Corporate Governance and Business Ethics in Financial Services Report

This report provides an in-depth analysis of corporate governance and business ethics, focusing on the issues raised by the Australian Royal Commission in the banking, superannuation, and financial services sectors. The study examines the impact of cultural norms, remuneration practices, and governance structures on the financial entities and their stakeholders. It delves into specific issues such as unethical business practices, inadequate governance rules, and flawed remuneration systems. The report explores the ethical responsibilities of businesses towards stakeholders, including employees, customers, and shareholders, considering both ethical and economic perspectives. Furthermore, it analyzes the application of ASX principles, the importance of diversity within boards, and the ethical implications of the commission's findings using normative theories and a sustainability approach. The objective is to understand the misconduct within the Australian Royal Commission, emphasizing cultural, remuneration, and governance challenges within the financial sector. This report is crucial for understanding the complexities of ethical conduct and regulatory compliance within the financial industry.

Running Head: CORPORATE GOVERNANCE AND BUSINESS ETHICS
CORPORATE GOVERNANCE AND BUSINESS ETHICS
Name of the Student
Name of the University
Author Note

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Executive Summary
The main objective of the study is to understand the issues related to the banking,
superannuation and the financial services in Australian Royal Commission. The study is
supported by the contextual issues related to the cultural, remuneration and governance
aspects of the financial entities. It was found that the major issues were related to the business
norms and values. The principles required for establishing an ethical business environment.
Another issues is related to the requirement of governance rules and regulations and policies
that is not present in the financial entities and remuneration system related to the
organization.

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Table of Contents
Introduction................................................................................................................................3
Discussions.............................................................................................................................4
Answer to question 1..............................................................................................................4
Answer to question 2..............................................................................................................5
Answer to question 3..............................................................................................................7
Answer to question 4..............................................................................................................8
Answer to question 5............................................................................................................10
Conclusion................................................................................................................................12
References................................................................................................................................13

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Introduction
Australian royal commission is a public inquiry that usually looks the different
problems and other controversies in Australia. The study is related to the issues regarding the
misconduct of Australian Royal Commission in the field of banking, superannuation and the
financial services. Financial advice is very much important for financial planning. The
financial advice will give a financial planning on how to properly allocate the funds to a
particular business operations or any projects for accomplishing the organizational objectives.
It is a very important concept for overall functions of a business. Therefore, it is very crucial
part of the business to do a proper financial planning. Therefore, the business need to do a
proper financial planning in order to minimise the risks of the business. The first part has
focused on the various issues related to the financial advices in terms of cultural, governance
and remuneration point of view. The next part is discussed on the impact of the issues related
to the financial advices on the stakeholders of the financial entities. The third part has done a
study on the principles and recommendations reported by the Australian Securities Exchange
or ASX. The next part is emphasised on valuation of diversity and the presence of the boards
in the Australian Royal Commission. The last part has focused on the ethical analysis of the
final report with the help of normative theories of ethics and the sustainability approach of
the business. The intense of this study is to understand the misconduct of Australian Royal
Commission in the field of banking, superannuation and financial services. The study has
mainly focused on the issues related to cultural, remuneration and governance point of view.
Discussions
Answer to question 1
The following different issues are developed with the emergence of financial Advice:

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1. From Culture point of view- The culture of an entity was the various norms and
values that shape the behaviour over the organisations. Therefore, proper standards
are required for the safety of the culture in an entity. But, the government does not
prioritise this risk and, there was no adequate culture in the organisation. Poor
management, weak leadership, and less value to the customer were the significant
issues that affected the organisational culture. The clients were bound to give fees for
investment without providing the required financial services. The financial advisors
were charging the customers without giving any advice that is they treated the advice
as commissions. The culture of the retail banks was unethical; they mainly focused on
commissions rather than to focus on customer needs. It ultimately affected the
remuneration.
2. From the governance point of view- The vertical integration is a vision for the
production and financial advice where along with the facilities provided by the
retailed banking services like depositing services and loans, the investment needs for
the customers is also to be provided. Therefore, vertical integration focused on
supplying, designing and creating the products that can give an investment platform
for the investors. But, later on from the Murray Inquiry report, inquiring the financial
system in year 2014, it was observed that a very high increase of vertical integration
in several of sectors had limited the paybacks of competition that can be achieved in
future. With the concept of a global financial crisis, a significant number of the
customers that are holding these financial products were not benefited for their needs
and some other circumstances.
3. From Remuneration point of view- This is very relevant issues related to financial
advice. Poor advice to the clients and charge fees with inadequate services are a
significant issue. The commonwealth financial planning (CFPL) has misconducted the

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fact by advising the clients to invest in a higher risk product for attaining higher
profits that were not suitable for the clients. There was consideration of client’s
permission with no signatures in the documents, before switching the relevant
documents. The two CFPL advisors linked with this case were Mr Don Nguyen and
Mr Anthony Awkar. The clients who were accused of no services were either the
clients who were orphans who were not determined as the active financial advisor or
the clients who were not able to deliver the money charged. The orphan client used to
pay administration fees or transaction fees for the investment process. The CBA or the
Commonwealth Bank were having sufficient resources to provide services to the
clients, but still, they were not paying the services.
Answer to question 2
The stakeholders can be affected by a change in organisational policies and
objectives. Stakeholders have ultimately involved in the business-related performance.
According to Carroll & Buchholtz, the effect of the issues in financial advice may affect the
internal and external stakeholders due to a lack of corporate social responsibility in the
business.
 The first question arises that what ethical responsibilities can disturb the stakeholder's
group of an organisation- The issues related to organisational culture, governance and
remuneration has an impact on the stakeholders. Ethical conduct in business is
possible by well-established law. Because, the stakeholders include the customers,
employees, shareholders and other board members of the organisation. Hence, all
these communities can be adversely affected by the obligations of the business.
Therefore, the first ethical responsibilities is the moral obligations towards the
employees like making polices like OSHA policies for the safety of the employees

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(Dutt & Grewal, 2018). The employees should be paid a reasonable amount as salary
for a better life, and the internal environment of the organisation must be a pleasant
work environment for the employees. The customers' needs to be satisfied by
providing a good quality of products at a fair price. These responsibilities can affect
the shareholders due to issues in financial advice.
 The second question is what the economic responsibilities that can affect the
stakeholders- The companies need to establish to fulfil the demands of the targeted
customers by increasing the quality of the product at a reasonable price. This will
enhance the profitability of organisational performance. When a business earns a
profit, the employees are also benefited from the incentives. The companies have
required the produce the products which can add values to the customers (Evans,
2017). The products and other criteria of the business should not be discriminated
based on any gender or income. They must develop the security of all the
stakeholders. The issues in financial advice related to the culture, remunerations and
regulations will affect the profitability and securities of the stakeholders.
 The third question is related to the legal responsibilities that can have an impact on
the stakeholders- The rules and regulations related to labour law, environmental law
and other laws need to be adequately defined in the organisational context (Vethirajan
& Ramu, 2016). The provisions require to provide the duty of a business towards the
protection of any damages for the stakeholders. The issues in financial advice related
to governance will affect stakeholder's group.
 The next question is the discretionary responsibilities that can affect the stakeholders-
The companies have the responsibilities to five back some donations in the form of
money or any goods to the society or helps from any natural calamities like floods &

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earthquakes (Webster, 2018). The issues in financial advice like governance can have
an impact on the stakeholders.
 The last question is the environmental responsibilities that can affect the stakeholders-
Business is to be operated in a way that it protects the environment. The business
plans need to secure the environment by avoiding deforestation and disposal of
chemical waste, use of plastics and other factors (Bronitt, 2016). These will affect the
stakeholders in causing illness or natural calamities in the environment.
Answer to question 3
Corporate governance is a system where any business entity is controlled. It provides
the responsibilities and rights towards the organisation's stakeholders and the management.
The focus of the report is on the issues, causes and responses in the various financial sectors
in the financial services industries like banking, financial advice, superannuation and
insurance industries. These issues are generally on the established underlying ASX
principles.
 The organisations need to have the desired culture of acting ethically, with defined
regulations and laws and towards social responsibility. It was observed that the
organisation motive is to generate profit and avoiding the customer's needs. The sales
were a vital consideration rather than meeting the customer's requirement. The
financial advisors were giving unethical advice. The culture in the organisation is to
generate profit without including the responsibilities towards society (Winkler &
Duminy, 2016). The incentives and bonuses were given as commission regardless of
whatever the sale is made.
 Remuneration should be fair to the stakeholders and responsible towards the other
members of an organisation. It was observed that the clients were not given the

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required services. The customers had to deal with the services within an intermediary
against the client’s interest (Raghuram, 2016). The interests of the clients were not
considered. The profits were generated irrespective of the client’s interest.
 The organisation should allocate the employees according to their appropriated skills,
knowledge and composition of the position required in an entity. The employees need
to have the duties that could add some values to the organisational performance. It
was observed that the detailed knowledge related to the customers’ requirements. The
entities were individually performing the way they could generate the profits. There is
no well-established procedure and allocation of tasks that could deal with the
customers’ requirements (Missimer, Robèrt & Broman2017). There were inequity in
the knowledge and the power of generating profits.
 The entities listed on the Australian Securities Exchange should make a balance on all
the matters and have formal procedures mentioned in the Australian Standard
Accounting to do the reporting and improve the quality of the corporate reporting. It
was observed that the financial service industries and the entities usually do not
follow the laws and hence, they misconduct and yield the profits. There was no formal
procedure for doing financial reporting's; financial institutions break the rules for
gaining the benefits. Recommendations made by ASX has attracted these responses.
The proposals related to the financial industry has made an essential aspect of
building the economic strength of the nation. The ASIC needs to be concern on
establishing a good relationships between consumers and licensees.
Answer to question 4
The inclusive of the business working environment is benefited for increasing the
business performance. Assessing the business with equality and diversity will cause a

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positive impact on the business. The boards or the directors of the entity has the legal
responsibilities to protect from financial risk. There were issues related to the financial advice
and superannuation in terms of culture, remuneration and governance. There were issues in
the remuneration structure of the financial entities (Yigitcanlar, Dur & Dizdaroglu, 2015). There
was the inclusion of fixed and variable payment. The board allowed the entities to adjust the
variable remuneration to the executives for managing the managerial risk. Diversity needs are
necessary for maintaining the body and intellectual property. There is a responsibility for the
board of an entity towards human rights in terms of customer requirements, remuneration to
the employees. The following assessment has been investigated-
The directors of the boards are differentiated between the association of the shareholders
and a nominating organisation of a trustee. For becoming a board of trustee, the person needs
to have skills and efficient for supervising the organisational fund. All the directors of the
trustee have similar duties to perform and have the power as a director to meet the interests.
The composition of the board was not properly developed in the trustees. Boards were not
able to receive the information properly and hence, cannot operate properly (Shimeld,
Williams & Shimeld, 2017). The other communities were not seeing the audit report.
Therefore, it was quite challenging for management to solve the problems. The entities are
incorporated with some responsibilities towards their shareholders. The shareholders select
the directors of the companies. As per the final report of the Royal Commission, the CEO is
authorised to take leave due to the mental pressure. The boards must consider the
organisational culture and code of conduct for strategic financial performance. The directors
need to prioritise the other boards and interests of stakeholders in performing organisational
decisions. Boards need to be built stronger for overcoming managerial risks and remuneration
decisions. The board members are having a relationship with the shareholders that may cause
some fraud and other unethical practices that may not be relevant for an organisation.

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Therefore, diversity in the board is necessary for the flexibility in the organisational system.
The misconduct practices can be avoided, and external issues related to financial entities can
be avoided (Mees & Smith, 2019). The royal commission was undergoing the misconduct
practices in the banking, superannuation and financial services. Gender is one of the basic
diversity. Women can also be included in a board of member in the organisation.
Answer to question 5
The following ethical analysis, according to the normative theory of ethics:
1. Deontological- This means that the obligation necessity. This determines the moral
duties of an individual. This theory explains that the moral value of an action is on the
basis of the duties and the consequences of what an individual does. This theory
determines the rights of an individual. It emphasise mainly on the concepts of motive
and intentions. It can also cause an individual to act in a way that could bring bad
consequences. In the final report of Royal commissions, there is no proper code of
ethics and laws in the financial institutions. The financial advisors forced the investors
and the clients to pay money. The directors were engaged in fraudulent activities, and
ultimately, the consequences of the action turn bad for an individual (Altman, 2018).
This has an impact on the sustainability of the financial firm by disturbing the
responsibilities towards the social systems of the organisation.
2. Utilitarianism- This theory tells that the moral values of any action should be based on
the consequences. A good action will produce good consequences, and bad actors will
produce bad consequences. Therefore, the right action will good action will cause
happiness and involve pleasure. This theory drives towards the good deeds of an
individual for enhancing the good consequences. In the final report of Royal
Commissions, the financial institutions were not giving importance to the customers’

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requirements and the stakeholders. The financial entities only prioritised on the
profitability of the organisation irrespective of the stakeholder’s interest. The royal
commission was involved in doing unethical business in the financial entities like
banking, superannuation and the financial services by the name of bonuses and
commissions from the customers to increase their profits. Later on, the consequences
were bad for the entities. The organisation needs to focus on paying incentives to the
employees, integrate certain programs for protecting the consequences and
sustainability of the business.
3. Teleological- This theory tells that if an individual wants to know the morality of how
to behave, then he/she needs to decide the ultimate goal of ethics. This theory will
look towards and ultimate goal and help in deciding the best possible consequences
that can be achieved in a particular situation. This theory will determine the duty of
understanding what is good and what is bad and how it can be achieved. In the final
report of Royal Commissions, there was no objective set by the financial entities.
There is no principles and norms for the organisation (Wang et al., 2016). It is
recommended in the financial report that the entities need to deal with the problems
and determine the effective changes.
4. Character-based ethics- This is also known as virtue ethics. This theory mainly
focuses on the character and honesty of an individual. This theory has explained how
virtue is to be acquired. This ethical concept was absent in the final report. There was
a lack of honesty in terms of organisational culture, remunerations and the governance
point of view.