Corporate Ethics and Governance: Royal Commission Report Analysis

This report provides an in-depth analysis of corporate ethics and governance within the Australian banking and financial sector, drawing upon the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The report examines the application of utilitarianism to understand the commission's recommendations for addressing banking misconduct, including issues such as mortgage broker conduct, conflicted remuneration, and the treatment of vulnerable customers. Furthermore, it utilizes Part A and Part C of APES 110 to evaluate the ethical implications of Freedom Insurance's sales tactics. The report highlights the importance of ethical conduct, professional behavior, and transparency in the financial sector, emphasizing the need for banks and financial institutions to prioritize the public good and adhere to ethical codes of conduct to ensure fair and responsible practices.

Running head: CORPORATE ETHICS AND GOVERNANCE
Corporate Ethics and Governance
Name of the Student
Name of the University
Author Note

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Executive Summary
Ethical governance is absolutely imperative both in the political and financial sectors as it is
only ethical governance that can ensure public good. Banks and financial institutions in
particular need to carry out operations in as ethical a manner as possible if public interests are
to be adequately looked into. This report analyzes the findings of the Royal Commissions
report on the misconduct prevalent in Australian banks and financial institutions. The report
also discusses how the provisions of Part A and Part C of APES 110 establishes ethical codes
of conduct for finance and banking professionals in Australia with special reference to the
Freedom Insurance case study.

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Table of Contents
Introduction................................................................................................................................3
1. Understanding the Royal Bank’s Analysis and Recommendations for Banking
Misconduct in Australia using the Ethical Theory of Utilitarianism.........................................3
2. Using Part A and Part C of APES 110 to understand why Freedom Insurance’s Tactics to
be aggressive and inappropriate in sales matters is an ethical Issue and the various safeguards
provided under APES 110 in this respect..................................................................................6
Conclusion..................................................................................................................................9
References................................................................................................................................10

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Introduction
Ethics forms and should form an integral part of governance in every part of the
world. In the corporate world in particular, ethics should be deployed in administrative
activities in order to make sure that the interests of shareholders and stakeholders for firms
and institutions are all duly met. This report analyzes the findings and recommendations on
the Royal Commissions Report on misconduct in Australian banks and financial institutions
using the ethical theory of utilitarianism. The report also uses Part A and Part C of APES 110
to discuss how the inappropriate and aggressive tactics used by Freedom Insurance to sell its
policies is unacceptable and unethical.
1. Understanding the Royal Bank’s Analysis and Recommendations for Banking
Misconduct in Australia using the Ethical Theory of Utilitarianism
Utilitarianism is one of the best known ethical theories which determines wrong
from right through a focus on outcomes. Utilitarianism can be regarded as another form of
consequentialism. The ethical theory of utilitarianism is based on the notion that the
greatest good is what needs to be ensured for the greatest number of people and it is
possibly the only theoretical or philosophical framework that justifies war or military
actions for the achievement of outcomes (Lyons, 2015). It needs to be remembered that
since it is impractical to know from beforehand whether actions can be bad or be good,
utilitarianism as an ethical theory is not always considered in a positive light, but by and
large, utilitarianism as an ethical theory can be used to understand actions that are taken for
the public good or the common good (Barrow, 2015).
The Royal Bank’s investigation into the misconduct of Australian banks shows that
mortgage brokers, banking authorities and financial executives have been acting in their own

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interest rather than in the interest of the customers who keep their hard earned money in the
banks and from which the banks earn an interest. Based on many of its findings, most of
which appeared to reveal that the banks have been engaging in unethical financial practices,
starting from paying a low remuneration to deserving workers, to awarding customers a low
rate of interest on their savings right up to the existence of grandfathered commissions, the
Royal Commission Report outlined a number of important recommendations for Australian
banks to improve their practices and which can be understood fairly well enough through the
lens of the ethical theory of utilitarianism (Report, 2019). First of all the report makes it clear
that mortgage brokers will always act in the best interest of lending customers or borrowers
rather than always looking into their own profit. If a conflict of interest is seen to exist
between customers and brokers, then this will be immediately removed through the banning
of trail commissions as well as other very inappropriate forms of the lender paid commissions
with regard to all new loans that are issued from the 1st of January in the year 2020. Further
reviews shall be carried out in intervals of three to four years, on the implications that are
associated with the removal of upfront commissions while also initiating a remuneration
structure for borrowers. It is clear from these measures that banks and financial institutions in
Australia will always have to think in the best interest of their customers when providing
them with loans and saving schemes to take advantage of. Customers will have the
opportunity to negotiate interest rates, and the floating or fixed rate that they do end up opting
for, will be one that is to their advantage, thus ensuring public good rather than high levels of
profit for a select few (Report, 2019).
The Royal Commission Report makes it very clear that Grandfathered Commissions
are to come to an end and also conflicted remuneration pertaining to the Grandfathered
Commissions will be refunded to customers (Report, 2019). Superannuation fund members
will have just one default account to fall back on, for all new members that enter this system

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and vulnerable customers shall be provided with protection by clarifying as well as
strengthening unsolicited selling provisions that includes insurance products and
superannuation. Small businesses are also to receive a greater boost from banking authorities
in Australia if the recommendations of the Royal Commission Report are anything to go by.
Small business owners are not to be subjected to high interest rates for loans that they apply
for, rather, they should be provided with the capital that they need to set up and run their
businesses as successfully as possible (Mills, 2016). Schemes are to be introduced by banks
and financial institutions that help farmers in the country who are in debt to pay back their
loans and people who are living in areas that are affected by natural disasters and who have
taken loans from banks and financial institutions in Australia. All these recommendations
made by the Royal Commission Report divulge in more than one way, that banks and
financial institutions in the country of Australia need to act in the interest of the public and
not take recourse to unethical practices based on profit motives (Mills, 2016). Banks and
financial institutions in Australia need to exist for the public good and thus the measures that
have been outlined by the Royal Commission Report for bringing about changes in
Australian banking practices are those that are entirely in keeping with the tenets of
utilitarianism, as utilitarianism advocates that actions and activities be carried out by the state
and state authorities that are designed to ensure the benefit for the maximum number of
people, at all times (Report, 2019).
One of the most significant recommendations that have been made by the Royal
Commission Report on the misconduct of Australian banks and financial institutions is that
the Aboriginal and the Torres Strait Islander people are to be provided with more inclusive
practices. This is definitely in keeping with the tenets of utilitarianism as the wellbeing of the
entire aboriginal community in Australia is something that will be looked into through such a
measure (Report, 2019). If aboriginal people are provided with more inclusive practices by

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banks and financial institutions, it will be easier to uplift people from this segment of the
Australian population, integrating them more successfully with the mainstream than what has
been done before. The aboriginal people are indigenous people living in Australia. As such
they are a marginalized community and it is imperative for at least financial institutions like
banks to take a leading role in improving their plight, or at the very least bring them in line
with the standards of mainstream Australian, something that is entirely advocated by
utilitarianism which talks about actions being undertaken to ensure common good (Report,
2019).
2. Using Part A and Part C of APES 110 to understand why Freedom Insurance’s
Tactics to be aggressive and inappropriate in sales matters is an ethical Issue and
the various safeguards provided under APES 110 in this respect
The Freedom Insurance Case Study reveals that the Freedom Insurance Company is
not one that is opposed to the use of inappropriate and even aggressive sales tactics in order
to meet its sales targets. The Freedom Insurance Company is more than willing to allow its
employees to take recourse to unethical means of coercing customers into buying its policies
by calling them up at random hours of the day for this purpose, requesting meetings at the
homes and offices of prospective customers and bombarding prospective customers with
emails about the benefits and advantages associated with the policies and schemes that are
made available by the Freedom Insurance Company. However, when one looks at the APES
110 Code of Ethics meant for Professional Accountants in Australia, one can see that such
practices are entirely condemnable and that they should not be allowed to be carried out at
all, given that such practices hamper the interests of prospective customers and ends up
harassing them rather than getting in them interested in the policies and schemes of the
Freedom Insurance Company (Report, 2019).

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Part A of APES 110 makes it clear that professional accountants are to be entirely
professional in their behavior, and that they are to take all rules and regulations pertaining to
accounting practices strictly into consideration when performing their duties. Accountants
who serve the Freedom Insurance company should therefore make it clear to the
administration of the company that flouting rules and regulations and getting customers to
sign up for policies that are not going to be of any benefit to them is an unethical practice and
that it should by no means be entertained even if it means that the company has to lose out on
a lot of financial profit. It is also stated in Part A of APES 110 that financial executives are to
be straightforward and honest in their practices and that they cannot allow any conflict of
interest or bias to rule their judgments. Thus, Freedom Insurance is not a company that can
really force people to buy its policies and schemes in the event that they don’t want to or do
not need to for that matter (APES 110, 2019). If there is a conflict of interest between a
prospective customer and the Freedom Insurance authorities, the latter has to content with not
being able to sell a policy instead of repeatedly going after customers and harassing them into
buying such policies in the first place. Financial and accounting professionals who work for
the Freedom Insurance company should make it clear that finance executives are to carry
themselves with a lot of integrity and honesty if the standards outlined in Part A of the APES
110 are anything to go by. They need to adhere to such standards at all times and not doing so
should rightfully invite punitive action (APES 110, 2019).
One of the most important provisions that have been outlined in both Part A and Part
C of Apes 110 and which applies to the behavior of the Freedom Insurance Company is that
members of Apes 110 are to engage in professional behavior at all times and that they are
also expected to be confidential in their matter of working, not disclosing any private
information about the firm to outside parties. At the same given time, members are not to be
seen engaging in the threat of intimidation as such behavior is entirely unlawful in nature.

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Hence the aggressive and inappropriate sales tactics of the Freedom Insurance Company are
those that cannot at all be condoned by the provisions that are outlined in Part A and Part C
of Apes 110. The provisions in Part A and Part C make it clear that members are not to be
seen engaging in such behavior and in the event that they do, they can be subjected to
punitive action immediately. Taking recourse to intimidation in particular to get an insurance
policy sold is not something that is acceptable by professional accounting standards in
Australia at all (APES 110, 2019).
Freedom from bias and freedom from any personal interest are qualities that need to
be prevalent in financial practices that are undertaken by companies in Australia, as outlined
by Part A and Part C of Apes 110, with the Freedom Insurance Company being no exception
in this respect. Therefore taking recourse to aggressive and inappropriate sales tactics in order
to convince buyers to go ahead and purchase the policies and schemes of the Freedom
Insurance Company is not something that can be regarded as of an ethical nature and be
acceptable therefore. The Freedom Insurance Company needs to completely revise and
change its strategy to woo over customers if it is to carry out its operations in a legal and
ethical manner (APES 110, 2019). The APES 110 provisions in Part A and Part C make it
abundantly clear that those who are found to be unprofessional in their mode of behavior
towards customers and who are seen to engage in the threat of intimidation or aggressive sale
of services are eligible to be penalized for this purpose and that too quite heavily. Hence care
must be taken by them in this respect else the company could end up facing quite a few
lawsuits (Piacquaido, 2017).
Thus, what the provisions of Part A and Part C of APES 110 manage to do is establish
the fact that financial services in the country of Australia are to be carried out in a
professional and ethical fashion and that financial executives cannot be found to be seen
engaging in aggressive, inappropriate and unethical behavior in order to reach sales targets

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faster than they could have. The tactics of Freedom Insurance are therefore entirely illegal in
nature if the provisions of APES 110 are considered, and cannot be condoned in any way.
Conclusion
Thus, both the findings of the Royal Commissions Report on misconduct in the
Australian banking sector and the provisions contained in Part A and Part C of APES 110
clearly reveal that unethical practices should not be existing in the financial sector in
Australia and that finance executives like accountants and banking professionals are to
conduct themselves with integrity and respect if they are to serve the interests of the
Australian public sufficiently well.

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References
110, A. (2019). Retrieved from
https://www.apesb.org.au/uploads/standards/apesb_standards/standardc1.pdf
Barrow, R. (2015). Utilitarianism: A contemporary statement. Routledge.
Lyons, D. (2015). Utilitarianism. Wiley Encyclopedia of Management, 1-4.
Mill, J. S. (2016). Utilitarianism. In Seven masterpieces of philosophy (pp. 337-383).
Routledge
Piacquadio, P. G. (2017). A fairness justification of utilitarianism. Econometrica, 85(4),
1261-1276.
Reports. (2019). Retrieved from
https://financialservices.royalcommission.gov.au/Pages/reports.aspx#final.