Corporate Governance and Ethics: Analysis of Financial Misconduct

This report provides an executive summary and introduction to corporate governance and ethics, focusing on misconduct within the financial industry, particularly banks and financial services. It analyzes the application of ethics and law to prevent malpractices that mislead customers, referencing a case study on Freedom Insurance. The report examines the theory of deontological ethics as applied to the Royal Commission's findings, including observations on conduct and reward, power imbalances, conflicts of interest, and accountability. It highlights the importance of ethical codes and scrutiny of work culture and remuneration to prevent misconduct. The report also delves into the Royal Commission's recommendations, including the need for evidence gathering and public inquiries. It discusses norms of conduct and examines specific examples of misconduct, such as in mortgage and insurance sales. The report emphasizes the role of deontological ethics and the importance of safeguards to prevent ethical breaches in the financial services industry.

Running head: CORPORATE GOVERNANCE AND ETHICS 1
Corporate Governance and ethics

CORPORATE GOVERNANCE AND ETHICS
2
Executive Summary
The report implies ethical activities on part of organizations associated with the financial
industry, most notably the banks. It also focuses over the aspects related to misconduct and
the application of the law in such a manner that the ethics are complied with accordingly
thereby leading to the prevention of the malpractices which lead to the misleading of
customers as far as the breach of ethics is concerned. The case study pertaining to Freedom
Insurance can also be inferred from the report.

CORPORATE GOVERNANCE AND ETHICS
3
Introduction
The concept of corporate governance has garnered a huge support in the recent pat as
far as the framing and implementation of a set of regulations for the environment related to
corporate is concerned. As a result, it is imperative that ethics are to be followed on part of
corporate entities as far as the conduction of their activities pertaining to business in a proper
and appropriate manner is concerned. The main purpose of the report is to present an
overview pertaining to the reports pertaining to the misconduct in the industries related to
banking, superannuation and financial services as compiled by the Royal Commission. The
concept related to the breach of ethics would also be accordingly delved into in a proper and
appropriate manner. It would imply the analysis of the theory pertaining to ethics in an
effective and efficient manner (Crane& Matten, 2016). The final report of the Royal
Commission would be taken into account and be presented accordingly in an analytical form.
The ethical issues involved in the financial industry would be analyzed accordingly as far as
the taking into account of the unethical activities is concerned. Finally, an appropriate
conclusion would be provided thereby presenting a summary of the report.
Theory of ethics
As implied from the final report compiled by the Royal Commission, the theory
pertaining to deontological ethics would be applicable. It would be suitable for the
formulation and application of the code of ethics as proposed by the Royal Commission in a
proper and appropriate manner. It further implies that such kind of a theory pertaining to
ethics would result in the aspects pertaining to morality as far as the undertaking and
fulfilling of the duties and obligations are concerned. It would also play an extremely
important role with reference to the aspects related to corporate governance in a proper and
appropriate manner (Trevino & Nelson, 2016).
The theory of deontological ethics seems to be effective and efficient in terms of the
formulation of the code of ethics as suggested and recommended by the Royal Commission.
It would play in extremely important role in terms of the defining of morality in terms of
actions to be undertaken as far as the prevention of misconduct is concerned (Ferrell, 2016).
It would also help in the aspect pertaining to corporate governance in a proper and
appropriate manner. It would also help in the conduct of the required activities in a proper
and appropriate manner.
The four observations with respect to the works carried out by the Royal Commission
include the link between the conduct and the reward, the asymmetrical aspect relating to
power and information between the entities entrusted with the providing of financial services
and their customers, the outcomes pertaining to conflicts amongst duties and interests and the

CORPORATE GOVERNANCE AND ETHICS
4
holding of entities into account. In relation to the observation pertaining to the link between
the conduct and the reward, misconduct is rewarded in the form of incentives and bonuses as
it mainly implies sales and revenues instead of being in strict compliance with the law. It
implies that people who have been rewarded actually do not deserve to be rewarded as far as
ethics are concerned. There has also been an imbalance of power between entities entrusted
with the providing of financial services and their customers (Pearson, 2017). The
responsibility in a primary manner would involve the liability for misconduct which would
mainly lie on the entities entrusted with the providing of financial services and their
customers. Additionally, such kind of responsibility in a primary manner would also lie on
the ones who are entrusted with the management of such kinds of entities and the respective
boards and the ones in the senior management (Ims & Pedersen, 2015). It is observed form
the report of the Royal Commission that the aspect related to misconduct should have the
consequences accordingly as far as holding the concerned people or entities liable for the
same. The aspect of governance pertaining to such entities are to be taken into account along
with the action of the boards and the senior management as far as misconduct is concerned
with regard to proper and appropriate supervision. The work culture must also be scrutinized
accordingly along with the aspects related to remuneration along with additional perks and
allowances. It would help in the following of ethics in a proper and appropriate manner as far
as the theories pertaining to deontological ethics are concerned. Such kind of scrutiny or
supervision would also result in the prevention of misconduct to a huge extent.
In order to present a Final Report, the Royal Commission extends its work with
regard to the delving into matters pertaining to misconduct being carried out by financial
organizations and firms which is also inclusive of banks. The main objective of such kind of
a Final Report to be compiled by the Royal Commission implies the aspect related to the
undertaking of various kinds of steps, measures and precautions pertaining to the prevention
of any kind of misconduct being carried out in various works (Martinov-Benniem &
Mladenovic, 2015). Execution of tasks by the Royal Commission in a prompt manner would
imply the avoidance of similar kinds of misconduct thereby leading to the compliance with
the ethics in the desired manner. However, one of the main reasons recommended for the
extension of the work to be carried out by the Royal Commission is provide the time for the
people who are aggrieved y the misconduct to gather enough evidence to capitulate upon
their claim in a proper and appropriate manner. It has also been recommended that the Royal
Commission can conduct an inquiry into the public level so that the aspects related to
misconduct are disclosed and exposed accordingly and the ones who are affected by the
misconduct are provided with a comprehensive solution.
As identified in the Interim Report of the Royal Commission, the norms of conduct
which act as underlying principles imply that obedience should be towards the law, there
should not be nay kind of misleading or deception as far as red-herring is concerned, actions
should be undertaken in a fair manner without any kind of prejudices, services are to be
provided in a manner as deemed to be fit and appropriate taking account of the circumstances
of the situation, services are to be delivered by undertaking appropriate care in a reasonable
manner and also through the skills concerned, duty towards other should be undertaken in the

CORPORATE GOVERNANCE AND ETHICS
5
best interests of the other person (Davies, 2016). Such kinds of norms are the basic forms of
conduct as far as the concept of deontological ethics as aforesaid is concerned. There are two
kinds of home lending in an intermediate manner as identified by the Final Report of the
Royal Commission. The first such kind of lending is through the brokers as far as the aspect
of mortgage is concerned. Another form of lending is carried out in terms of motor vehicles
along with durable electric appliances and furniture. It is implied that misconduct on part of
mortgage brokers must be dealt with in a severe manner as such kind of misconduct implies
the information to be provided by the mortgage broker about the loan in a misleading manner.
Brokers are entrusted to act as advisors for the borrowers, not lenders (Barry, 2016). The
Australian Securities and Investments Commission has off late reported that the primary
reasons with regard to the usage of brokers is to be provided with a proper and appropriate
platform with regard to the accessing of a wide variety of loans, gain information relating to
better alternatives as far as deals pertaining to interests are concerned along with the facts that
the broker has expertise and is knowledgeable with regard to advices pertaining to loans.
It is imperative that the theory pertaining to deontological ethics would play an
extremely important role with reference to the industry pertaining to financial services as far
as the aspect pertaining to prevention of activities relating to misconduct is concerned. Such
kind of theory is quite suitable and appropriate pertaining to the report compiled by the Royal
Commission with regard to the aspect of misconduct by entities. The Royal Commission has
also recommended in its report the aspect of code of ethics for which the theory pertaining to
deontological ethics is the most appropriate theory.
Case study
The case study relating to Freedom Insurance implies the hearings pertaining to
investigation about the sale of life insurance products to its customers by the virtue of
telephone. It also delves into the matters pertaining to the practices undertaken by Freedom
Insurance Group with reference to sales and retention. The hearings were conducted with
regard to the evidence from Craig Orton, the Chief Operating Officer of Freedom Insurance
and the evidence from Bruce Stewart whose son was sold a life insurance product by the
Freedom Insurance Group. Bruce Stewart’s son had Down syndrome. As a result, he was
unable to understand the aspects pertaining to the product concerned, most notably the
insurance policies related to death or injury in accidents.As implied from the evidence of
Craig Orton, the Chief Operating Officer of Freedom Insurance, the Total Quality
Management is lax and inadequate on part of Freedom Insurance. During the sale of
insurance to son of Bruce Stewart, any call related to sales would be deemed to have been
failed even if the information contained misleading content. As a result, such an act results in
blatant breach of professional ethics on part of Freedom Insurance as far as deception is
concerned. It has also been reported by the Royal Commission that the policies and practices
pertaining to retention on part of Freedom Insurance are way below the prescribed and
stipulated norms and standards along with the expectations as far as the community is
concerned. The Accounting Professional and Ethical Standards 110 is a code which applies to
the Certified Public Accountants in Australia. Part A of the Code applies to all the members

CORPORATE GOVERNANCE AND ETHICS
6
who are supposed to act in the interest of the public along with the ones engaged in business.
Part C of the Code applies to all members engaged in business, commercial activities,
industrial activities, public sector, and education, not for profit organizations, bodies which
are regulatory and professional in nature. It implies that as per Part C, members are
encouraged to seek legal consultation on grounds of any kind of activity within the internal
level of organization which is deemed to be in breach of ethics. Section 330 of the Code
implies that a member engaged in business must not engage in the activities with regard to
the misleading of an employer with regard to the possession of the adequate experience and
expertise. Such a code is quite aptly applicable to Freedom Insurance as far as its acts
pertaining to misleading of customers is concerned with regard to the sale of products
pertaining to life insurance by the virtue of telephone being the communication tool for the
same. As a result, it implies that the code of ethics would play an extremely essential role
with regard to the prevention of misconduct in an effective and efficient manner as far as the
comprehensive solution to the customers is concerned.
Safeguards
The safeguards as per the case study imply the appropriate steps, measures and
precautions that re to be undertaken which would involve the prevention and culmination of
the aspects pertaining to misconduct in the sector pertaining to financial consultancy services.
As a result, it is imperative that the safeguards are to be taken into account with regard to the
prevention of the acts pertaining to deception of customers in financial services as far as the
malpractices pertinent to fraud and misrepresentation are concerned. Such safeguards would
imply the restraint on the trading activities of the financial services consultancies so that the
customers are protected in a proper and appropriate manner.
Conclusion
As observed form the aforesaid discourse, it can be concluded by stating that the
aspect pertaining to ethics in relation to corporate governance has been justified and is
appropriate. The aforesaid discourse has presented the theory of deontological ethics since
the Royal Commission in its Final Report has concluded that a code of ethics would play an
extremely important role with reference to the compliance of ethics accordingly. The various
aspects pertaining to ethics have also been discussed and demonstrated as far as the concept
of stringencies pertaining to misconduct are concerned. The aspects related to the prevention
of such kinds of misconduct have also been described accordingly as far as delving into the
matter is concerned along with the undertaking of adequate steps and measures. The case
study pertaining to Freedom Insurance has also been analyzed accordingly pertaining to the
aspect of breach of ethics as far as misconduct is concerned on part of Freedom Insurance.
The aspects related to Accounting Professional and Ethical Standards 110 as a code of ethics
has also been taken into account with regard to the addressing of ethical issues pertaining to
the deception of customers in the financial industry. The aspect related to the prevention of
misconduct at the earliest with respect to the compliance of ethics has also been taken into
accordingly. As a result, it is imperative that adherence to ethics is essential since unethical

CORPORATE GOVERNANCE AND ETHICS
7
activities would imply deception and fraudulent means to attain profits thereby resulting in
misleading of customers to a huge level.

CORPORATE GOVERNANCE AND ETHICS
8
References
Barry, N. (2016). Business ethics. Springer.
Crane, A., & Matten, D. (2016). Business ethics: Managing corporate citizenship and
sustainability in the age of globalization. Oxford University Press.
Davies, P. W. (2016). Current issues in business ethics. Routledge.
Ferrell, O. C. (2016). A framework for understanding organizational ethics. In Business
ethics: New challenges for business schools and corporate leaders (pp. 15-29).
Routledge.
Ims, K. J., & Pedersen, L. J. T. (2015). Business and the Greater Good: Rethinking Business
Ethics in an Age of Crisis. Edward Elgar Publishing.
Martinov-Bennie, N., & Mladenovic, R. (2015). Investigation of the impact of an ethical
framework and an integrated ethics education on accounting students’ ethical
sensitivity and judgment. Journal of Business Ethics, 127(1), 189-203.
Pearson, R. (2017). Business ethics as communication ethics: Public relations practice and
the idea of dialogue. In Public relations theory (pp. 111-131). Routledge.
Trevino, L. K., & Nelson, K. A. (2016). Managing business ethics: Straight talk about how
to do it right. John Wiley & Sons.