporation of the corporate ethics in the business organizations will be crucial for the organizations as it has the potential to improve the corporate image of the companies (Kolk, 2016). With the improvement in the corporate image, the organizations will be able to increase their preferences amongst the customers which has he potential to increase and improve their business activities. Considering the increment in the business activities from the part of the companies, the organizations are expected to have high possibility of achieving larger growth in their profitability. Under such situation, the mentioned organization was observed to be involved in one of the most significant cases of criticism with the violation of the Transactions Monitoring Law in the year 2017. In the Australian banking sector, the linkage between the transaction laws and the ethics is observed to be of great significance. In case of the Commonwealth bank, the organization was alleged for disregarding the important banking legislations that are able to put strong emphasis on the banks for monitoring their transactions. The importance of these
5MANAGEMENT legislations is notably high as it ensures that the banks evaluate the transactions to find any scope or case of criminals using their systems for laundering their unethically achieved money. The government of Australia has established these legislations for making sure that the financial companies or the banks of the mentioned nation, continuously evaluate their systems for the identification of the suspicious activities so that they be able to report the relevant regulatory authorities for eliminating the scope for the criminals in using their systems (Coyne & Coyne, 2019). In the year 2012, the organization was observed to take away their Intelligent Deposit Machines (IDM) and the organization was accused of not conducting any sort of necessary risk assessment in accordance to the legislations (Austrac.gov.au, 2019). The Australia's Transaction Reports and Analysis Centre reported that the criminal syndicates have used their IDMs for depositing money. The report framed by the centre claims that the machines were significantly used by the syndicates foranonymous depositing of the money into the bank accounts of the commonwealth bank as the machines did not have the required mechanism installed for requiring the identity of the depositors.Hence,withtheusageofthemachines,accountsofthe commonwealthbank,offshoretransferringschemesandfakeidentity, more than 5 criminal syndicates of the region were able to launder their unethical money (Hutchens, 2019). In the year 2015, the organization was able to achieve the idea of the misconduct and was observed to conduct a risk assessment, however, that was too late as already more than 9 billion dollarswasflowedthroughthemachinesoftheorganization (Dailymaverick.co.za, 2019). Apart from this, the company was entitled to conduct the continuous monitoring of the transactions and was responsible for reporting to the
6MANAGEMENT Australia'sTransactionReportsandAnalysisCentreforanysortofsuspicious transactions.Apart from that, the organization was also responsible for putting holds to such accounts for the investigation, however,Australia's Transaction Reports and Analysis Centre reported that the organization was significantly indifferent to this. The Australia's Transaction Reports and Analysis Centre was observed to accuse the mentioned organization for having gaps in transaction monitoring in more than 778,370accounts during the time period from October, 2012 to end of 2016 (Austrac.gov.au,2019).Apartfromthis,theAustralia'sTransactionReportsand Analysis Centre claimed that the mentioned organization were reluctant in filing suspicious transaction reports for more than 53,506 transactions which is worth of 625 million Australian dollars (Austrac.gov.au, 2019).In addition to this,Australia's Transaction Reports and Analysis Centre was observed to accuse the mentioned organization for not conducting the required investigation for those suspicious transactions and for not taking any sort of appropriate actions. The claim of Australia's Transaction Reports and Analysis Centre was observed to be acknowledged by Ian Narev, the former Chief Executive Officer of the organization. In one of his interview to the media, Ian Narev accepted the fact that there was not any sort of risk assessment done on the IDMs (Commbank.com.au, 2019). The organization is able to restructure their corporate governance strategy and that is pretty evident with the formation of the governance priorities, strong policies for the improvement of the corporate culture of the organization, specification of the purpose and values of the organizational activities in the best possible manner. With the restructuring in the corporate governance report, the management of the organization is able to the reinforce accountability through the pay outcomes and along with that, the restructuring enabled the organization to put strong emphasis on the policies of the organization, code of conduct,
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7MANAGEMENT whistle blower protection, anti-bribery and corruption along with the conflicts of the interest. As mentioned earlier, the newly promoted managers of the organization are one of the major factor responsible for the success of the organization and that is pretty visible with the formation of the new corporate governance report and with the increasing generation of the revenue. In accordance to the corporate governance report of 2018 of the mentioned organization, the code of conduct which is labelled as “Our Commitments” is pretty significant in stating the expected behaviour of the employees, senior executives or the directors in conducting the business operations (Commbank.com.au, 2019). The code of ethics of the mentioned organization is of great significance as it provides the much required guidelines to the employees of all levels and the shareholders of the organizationforunderstanding,practicinganddemonstratingthecorevaluesofthe mentioned organization. According to the business report of the organization, there was not any sort of deficiency of the non-executives, however, the organization were observed to be involved in the violation of the basic legislations of the banking sectors. The organization was responsible for evaluating the transaction history and report the suspicious transactions to the regulatory authority, however, the organization was observed to be indifferent towards their responsibility which enabled considerable number of criminal syndicates to use their systems for depositing their unethically achieved money. The shareholders of the organization expected the organization to run in the ethical manner so that the organization is not forced to face any sort of reputational damage that have the potential to affect their business operations. However, under the leadership of the former CEOandtheseniorexecutives,theorganizationwereobservedtobeinvolvedin considerable number of cases that not only damaged the corporate image of the company but also affected the financial stability of the organization. The employees of the organization were part of a misconduct which was primarily conducted from the part of the senior
8MANAGEMENT managementof the organization with the application of the IDMs for increasing the smoothness in the banking operations without any prior risk assessment. Hence, the societal reputation of the employees of the organization was observed to be affected in a significantly negative manner. The case portrayed the company as a negative employer and adding to that, with the significant decline in the sock prices of the company, the shareholders of the organization were observed to tremendously affected. The sudden and significant decline in the stock prices of the company created a state of chaos inside the organization (Baxter, 2016). It is pretty much understandable that the customers will be more inclined towards the organizations that do not have any sort of reputation of money laundering when it comes to depositing their money. Hence, from that aspect, the company was observed to be affected in a significant manner. Kantian Perspectives: In accordance to Kantianism, any business action is considered to have the base in the form of goodwill. In accordance to the theory, the goodwill is considered to be a rational part of the human being which influences to do the things for the right reasons (Villa, 2015). The determination of the correctness of the actions and the evaluation of the fact whether the action is motivated for the right reason become necessary for assessing whether goodwill is responsible for a particular action or not. The Formula of Humanity plays a key role in the evaluation of the actions. With respect to the Formula of Humanity, it is visible that the mentioned bank was not concerned about the implementation of the legislation regarding the transactions monitoring as the managers of the organization were observed to be more concerned regarding the deposit of larger amount of money in their banks (Blau, 2019). Hence it is pretty visible that the company was using their customers as a mere means of making more money. If the organization was concerned regarding how the money was made, some of the suspicious laundering activities could have been detected by the organization as
9MANAGEMENT per the allegation of theAustralia's Transaction Reports and Analysis Centre. Hence it is pretty much understandable that the action of the mentioned organization were not coming from any goodwill, hence the actions are considered to be impermissible. The universalizing oftheactionsofthementionedorganizationhasthepotentialtocreateuniversal inconsistency. Utilitarian Perspectives: In accordance to the, the focus is not on the actions that are considered to be right in accordance to the specified definition of the right or wrong, rather, the focus is on the maximization of the happiness irrespective of the actions (Snow, 2015). Hence, considering the mentioned theory, it is not the actions that matter the most, rather it is the happiness of the stakeholders of the organization that matters (Strobel et al., 2013). With a precise focus on the condition of the organization after the incident, the shareholders of the organization were seen to be furious with the managers of the organization for damaging the reputation of the company and affecting the purchase intention of the customers in a negative manner. In addition to this, the 14% fall of the stock value of the company portrayed the dissatisfaction ofthecustomersandwasamajorconcernfortheshareholdersoftheorganization (Commbank.com.au, 2019). Apart from this, the resignation of the CEO of the organization as an immediate impact of the case is pretty significant in stating the inappropriate condition of the organization and the increasing level of uncertainty associated with the operations of the managers and the executives of the organization. With the allegations ofAustralia's Transaction Reports and Analysis Centre on the organization regarding their unethical and inappropriate business operations, the customers of the organization were observed to be panic-stricken as well. As it is pretty evident that the case was responsible for the increasing level of unhappiness for all except the criminal syndicates who had an easy way out for launderingmoneyowingtotheinappropriateactionsofthementionedorganization,
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10MANAGEMENT utilitiarianperspectivesconcludesbystatingthattheactionsofthe mentionedorganizationwereimpermissibleasitbroughtincreased amount of unhappiness in comparisom of the happiness. Conclusion: Onaconcludingnote,itisporetyevidemtthatthecaseof CommonwealthBankisaclassicexampleoftheunethicalbusiness practice. The case is observed to affect the business operations of the mentionedorganizationina notablemnanerandalong withthat, the violationofthetransactionmonitoringlawenabledthecriminalsto laundertheir money unethically. In bothUtilitarian and Kantian perspectives, the actions of the company are observed to be neither generated out of goodwill nor led to any sortofhappinessforthestakeholdersoftheorganization.Hencetheactionsofthe organization are considered to be permissible.
11MANAGEMENT References: Abc.net.au(2019).CBAtopay record$700mfineovermoneylaunderingbreaches. Retrievedfromhttps://www.abc.net.au/news/2018-06-04/commonwealth-bank-pay- $700-million-fine-money-laundering-breach/9831064 Austrac.gov.au (2019). AUSTRAC and CBA agree $700m penalty | Australian Transaction ReportsandAnalysisCentre(AUSTRAC).Retrievedfrom http://austrac.gov.au/media/media-releases/austrac-and-cba-agree-700m-penalty Austrac.gov.au (2019). Australian Transaction Reports and Analysis Centre (AUSTRAC). Retrieved from http://www.austrac.gov.au/ Baxter, L. G. (2016). Adaptive financial regulation and regtech: a concept article on realistic protection for victims of bank failures.Duke LJ,66, 567. Blau,A.(2019).MethodologiesofInterpretingHobbes:HistoricalandPhilosophical. Interpreting Hobbes's Political Philosophy, 10. Commbank.com.au (2019). Personal banking including accounts, credit cards and home loans - CommBank. Retrieved from https://www.commbank.com.au/ Commbank.com.au(2019).Retrievedfrom https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/ corporate-profile/corporate-governance/CBA-2018-Corporate-Governance- Statement.pdf Coyne, A., & Coyne, A. (2019). CBA expecting $375m fine over ATM fraud scandal. Retrieved from https://www.itnews.com.au/news/cba-expecting-375m-fine-over-atm- fraud-scandal-484628
12MANAGEMENT Dailymaverick.co.za (2019). Australia’s Commonwealth Bank agrees to US$530 mln fine overmoney-launderingbreaches.Retrievedfrom https://www.dailymaverick.co.za/article/2018-06-04-australias-commonwealth-bank- agrees-to-us530-mln-fine-over-money-laundering-breaches/ Grace, D., & Cohen, S. (2015). Business ethics. Hutchens, G. (2019). Commonwealth Bank agrees to pay $700m to settle money laundering lawsuit.Retrievedfrom https://www.theguardian.com/news/2018/jun/04/commonwealth-bank-agrees-to-pay- 700m-to-settle-money-laundering-lawsuit Kolk, A. (2016). The social responsibility of international business: From ethics and the environment to CSR and sustainable development.Journal of World Business,51(1), 23-34. Snow, N. E. (Ed.). (2015).Cultivating virtue: Perspectives from philosophy, theology, and psychology. Oxford University Press. Strobel, J., Hess, J., Pan, R., & Wachter Morris, C. A. (2013). Empathy and care within engineering:Qualitativeperspectivesfromengineeringfacultyandpracticing engineers.Engineering Studies,5(2), 137-159. Villa, J. (2015).Ethics in Banking: The Role of Moral Values and Judgements in Finance. Springer.
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