Corporate Governance and Ethics: Commonwealth Bank Case Study Analysis

This report examines the ethical failures of the Commonwealth Bank, focusing on violations of transaction monitoring laws and their impact on the organization's reputation and financial stability. The report provides an organizational overview, analyzes the case, and discusses the importance of corporate governance and ethics in business. It highlights the bank's shortcomings in monitoring transactions, leading to money laundering and reputational damage. The analysis incorporates Kantian and Utilitarian perspectives to evaluate the ethical implications of the bank's actions. The report emphasizes the significance of ethical business practices, corporate image, and the role of leadership in maintaining ethical standards. The Commonwealth Bank case serves as a crucial example of how unethical behavior can severely impact a company's performance and stakeholder trust. The report also discusses the restructuring of corporate governance and the importance of the code of conduct for employees.

Running head: MANAGEMENT
Management
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction:...............................................................................................................................3
Organizational Overview:..........................................................................................................4
Case Analysis:............................................................................................................................5
Kantian Perspectives:.................................................................................................................9
Utilitarian Perspectives:.............................................................................................................9
Conclusion:..............................................................................................................................10
References:...............................................................................................................................12

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Introduction:
The importance of the ethical business practices is observed to be notably high for
majority of the organizations in the modern business world and that is pretty visible with the
enhanced urgency from the part of the senior management of the organizations in the
conducting their business in an ethical manner. With a precise focus on the effect of the
unethical business practices over the companies in the aspect of the reputation, the increasing
importance for the much required incorporation of the ethics in the business practices of the
organizations is easily understandable. Grace and Cohen (2015) are able to comment on the
success of the incorporation of the ethics in the business activities of the organizations with
the claim that the incorporation of the ethics in the business activities of the organizations
have the potential to improve the corporate image of the organizations and in addition to this,
the ethical practices from the part of the organizations is crucial in avoiding any sort of
reputational damage for the organizations.
Apart from this, improvement of the corporate image of the company plays a crucial
role in the increment of the preferences of the customers towards the organization which
helps the companies in increasing the sales of their companies. The paper discusses regarding
the impact of the unethical business practices of one of the largest bank of Australia,
Commonwealth Bank. In addition to this, the paper also provides a brief overview of the
mentioned organization and the business operations of the organization. The paper portrays
the importance of the corporate governance and the ethics in the improvement of the
corporate performances. With a precise focus on the business operations of the mentioned
organization, the paper analyses failure of the principles of corporate governance and ethics.
In elaborating the ethical issues which affected the business activities of the mentioned

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organization, the paper is able to pout strong emphasis on the Utilitarian and Kantian
perspectives.
Organizational Overview:
As mentioned earlier, the mentioned organization is one of the largest multinational
banks in the nation. The organization operates in the baking and the financial services
industry. The organization was initiated in the year 1911 and is currently headquartered in the
city of Sydney (Commbank.com.au, 2019). The strong presence of the organization with
more than 1100 number of branches and more than 4300 number of ATMs, the organization
is able to serve their customers across the customers (Commbank.com.au, 2019). With a
precise focus on the business activities of the organization, it is pretty evident that the
excellent leadership of the current management team of the organization is responsible for the
improvement of the financial stability of the organization. The organization is currently
managed by the chairman of the organization, Catherine Livingstone and the CEO and
managing director of the organization, Matt Comyn (Commbank.com.au, 2019). The
visionary leadership of the management team of the organization has enabled the company to
generate a revenue of A$26.005 billion in the year 2017 along with a net income of A$9.881
billion in the same year (Commbank.com.au, 2019). Many of the business analysts of the
nation also consider the service excellences of the 51,800 number of employees recorded in
the year 2017 to be one of the important factor responsible for the success of the organization
(Commbank.com.au, 2019).
However, in recent years, the organization is observed to be affected with the
increasing incidents of the unethical business practices and the impact of such incidents is
pretty prominent on the business operations of the mentioned organization. One such major
case that affected the reputation of the company and the business activities of the mentioned

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organization is observed to be the Transactions Monitoring Law Violations from the part of
the company that took place in the year 2017 (Coyne & Coyne, 2019).
Case Analysis:
It is understandable that the ethics play a major role in the success of the modern
business organizations. The corporate performances of the organizations is observe to be
significantly influenced with practice of the ethics in the business activities of the companies.
The practice of the ethics in the modern business world is seen to be crucial in increasing the
accountability of the employees towards their activities. As the employees are the first line of
the organization, the ethical business practices from the part of the employees of the
organization reflects the strength of the corporate governance that the organization is able to
employ. As mentioned earlier, the incorporation of the corporate ethics in the business
organizations will be crucial for the organizations as it has the potential to improve the
corporate image of the companies (Kolk, 2016). With the improvement in the corporate
image, the organizations will be able to increase their preferences amongst the customers
which has he potential to increase and improve their business activities. Considering the
increment in the business activities from the part of the companies, the organizations are
expected to have high possibility of achieving larger growth in their profitability. Under such
situation, the mentioned organization was observed to be involved in one of the most
significant cases of criticism with the violation of the Transactions Monitoring Law in the
year 2017.
In the Australian banking sector, the linkage between the transaction laws and the
ethics is observed to be of great significance. In case of the Commonwealth bank, the
organization was alleged for disregarding the important banking legislations that are able to
put strong emphasis on the banks for monitoring their transactions. The importance of these

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legislations is notably high as it ensures that the banks evaluate the transactions to find any
scope or case of criminals using their systems for laundering their unethically achieved
money. The government of Australia has established these legislations for making sure that
the financial companies or the banks of the mentioned nation, continuously evaluate their
systems for the identification of the suspicious activities so that they be able to report the
relevant regulatory authorities for eliminating the scope for the criminals in using their
systems (Coyne & Coyne, 2019).
In the year 2012, the organization was observed to take away their Intelligent Deposit
Machines (IDM) and the organization was accused of not conducting any sort of necessary
risk assessment in accordance to the legislations (Austrac.gov.au, 2019). The Australia's
Transaction Reports and Analysis Centre reported that the criminal syndicates have used their
IDMs for depositing money. The report framed by the centre claims that the machines were
significantly used by the syndicates for anonymous depositing of the money into
the bank accounts of the commonwealth bank as the machines did not
have the required mechanism installed for requiring the identity of the
depositors. Hence, with the usage of the machines, accounts of the
commonwealth bank, offshore transferring schemes and fake identity,
more than 5 criminal syndicates of the region were able to launder their
unethical money (Hutchens, 2019). In the year 2015, the organization was
able to achieve the idea of the misconduct and was observed to conduct a
risk assessment, however, that was too late as already more than 9 billion
dollars was flowed through the machines of the organization
(Dailymaverick.co.za, 2019).
Apart from this, the company was entitled to conduct the continuous
monitoring of the transactions and was responsible for reporting to the

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Australia's Transaction Reports and Analysis Centre for any sort of suspicious
transactions. Apart from that, the organization was also responsible for
putting holds to such accounts for the investigation, however, Australia's
Transaction Reports and Analysis Centre reported that the organization was significantly
indifferent to this. The Australia's Transaction Reports and Analysis Centre was observed to
accuse the mentioned organization for having gaps in transaction monitoring in more than
778,370 accounts during the time period from October, 2012 to end of 2016
(Austrac.gov.au, 2019). Apart from this, the Australia's Transaction Reports and
Analysis Centre claimed that the mentioned organization were reluctant in filing suspicious
transaction reports for more than 53,506 transactions which is worth of 625
million Australian dollars (Austrac.gov.au, 2019). In addition to this, Australia's
Transaction Reports and Analysis Centre was observed to accuse the mentioned organization
for not conducting the required investigation for those suspicious transactions and for not
taking any sort of appropriate actions.
The claim of Australia's Transaction Reports and Analysis Centre was observed to be
acknowledged by Ian Narev, the former Chief Executive Officer of the organization. In one
of his interview to the media, Ian Narev accepted the fact that there was not any sort of risk
assessment done on the IDMs (Commbank.com.au, 2019).
The organization is able to restructure their corporate governance strategy and that is
pretty evident with the formation of the governance priorities, strong policies for the
improvement of the corporate culture of the organization, specification of the purpose and
values of the organizational activities in the best possible manner. With the restructuring in
the corporate governance report, the management of the organization is able to the reinforce
accountability through the pay outcomes and along with that, the restructuring enabled the
organization to put strong emphasis on the policies of the organization, code of conduct,

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whistle blower protection, anti-bribery and corruption along with the conflicts of the interest.
As mentioned earlier, the newly promoted managers of the organization are one of the major
factor responsible for the success of the organization and that is pretty visible with the
formation of the new corporate governance report and with the increasing generation of the
revenue. In accordance to the corporate governance report of 2018 of the mentioned
organization, the code of conduct which is labelled as “Our Commitments” is pretty
significant in stating the expected behaviour of the employees, senior executives or the
directors in conducting the business operations (Commbank.com.au, 2019).
The code of ethics of the mentioned organization is of great significance as it provides
the much required guidelines to the employees of all levels and the shareholders of the
organization for understanding, practicing and demonstrating the core values of the
mentioned organization. According to the business report of the organization, there was not
any sort of deficiency of the non-executives, however, the organization were observed to be
involved in the violation of the basic legislations of the banking sectors. The organization
was responsible for evaluating the transaction history and report the suspicious transactions to
the regulatory authority, however, the organization was observed to be indifferent towards
their responsibility which enabled considerable number of criminal syndicates to use their
systems for depositing their unethically achieved money.
The shareholders of the organization expected the organization to run in the ethical
manner so that the organization is not forced to face any sort of reputational damage that have
the potential to affect their business operations. However, under the leadership of the former
CEO and the senior executives, the organization were observed to be involved in
considerable number of cases that not only damaged the corporate image of the company but
also affected the financial stability of the organization. The employees of the organization
were part of a misconduct which was primarily conducted from the part of the senior

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management of the organization with the application of the IDMs for increasing the
smoothness in the banking operations without any prior risk assessment. Hence, the societal
reputation of the employees of the organization was observed to be affected in a significantly
negative manner. The case portrayed the company as a negative employer and adding to that,
with the significant decline in the sock prices of the company, the shareholders of the
organization were observed to tremendously affected. The sudden and significant decline in
the stock prices of the company created a state of chaos inside the organization (Baxter,
2016). It is pretty much understandable that the customers will be more inclined towards the
organizations that do not have any sort of reputation of money laundering when it comes to
depositing their money. Hence, from that aspect, the company was observed to be affected in
a significant manner.
Kantian Perspectives:
In accordance to Kantianism, any business action is considered to have the base in the
form of goodwill. In accordance to the theory, the goodwill is considered to be a rational part
of the human being which influences to do the things for the right reasons (Villa, 2015). The
determination of the correctness of the actions and the evaluation of the fact whether the
action is motivated for the right reason become necessary for assessing whether goodwill is
responsible for a particular action or not. The Formula of Humanity plays a key role in the
evaluation of the actions. With respect to the Formula of Humanity, it is visible that the
mentioned bank was not concerned about the implementation of the legislation regarding the
transactions monitoring as the managers of the organization were observed to be more
concerned regarding the deposit of larger amount of money in their banks (Blau, 2019).
Hence it is pretty visible that the company was using their customers as a mere means of
making more money. If the organization was concerned regarding how the money was made,
some of the suspicious laundering activities could have been detected by the organization as

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per the allegation of the Australia's Transaction Reports and Analysis Centre. Hence it is
pretty much understandable that the action of the mentioned organization were not coming
from any goodwill, hence the actions are considered to be impermissible. The universalizing
of the actions of the mentioned organization has the potential to create universal
inconsistency.
Utilitarian Perspectives:
In accordance to the, the focus is not on the actions that are considered to be right in
accordance to the specified definition of the right or wrong, rather, the focus is on the
maximization of the happiness irrespective of the actions (Snow, 2015). Hence, considering
the mentioned theory, it is not the actions that matter the most, rather it is the happiness of the
stakeholders of the organization that matters (Strobel et al., 2013). With a precise focus on
the condition of the organization after the incident, the shareholders of the organization were
seen to be furious with the managers of the organization for damaging the reputation of the
company and affecting the purchase intention of the customers in a negative manner. In
addition to this, the 14% fall of the stock value of the company portrayed the dissatisfaction
of the customers and was a major concern for the shareholders of the organization
(Commbank.com.au, 2019). Apart from this, the resignation of the CEO of the organization
as an immediate impact of the case is pretty significant in stating the inappropriate condition
of the organization and the increasing level of uncertainty associated with the operations of
the managers and the executives of the organization. With the allegations of Australia's
Transaction Reports and Analysis Centre on the organization regarding their unethical and
inappropriate business operations, the customers of the organization were observed to be
panic-stricken as well. As it is pretty evident that the case was responsible for the increasing
level of unhappiness for all except the criminal syndicates who had an easy way out for
laundering money owing to the inappropriate actions of the mentioned organization,

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utilitiarian perspectives concludes by stating that the actions of the
mentioned organization were impermissible as it brought increased
amount of unhappiness in comparisom of the happiness.
Conclusion:
On a concluding note, it is porety evidemt that the case of
Commonwealth Bank is a classic example of the unethical business
practice. The case is observed to affect the business operations of the
mentioned organization in a notable mnaner and along with that, the
violation of the transaction monitoring law enabled the criminals to
laundertheir money unethically. In both Utilitarian and Kantian perspectives, the
actions of the company are observed to be neither generated out of goodwill nor led to any
sort of happiness for the stakeholders of the organization. Hence the actions of the
organization are considered to be permissible.

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References:
Abc.net.au (2019). CBA to pay record $700m fine over money laundering breaches.
Retrieved from https://www.abc.net.au/news/2018-06-04/commonwealth-bank-pay-
$700-million-fine-money-laundering-breach/9831064
Austrac.gov.au (2019). AUSTRAC and CBA agree $700m penalty | Australian Transaction
Reports and Analysis Centre (AUSTRAC). Retrieved from
http://austrac.gov.au/media/media-releases/austrac-and-cba-agree-700m-penalty
Austrac.gov.au (2019). Australian Transaction Reports and Analysis Centre (AUSTRAC).
Retrieved from http://www.austrac.gov.au/
Baxter, L. G. (2016). Adaptive financial regulation and regtech: a concept article on realistic
protection for victims of bank failures. Duke LJ, 66, 567.
Blau, A. (2019). Methodologies of Interpreting Hobbes: Historical and Philosophical.
Interpreting Hobbes's Political Philosophy, 10.
Commbank.com.au (2019). Personal banking including accounts, credit cards and home loans
- CommBank. Retrieved from https://www.commbank.com.au/
Commbank.com.au (2019). Retrieved from
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/
corporate-profile/corporate-governance/CBA-2018-Corporate-Governance-
Statement.pdf
Coyne, A., & Coyne, A. (2019). CBA expecting $375m fine over ATM fraud scandal.
Retrieved from https://www.itnews.com.au/news/cba-expecting-375m-fine-over-atm-
fraud-scandal-484628