MB112: Business Ethics Report on Commonwealth Bank of Australia

This report provides a comprehensive analysis of the ethical issues faced by the Commonwealth Bank of Australia (CBA). It begins with a company background, detailing CBA's history and operations, followed by a discussion of the ethical scandals the bank has been involved in, including financial planning misconduct, misrepresentation of insurance policies, and money laundering. The report then delves into CBA's approach to business ethics, including its definition of corporate social responsibility (CSR), corporate governance, and code of conduct. It evaluates the bank's actions against its stated ethical principles, highlighting discrepancies and failures to uphold ethical standards. The report also explores the steps CBA has taken to address these issues and offers recommendations for improvement, such as strengthening internal controls, providing ethical training, and establishing compliance committees. The conclusion summarizes key findings, emphasizing the importance of ethical behavior and the need for CBA to prioritize the interests of all stakeholders.

Running Head: BUSINESS AND CORPORATION LAW 0
Business Ethics
2/8/2020
Student’s Name

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Introduction
Ethics are important aspects of each business that outlines the manner in which an entity
should behave. The primary motive of each organization is to earn profit but in doing so,
businesses cannot forget their responsibility towards the society and other stakeholders. In recent
years, many of the organizations have reported in the media that they have breached their
business ethics as well as ignored corporate social responsibility. These businesses are also
facing the consequences of these conducts in the form of monetary penalties as well as the loss
of goodwill. We have been given a task to gain an understanding of such unethical issues and to
find a solution for the same. The organization selected by my group is the commonwealth bank
of Australia, which is an Australian multinational bank. In the presented report we would provide
a summary of the organization along with the ethical issues that the same has faced in the past.
Further, the group will also focus on details related to business ethics such as its approach to
CSR and steps taken to improve the situation. Lastly, we would present a conclusion containing
key findings of the report
Company Background and history
As mentioned above, we have selected the commonwealth bank of Australia, which is a
leading provider of integrated financial services in Australia. It is a multi-national organization
hence the operations of the same are extended in many counties such as Asia, New Zealand, the
United Kingdom, and the United States (Commbank.com.au, 2020a). To discuss the history of
the company this is to state that the same was founded in 1911 and stared working in 1912. The
main activity of the bank was to conduct a general banking business. Currently, the company is
working well in terms of its financial performance having nearly 800000 shareholders and 52000

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employees (Commbank.com.au, 2020b). Nevertheless, in terms of ethics and social
responsibility, the bank is continuously being criticized for the past 5 years. Many of the illegal
and unethical practices and policies have been pursued by the bank over the period. In 2015, it
was found that the bank continuously denied justice to the victims of its financial planning
scandal (Ferrier, 2015). In 2016, CommInsure, the life insurance arm of the bank found engaged
in the ethical scandal where the same misrepresented the scope of policies while selling the
same. The bank denied many of the claims related to heart attack interpreting the law
inappropriately. The next year i.e. 2017 also proven a very significant year in the history of
commonwealth banks. The leading regulator AUSTRAC has initiated a claim against bank
marking its involvement in the money laundering scandal. It was held that the bank has breached
terrorism financing laws as well as anti-money laundering laws (Knaus, 2017). The bank failed
to disclose and report material transactions to stock exchanges as were required to do under these
act as they were likely to have an impression on share prices. As we have researched over the
related topics and gone through news and media articles, we have found that this action of the
bank has marked as one of the huge ethical scandals of Australia. It was an illegal act as the bank
has breached the legal duties. The bank has faced crucial implications of this scandal as
shareholders initiated class actions against the same. The bank holds liable to pay millions of
dollars as a penalty. In 2018, the bank became agree to pay $700 million as a penalty along with
the legal cost (Gopalan, 2018). This has been considered as biggest fine in the history of
Australian corporate. Bank failed to monitor 778,370 account transactions in consideration of
anti-money laundering law. Apart from this too, the bank has spent millions of dollars in
settlement of disputes and complaints. In 2018, the bank proposed to appoint Mr. Comyn, as
CEO of the company, whereas he was already found a part of CBA's scandal last year (Thomson,

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2018). Again here the bank forgot to consider the interest of other stakeholders and lost its
goodwill and trust up to a significant level.
The bank received highly negative critics for its conduct and decision that the same has
taken in the past. In my opinion, the cases clearly show that the main motive of the bank was
centered around profit and the same was not bothered about customers, society, regulators and
other stakeholders. However, whether the interest of the shareholders has been fulfilled by the
bank in a satisfactory manner? I do not think so as in doing so the bank also failed to work in the
best interest of the shareholder. The millions of penalties lead to adverse consequences to the
financial position of the company that ultimately affect the situation of shareholders. ASIC has
found that financial planners of the bank have charged a fee for services that have never been
provided to 31500 customers (Chau, 2019). It clearly shows how poor ethics have been followed
by the bank where the same given preference to profits over people every time. By 2018, the
bank has already paid $270 million as compensation to these customers and also announced
indemnity provisions of $200 million for remediation issues and other ongoing service fees. 2019
was also not good for the bank as it received criminal charges over the money laundry scandal.
The insurance arm of the bank has faced nearly 87 criminal charges (Butler, 2019).
Business Ethics
The discussion we have done till now shows how unethically CBA has behaved in the
past. Now for us, this is also required to know how the bank considers business ethics. To know
what ethics and CSR meant to the company, we have looked after the official website of the
company where the same post its related approach. The bank states that the lead motive of its
business strategy is to deliver a balanced outcome to the community, people, shareholder, and

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other stakeholders. We have also found that the company defines CSR as one of the important
areas of its focus where the same is likely to support and contribute to the community by
providing financial education. The website of the bank outlines initiatives that the same take for
the betterment of the community and the manner in which it pursued its corporate social
responsibility. The latest CSR report of the bank highlights its values according to which the
bank is accountable, pursue excellence, and get the things done in the right manner. It shows that
the bank believes in considering the interest of the community at large in its operations.
We have also research about the approach of CBA regarding corporate governance hence
we have studied its latest annual report. We have found that that the bank stated its efforts taken
for good governance. As much as we have understood by this report, the bank considers
corporate governance as a measure to provide better stakeholder outcomes. One may find the
bank's commitment to corporate governance and related framework. CBA considers corporate
governance as its one of the focus and complies with the same. Further, the approach of ethics
adopted by the bank can be checked through its code of conduct. In its code of conduct, it is
clearly mentioned that the bank demotivates all the unethical business practices such as
corruption, privacy breach, fraud, money laundering and giving and taking gifts and
entertainment (Commbank.com.au, 2020c). It shows that the bank is strict regarding compliance
with business ethics. In addition to this, we have also found that the bank has considered the
interest of people related to the same, especially employees, and developed policies for the
prevention of conflict of interest and other potential unethical activities.
In my opinion, everything is on point in documents but as we have already discussed
about ethical scandals of the bank, it shows that the real situation is different from what the bank
is likely to have. The company highlights only those activities that are socially responsible as

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well as ethical but do not show the other side of the coin. We are already informed here that that
company has charged a fee for no service, breached the anti-money laundering laws and rejected
insurance claims of innocent customers, it presents a poor picture of business ethics to me. How I
can ethical to a company that has done so many things to earn a profit while setting aside the
interest of every other single stakeholder. An ethical business is the one that keeps a good
balance among all the stakeholders. If I discuss the ethical theory of utilitarianism, which focuses
on the goodness of a large number of people then all the actions of the bank discussed above
seem unethical as no greater good to society was served out of those actions. Similarly, we have
also discussed another theory of ethics namely deontology. The theory believes that an action is
ethical which is done pursuing duties (Bbc.co.uk, 2020). Here CBA had duties to all the
stakeholders but the same failed to do so. Reporting of material transactions under anti-money
laundering was the duty of CBA but the same did not fulfill it. These actions of the bank
continuously broke business ethics. Although the company has made policies on documents but
nowhere in actions of the same, the application of code of conduct reflects. The company is
doing well for communities by developing corporate foundations for the same and donating
money into it. Nevertheless, ethics is somewhere different and this is the area where the bank
needs to take urgent actions.
I would not say that CBA deliberately did everything or did not make any efforts to make
the situation better. Our group has identified some of the steps that the bank took to resolve.
Firstly, the bank has realized that the code of conduct was not efficient enough and hence the
same has modified its code of conduct. Further, the bank has also supported the new banking
code of conduct released by the Australian banking association (Commbank.com.au, 2019). In
June 2018, the executive leadership team of the bank developed a non-financial risk committee.

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Now the company is being more focused to conduct its activities according to the
recommendations provided by the Australian Stock Exchange and also ensuring compliance with
all the applicable laws so that there will be no ethical breach in the future.
If I was appointed as a consultant to resolve the issue then I would have made some
recommendations. The first recommendation that I would have given is to make internal control
check more strong. Most of the issue arises because manager fails to check and prevent them at
the initial level and later on it becomes highly crucial and difficult to resolve, hence preventing
the issue at an early stage, the bank can stop these issues to occur in future. Here the internal
check system also includes internal audits. In my opinion, fulfilling the legal obligations is the
first step of business ethics and therefore I would have recommended developing additional legal
and compliance committees to ensure no law is breached. In most of the ethical scandals, it was
experienced that the employees knew unethical actions yet they have not raised their voice. The
other recommendation that could be made is to provide ethical training to staff and to let them
know about the serious consequences of the conduct.
Conclusion
To conclude this report I would like to state that researching over CBA and its ethics
gave us a different experience. I have come to know that a huge bank such as CBA also been
unethical for years. I found that the bank faced criminal charges as well as heavy penalties for its
actions. Further to all the stakeholders of the bank, it is showed that the bank believes in
following corporate governance as well as business ethics but the situation is not the same in
reality. Actions of the bank have not been remain ethical. However, it has taken some steps for
resolving these issues now but the same does not find sufficient to me and hence if I was

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appointed as a consultant I would have made some more recommendations that have been
discussed above. Conclusively the bank needs to understand that unethical activities cost much to
the bank and therefore the same need to revisit its ethical approach.

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References
Bbc.co.uk. (2020). Duty-based ethics. Retrieved From:
http://www.bbc.co.uk/ethics/introduction/duty_1.shtml
Butler, B. (2019). Commonwealth Bank insurance arm faces 87 criminal charges. Retrieved
From: https://www.theguardian.com/news/2019/oct/04/commonwealth-bank-insurance-
arm-faces-87-criminal-charges
Chau, D. (2019). Commonwealth Bank to stop 'fees for no service' for most customers. Retrieved
From: https://www.abc.net.au/news/2019-02-04/asic-orders-commonwealth-bank-to-
stop-charging-financial-fees/10776870
Commbank.com.au. (2019). New Code To Improve Banking Standards Supported By Cba.
Retrieved From: https://www.commbank.com.au/guidance/newsroom/cba-support-for-
new-banking-code-of-conduct-201906.html
Commbank.com.au. (2020a). International branches. Retrieved From:
https://www.commbank.com.au/about-us/our-company/international-branches.html
Commbank.com.au. (2020b). Our history. Retrieved From:
https://www.commbank.com.au/about-us/our-company/history.html

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Commbank.com.au. (2020c). Commonwealth Bank Code of Conduct. Retrieved From:
https://www.commbank.com.au/content/dam/commbank-assets/about-us/2018-09/CBA-
code-of-conduct.pdf
Ferrier, S. (2015) Commonwealth Bank compensation scheme for victims of financial planning
scandal 'a joke', Senate inquiry hears. Retrieved From:
https://www.abc.net.au/news/2015-10-28/cba-denying-compensation-to-victims-of-
financial-planning/6892624
Gopalan, S. (2018). Commonwealth Bank’s $700 million fine will end up punishing
its customers. Retrieved From: https://theconversation.com/commonwealth-banks-700-
million-fine-will-end-up-punishing-its-customers-97918
Knaus, C. (2017). Commonwealth Bank accused of money laundering and terrorism-financing
breaches. Retrieved From:
https://www.theguardian.com/australia-news/2017/aug/03/commonwealth-bank-accused-
of-money-laundering-and-terrorism-financing-breaches
Thomson, J. (2018). Commonwealth Bank's new CEO named as Matt Comyn. Retrieved From:
https://www.afr.com/companies/financial-services/commonwealth-banks-new-ceo-
named-as-matt-comyn-20180129-h0pp7w