Leadership and Management Report: CBA Scandal Analysis and Issues

This report critically analyzes the leadership failures of Ian Narev, the former CEO of Commonwealth Bank of Australia (CBA), focusing on three major scandals: money laundering, denial of insurance claims, and financial planning misconduct. The report examines the AUSTRAC case, where CBA was fined for failing to report suspicious transactions, and analyzes the impact on the bank's revenue and stakeholders. It then explores the unethical practices of the bank in denying insurance claims, particularly the outdated definition of a heart attack, and the consequences for policyholders. Finally, the report investigates the financial planning scandal, where clients' funds were placed in high-risk investments without their consent, and the inadequate compensation provided. The analysis links these issues to relevant leadership theories, such as democratic, ethical, and authentic leadership, and provides examples from other organizations like HSBC and Deutsche Bank. The report concludes that Narev's leadership was ineffective and unethical, resulting in significant damage to CBA's reputation, brand equity, and consumer loyalty.

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Money laundering
 Analysis of the scandal
AUSTRAC, the financial intelligence agency of Australia, has filed a case against
common wealth bank for facilitating money laundering activities and terror financing. The
mentioned bank has been sued for breaking the law by not reporting suspicious transaction
54,000 times (Ryan 2017). The number of illegal transition happened was more than 53,000 and
as a result, the fine imposed on the bank is more than 1 trillion dollars. According to the boards
of directors of the Commonwealth bank, more than 54,000 law breaches were caused due to
software error. It has been confirmed by the Australian Securities and Investments Commission
(ASIC), that they will investigate on the above mentioned scandal (Mann 2017). According to
the Chairwomen of Commonwealth National Bank, the bank detected the risk of intelligent
deposit machines for being targeted by terrorists and money launders during the end of 2015. As
a result, the overall revenue and consumer loyalty of the Common Wealth Bank are hampered.
This scandal has also imposed a negative impact on the stakeholders of the bank.
Critical analysis of the Narev’s leadership issues
The Chief Executive officer of Common Wealth Bank, Mr. Ian Narev is found to be
unable to justify the reason behind this scandal. According to him, he had focused his attention
on preparing the annual result announcement for the Common Wealth Bank (Ryan 2017).
According to South Australian Senetor Nick Xenophon, Mr. Ian Narev has not taken the
allegations seriously. Considering the fact that, the allegation of money laundering has imposed a
highly negative impact on the CBA, is the CEO of the bank, Narev should have handled the
situation more effectively. Since risk of being targeted by criminal elements was suspected by

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the end of 2015, being the leader of the organization, Narev should have started the investigation
by then. Under his leadership, the board of CBA should have informed the investors as soon as
they became aware of the money laundering activities. Instead of the mentioned action, Narev
decided not to disclose their suspicion to the investors. As a result, a huge number of investors
suffered due to the wrong leadership of Ian Narev.
Linking of issues, leadership theory, and examples drawn from other organizations
According to the democratic leadership theory, a leader should be able to create an
effective relationship with the employees and stakeholders and create a high percentage of trust
(Odumeru and Ogbonna 2013). He should be transparent with all his actions and should take
decisions only after conducting effective discussions with employees and stakeholders. It can be
clearly understood that Ian Narev, has not followed the above mentioned theory which in turn,
has given rise to the money laundering issue faced by the CBA. Being the CEO of the bank, the
first step that should have been taken by Narev is to inform all the investors about the risk of
money laundering so that they can save their money. Secondly, he should have taken strict legal
steps in order to investigate the issue. The wrong leadership of Ian Narev has cost the bank a
high amount of 1 trillion dollars. The HSBC bank has gone through a similar situation of money
laundering where the company was fined 30 million dollars by the Mexico Government and had
to invest 700 million dollars to pay the stakeholders who have suffered from losses due to money
laundering (Bean 2012).
Refusal to pay insurance policyholders
Analysis of the Scandal

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According to ABC’s 4 Corners and BusinessDay’s Adele, the CEO of Commonwealth
Bank of Australia has found to be pressurizing the doctors to change their assessments so that the
bank can avoid payout to the health insurance policyholders (Yeates 2016). The bank has also
been accused of delaying payments to critically ill consumers and refusing to honor claim to
former employees who were retired medically. One of the chief victims of the above mentioned
scandal is James Kessel who got his 1.1 million dollars for trauma claimed refused by the Bank
despite suffering from a major heart attack in 2014. The reason given by the bank behind
rejecting his insurance claim is the absence of Troponin in his bloodstream (Fogarty 2016).
However, according to cardiologists, the definition of heart attack of CommInsure, the life
insurance sector of CBA, is outdated. In spite of knowing this fact, the bank unethically refused
to the health insurance money holders (Ferguson 2018). Similarly, the claim for total and
permanent disability of Helen Polydoropoulos, a former employee of the bank was rejected
without any justified reason. Not only the two above mentioned individuals, several victims have
lodged complained against this bank which has imposed a highly negative impact on the brand
equity and consumer loyalty of CBA.
Critical analysis of the Narev’s leadership issues
The inefficiency of the CEO of CBA, Ian Narev can be clearly understood from the
above analysis of the scandal. Complaint of several unethical acts in order to avoid payment to
the justified insurance policy holders is reported against him. For instance, in spite of being
aware of the fact that the definition of heart attack is out of date and needed to be changed for the
sake of consumers, he continued with the outdated definition (Ferguson 2018). This act of Narev,
can be considered to be unethical since, in order to enhance the overall revenue of the Bank and

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to achieve short term goals, The CBA is losing reputation, brand equity and consumer loyalty
under the leadership of Narev. This will definitely lower the banks yearly revenue in near future.
Linking of issues, leadership theory, and examples drawn from other organizations
According to the theory of ethical leadership, a leader should be always maintaining
ethics no matter what the extrinsic and intrinsic situation is. Some of the qualities of an ethical
leader include justice, respect for stakeholders, humanity, honesty along with encouraging his
employees to follow his ideologies (Landis, Hill and Harvey 2014). From the above discussion,
it can be clearly understood that Ian Narev has not followed the above mentioned ethical theory.
Instead of continuing with the outdated definition of heart attack, he should have implemented
the new definition so that the authentic users who were getting rejected can avail the insurance
money. Similar incident was reported when Reserved Bank of India denied paying insurance
claim to authentic insurance holders. Case was filed against RBI, and the bank had been fined a
good amount of money.
Financial Planning
Analysis of the Scandal
Millions of consumers of Commonwealth Bank have suffered a huge loss of money due
to the multi-million-dollar financial planning scandal of the bank. The reason behind this scandal
is the act of the financial planners of the bank to put the money of the clients in high risk
investments without their permission. According to Ian Narev, this scandal resulted due to poor
advice of some of the advisors (Ferrier 2015). He declared to launch a program to compensate
consumers who had lost their money. However, the exact money to be distributed among the
consumers was not disclosed by him. However, no effective action was taken by the bank and

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moreover, the consumer protection for financial advice was removed. According to researchers,
only 19 consumers out of 8000 have received compensation and even they have not received the
amount of money they had lost and hence the 1st compensation scheme of CBA remained
unsuccessful (Wilkins 2015). Under the leadership of Ian Narev, a new compensation scheme
was organized. However, none of the previous managers was changed and only 4610 consumers
were registered with the new scheme. On the other hand, the banked declared that consumers
must register their name with the bank themselves (Ma, Cand S 2018).
Analysis of Narev’s Leadership Issues
It can be clearly understood from the above discussion that the leadership of Ian Narev is
inefficient. He had blamed the inefficiency of several financial planners for the reason behind
financial planning failure. However, being the CEO of CBA, it is his responsibility to ensure the
security of the money of CBA’s consumers (Johnston 2014). Besides that, the compensation
programs organized by the bank were not at all effective and were unable to provide compassion
to the majority of the consumers. Here the lack of leadership skill of Narev, can be evidenced
clearly. Under his leadership, the bank should have declared the amount of money to be kept
aside for compensation and the number of consumers listed for the program in order to maintain
transparency of the system.
Linking of issues, leadership theory, and examples drawn from other organizations
According to the authentic leadership theory, a leader must build legitimacy through
honest relationship with the stakeholders. An authentic leader should be a person with a positive
mindset (Wong and Laschinger 2013). However, it can be understood that the mentioned leader
has not followed the authentic theory of leadership. Ian Narev should have scrutinized the plan of

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the financial planners before implementing them. Besides that, it was an unethical decision to
invest money of the consumers on risky plans without seeking their permission. The largest bank
in Germany, the Deutsche Bank had undergone similar financial meltdown issues in 2008. As a
result, the company had not only lost its brand equity and consumer loyalty, it had to pay a fine
of 14 billion dollars to the government of Germany.

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Reference list
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Fogarty, R. 2016. Who's who in the Commonwealth Bank's life insurance scandal?. [online]
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Mann, P. 2017. Commonwealth Bank of Australia—in the Midst of a Money-laundering Scandal.
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Ferguson, A. 2018. Relying on life insurance? Think again.. [online] Sydney Morning Herald.
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