MMM343 Business Ethics: Analysis of Ethical Issues in Banking

This report examines ethical issues within the Australian banking sector, drawing upon an article that highlights concerns raised by the Banking Royal Commission and the Chairman of the ACCC. It discusses how banks prioritize market share over ethical conduct, leading to conflicts of interest ...Read More

Business Ethics

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Article 1
Sarah Danckert, a business courts reporter based in Melbourne, published an
article on the online newspaper of ‘The Sydney Morning Herald’ titled “'Bankers need
to look in the mirror' on 15th November 2018 (Danckert, 2018). Sims slams bankers'
ethics”. In this article, Danckert outlines the key ethical challenges in the banking
sector of Australia which are highlighted by the launch of the Banking Royal
Commission. In this article, Danckert quoted the statements made by Rod Sims who
is correcting acting as the Chairman of the Australian Competition and Consumer
Commission (ACCC). This article also highlights the relationship between banks and
their senior executives and how they engage in unethical practices for personal
gains. Various fines and penalties which are imposed on banking corporations in
Australia are discussed in this article to understand the actions taken by the ACCC
to ensure that integrity is maintained in the banking sector of Australia. The
statements made by Sims in order to warn banking enterprises in Australia to ensure
that they conduct their operations in ethical manner are including in this article which
shows the role of ACCC in order to protect the interest of customers which is
violating by major banking organisations in Australia (Danckert, 2018).
There are several ethical issues which are raised in this article which include
lack of ethics in the banking sectors in Australia. The illegal operations conducted by
banking companies in Australia in order to ensure that they maintain their market
share even if they engage in unethical practices. The role of ACCC in monitoring and
punishing these corporations is also discussed in this article to understand that
challenges faced by the organisation to protect the interest of customers.

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Banking corporations are the key pillars which support the economy of
Australia; these banking corporations influence the lives of many individuals, and
they focus on providing support the businesses operating in the country. However,
the banking enterprises operating in Australia have failed to ensure that they comply
with business ethics policies while conducting their business operations. The
decisions taken by the senior level executives of these corporations are influenced
by the fact regarding whether or not they are able to sustain and expand their market
share in the country (Frost, 2018). These organisations focus on increasing their
customer base through any medium possible to ensure that they are able to increase
their profitability. The competition between major banking institutions in Australia has
increased, and they are focused on increasing their customer base without
considering the impact of their operations. These issues are highlighted in the article
published by Danckert in which she highlighted the challenges which ACCC faced
regarding ensuring that the banks in Australia conduct their operations in an ethical
manner (Danckert, 2018). In this article, the statements made by Rod Sims are
included along with his concerns regarding the unethical practices of Australian
banking institutes. Sims provided that bankers need to have a good look in the mirror
to understand their ethical practices. Danckert highlighted that only two months after
the launch of the banking royal commission in the country, it is shown that the
banking and finance sector is driven by greed. In the inquiry, some of the statements
made by the bankers showed that they could not do away with ethically dubious
practices because they would lose market share.
These statements are made by current and former senior bankers who accept
that they are ready to engage in unethical practices in order to maintain their
profitability in the market. In this article, Mr Sims criticised the regulators for their

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failure to govern the conduct of major banking corporations in Australia. He further
provided that the regulators should continue to do their job by calling out companies
in front to give answers for their failure to comply with ethical duties (Head Topics,
2018). He added that if the banking corporations and their executives think profits
before ethics, then they are in the wrong game. He provided that as far as ACCC is
concerned, it will continue to focus on doing its job. It will focus on highlighting the
unethical conduct of banking corporations in Australia. The article also highlighted
the two key instances in which both National Australia Bank and AMP were involved.
Both the parties allegedly mislead ASIC (the Australian Securities and Investments
Commission) in order to avoid legal regulation compliances. Current regulations are
considered as too “soft” which are not suitable to ensure that the banking
organisations are enforced to comply with relevant legal regulations (Letts, 2018). Mr
Sims provided that the strike rate was 100 percent when he joined ACCC since then
the rate has been reduced to 85 percent. It shows that the regulators have
continuously failed to bring major corporations in the courts for their failure to comply
with ethical principles and legal guidelines.
The key ethical theory which applies to this scenario is the Deontology ethical
theory. This theory is a part of normative ethical theories which argue that
compliance with duties is a major element without which ethical decision cannot be
made by parties. This theory uses rules in order to distinguish right from wrong. This
theory was developed by philosopher Immanuel Kant who argued that ethical actions
follow universal moral laws (Yazdani & Murad, 2015). This theory provided that
people should follow the rules in order to comply with their duties to ensure that they
take ethical actions. This theory emphasis on the maxim of the parties while judging
the morality of their actions. The maxim is referred to an expression of fundamental

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moral rule or principle which can be considered as objective or subjective on a
person’s philosophy. The maxim guides the actions of parties based on which their
morality can be judgement.
This theory applies to the issues discussed in the article since the banking
corporations have violated their duties. There are a set of rules which guides the
actions of banking corporations to ensure that they did not misuse their power,
position, and resources to engage in unethical practices. In this article, Mr Sims
provided that banking corporations are openly stating that they will not comply with
the regulations to ensure that their operations are ethical because it resulted in
reducing their market share. The top-level management in these corporations is
focused on profits rather than complying with ethical duties. The example of National
Australia Bank and AMP are evaluated in this article both of which mislead ASIC in
order to avoid legal charges and penalties (Han, 2018). It shows that the banking
corporations and their executives have violated their duties to ensure that they
comply with the guidelines issued by the government to govern their operations.
These actions resulted in adversely affecting many stakeholders.
The key stakeholders in this scenario include the banking corporations in
Australia, ACCC, government and the public who uses the services of banks. The
unethical practices of banks resulted in creating challenges for the economy of the
country which makes it difficult for the government is able to sustain the economic
growth of the nation. The ACCC has also failed as a regulator which is shown after
the launch of the banking royal commission which highlighted the unethical issues in
the banking sector (Sweeney, 2018). All these factors resulted in adversely affecting
the public since they are the ones who rely on banking corporations and their
services to conduct their operations. The failure of banking organisations to comply

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with business ethics principles resulted in adversely affecting the interest of people in
Australia.
Although the banking organisations have positively affected by these incidents
since they are able to increase their market share which resulted in increasing their
profitability. However, in the future, they will suffer significant loss since legal fines
and penalties will be imposed on them for their failure to ensure that the interests of
key stakeholders are protected. People who use banking services have negatively
affected through these actions since these corporations use unethical practices to
gain unfair advantage (Hogan & Menzies, 2018). In the long run, these unethical
practices will result in the collapse of the banking sector of Australia. The
government might not be able to ensure that the economy of the country remains
stable and did not collapse if the trust of people is removed from the banking sector.
ASIC has also failed to ensure that it brings those institutes to the courts who have
engaged and unethical practices. There are only some examples in which the senior
level executive of banking corporations are charged for violating their duties. All
these elements are highlighted through the investigation conducted by the banking
royal commission which shows the lack of suitable guidelines to ensure that the
interest of stakeholders who are affected by the operations of banking organisations
is protected.
These actions will continue to adversely affect the stakeholders; therefore, it is
important the strict actions are taken to stop these unethical practices. It is
recommended that the government should play a major role in addressing the ethical
issues which are highlighted in this article. The government should focus on
introducing reforms in the current regulations which guide the operations of banking
corporations in Australia (Bell, 2017). These reforms should introduce new and

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stricter policies which are targeted towards governing the operations of banking
organisations in Australia. Currently, the policies which guide the operations of
banking corporations are not suitable to ensure that the interest of key stakeholders
is protected. Therefore, the government should impose mandatory disclosure
requirements on these companies which should enforce them to make periodic
announcements regarding the actions. These disclosures should directly be
approved by the senior executives of the banking institutions which will result in
increasing their accountability in the operations. Currently, the management is able
to get away from personal legal penalties based on the concept of separate legal
entity, however, if they will approve disclosures which are false or mislead, then a
legal penalty will be imposed on them as well.
Key regulators such as ASIC and ACCC should also focus on doing their job
right by bringing those organisations to the courts who have indulged in unethical
practices. Currently, the corporations are able to protect themselves through ways
such as arbitration and payment of penalties, however, the court should impose strict
legal penalties on them for failing to comply with key regulations. Self-regulatory
policies should also be implemented by the banking corporations in order to govern
their operations in ethical manner (Pearson, 2018). Compliance with the provisions
of corporate governance policies is necessary to ensure that the management of
banking institutes are obligated to comply with ethical principles while forming
business strategies. Under these self-regulatory policies, the provisions regarding
mandatory disclosures should also be included in which the banking organisations
should make disclosures to key regulators such as ASIC and ACCC regarding the
actions which they took to address ethical dilemmas. Moreover, thorough
investigations should also be conducted by ASIC and ACCC to ensure that they did

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not miss any key factors regarding banking organisation in which they misuse their
powers and position to adversely affect the interest of key stakeholders.
In conclusion, the lack of compliance with ethical policies is the key issue
which arises in this article which shows that the banking organisations in Australia
are focused on expanding their customer base rather than complying with ethical
policies. The senior-level executives in these corporations are focused on increasing
the profitability of the corporation rather than conducting their operations in ethical
manner while ensuring that a balance is maintained in the operations of the
stakeholders. The article highlighted that the senior level executives of banking
organisations in Australia are ready to violate ethical duties in order to avoid
reducing their market share in the country. It shows that these companies are relying
on unethical practices while conducting their business operations which adversely
affect the interest of stakeholders such as the government, ACCC, and the public. In
the short run, it will benefit these institutions; however, in the long run, it will create
challenges for them as well. As per the application of the deontology ethical theory,
the actions of these banking corporations are unethical since they fail to comply with
the rules and policies issued by the government. Recommendations are included
which can assist these organisations in addressing the key ethical dilemma faced by
them such as compliance with corporate governance policies, stricter mandatory
disclosure requirements, and others.

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Article 2
On November 20, 2018, Salvador Rodriguez published an article titled “Here
are the scandals and other incidents that have sent Facebook’s share price tanking
in 2018” on the website of ‘CNBC’ in which he discussed regarding the challenges
faced by Facebook in terms of protecting the privacy of its users (Rodriguez, 2018).
This article covers a range of incidents relating to violation of data privacy of
Facebook users in which the company has failed to provide security to its users. The
key ethical issue is relating to the lack of ability of Facebook to protect the data of its
users. The corporation collected the private data of its users without their valid
consent, and it also discloses such data to third-party developers. This article also
highlighted the loss suffered by Facebook due to its own mistakes. The share price
of the company plummeted substantially due to a threat of incidents which resulted
in adversely reflecting on the brand image of Facebook. This article is posted after
the Cambridge Analytica scandal which is considered as one of the biggest scandals
in relations to violation of privacy of social media users (Rodriguez, 2018). In this
incident, the private data of more than 87 million users were collected by third parties
in order to find potential Trump supporters which influenced the results of the 2016
US Presidential elections. This article also highlights the negative impact which
social media giant, Facebook, has on people across the globe. It also shows the
negative implications of the use of online data of users.
Many ethical issues arise in this article; Facebook collected private data of its
users without their consent and shared it with third parties without considering its
consequences. Another issue is failure of the management of Facebook to act
ethically when it comes to protection of data of its users. The issue of lack of

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compliance with the regulations is also arisen which are implemented by the
government to ensure that Facebook takes active participation in protecting the data
of its users.
In this article, Rodriguez (2018) includes a number of incidents which resulted
in negatively affecting the share price of Facebook. The share of Facebook reached
$132.43 when it was down nearly 40 percent from its peak in July. The share price of
the company reached $131.55 which was its lowest closing price in a period of
nearly 22 months (Rodriguez, 2018). This fluctuation is a result of a number of
scandals in which the company was involved. The article first evaluated the changes
brought by Facebook in its News Feed which were focused on prioritising the content
for its users in order to promote friends and family over brand contents. These
changes were not accepted by the users of Facebook which resulted in reducing the
time spent by users on the website (Finn, 2018). It resulted in slashing the market
value of Facebook by $24.5 billion in January 2018. The Cambridge Analytica
scandal is another key issue which was faced by Facebook in March in which it was
reported by the New York Times and the Guardian that a British political consulting
firm, Cambridge Analytica, exploited the private data of Facebook users in order to
support the Trump campaign in 2016 in order to target potential voters.
In this scandal, it was first reported that the data of 50 million users were
violated; however, it was later revealed that more than 87 million people were
affected by this breach (Chang, 2018). After this incident, the market value of
Facebook fell down by $36 billion. In this scandal, the data was exploited through a
quiz application called thisisyourdigitallife in which the users were asked many
questions, and they answer them to create their psychological profile. Facebook has
launched a program called Open Graph in 2010 which allowed its users to collect the

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data of users along with their friends without getting their permission. Due to this
program, the corporation was able to collect the private data of 87 million people
from getting permission from only 300,000 people. It shows that lack of compliance
with ethical principles by the management of Facebook who focused on increasing
profitability of the company rather than taking appropriate measures to protect their
privacy of their users. After this scandal, Mark Zuckerberg, CEO of Facebook,
decided to testify before Congress due to which the shares of Facebook fell almost 5
percent (Rodriguez, 2018).
The Federal Trade Commission provided that it would investigate into the
data practice operations of Facebook in order to determine why it has failed to
ensure the privacy of its users. After this incident, Facebook reveals community
standards in April which were focused on cleaning up its services to avoid harmful
content such as hate speech, spam, and misinformation. After launch of these
standards, the market value of Facebook dropped by $18 billion in a single day.
Moreover, the corporation has also failed to comply with GDPR (the General Data
Protection Regulation) which are data protection and privacy regulations
implemented in EU law. Based on implementation of these policies, it was estimated
by experts that revenue of the company would be reduced in the future. After
implementation of these policies, it was reported that major corporations such as
Facebook, Amazon, and Google are not ready to comply with these policies (Hern,
2018). Many other smaller incidents also resulted in reducing the market value of
Facebook by reducing its share prices.
In this article, the utilitarianism ethical theory can be applied in order to
understand the unethical actions taken by Facebook which resulted in negatively
affecting its users. The utilitarianism ethical framework is also a part of the normative

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ethical theory which focuses on the consequences of actions while determining
whether they are ethical or not (Wagner & Dahnke, 2015). It is a form of
consequentialism which provides that most ethical choices resulted in producing the
greater good for the greater number of people. This theory did not focus on the
actions of parties while determining whether they are ethical or not. Instead, it
focuses on the consequences of the actions of the parties to determine whether their
actions are ethical or not. Based on this theory, the actions taken by Facebook and
its senior-level executives are unethical. These unethical practices show that the
management of Facebook is focused on increasing the profitability of the enterprise
rather than ensuring that the private data of its users is protected (Rodriguez, 2018).
The corporation collects private data of its users which include personal details such
as political preferences of users in order to show them relevant advertisements. The
consequences of the actions taken by the management of Facebook resulted in
adversely affecting millions of people who use the services of the company.
The management failed to consider the negative impact of the decisions taken
by them on the stakeholders. For example, the decision to launch Open Graph
platform resulted in allowing third-party developers to collect the private data of those
users who have not given their specific consent to the organisation to use their data.
This decision was taken by Facebook in order to ensure that it is able to expand its
customer base along with the number of advertisement clients and developers who
choose Facebook to create new applications (Rodriguez, 2018). It shows that the
corporation focuses more on profitability rather than compliance with ethical policies.
The decision taken by Facebook resulted in violating the privacy of more than 87
million people which shows that the consequences of the decisions taken by the
management of Facebook did not achieve greater good for a greater number of

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people. Therefore, the corporation has violated ethical principles while taking
business decisions. The lack of compliance with GDPR also shows that the
corporation did not prefer to be regulated through governmental regulations. It did
not want to reduce its profits by complying with these guidelines which resulted in
making it difficult for Facebook to collect the private data of its users. In order to
understand the negative impact of the actions taken by Facebook, the evaluation of
the stakeholders of the company is important.
The stakeholders that are affected by the actions of Facebook include
Facebook users, shareholders, government and the company itself. The corporation
was collecting private data of its users without their permission, and it was also
allowing developers to access such data as well. Due to this decision, Cambridge
Analytica was able to get access to private data of more than 87 million people
(Martin, 2018). They use this data to find potential voters who support the
presidential campaign of Donald Trump in order to support his win in the 2016 US
Presidential Elections (Rodriguez, 2018). It shows how data privacy breach resulted
in affecting the whole society. Moreover, the shareholders of Facebook suffered
significant loss after this news was published. The share prices of the company
started to go down, and it resulted in reducing the shareholders of the company.
Other incidents such as decision to change the news feed, and testimony of Mark
Zuckerberg before the congress also adversely affected the share price of Facebook
which resulted in adversely affecting its shareholders. The government was also
affected due to its inability to ensure that its property regulate giant social media
websites from misuse the data of users. Lastly, Facebook also suffered loss due to
which incident which will negatively reflect on current and future profits of the

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company. These are the key stakeholders that are affected by the actions of the
management of Facebook.
Various actions can be taken by the management of Facebook in order to
address this ethical dilemma and ensure that they conduct their operations in an
ethical manner. They should improve the Corporate Social Responsibility (CSR)
structure of the company to introduce new policies which are focused on preventing
the company from accessing the data of its users without their permission. Currently,
the company has implemented a code of conduct which provides that it will prioritise
data security to ensure the security of its users. However, incidents have shown that
the security infrastructure of Facebook is not appropriate to ensure that the privacy
of its users is maintained. Therefore, the corporation should introduce new CSR
policies which are focused on promoting transparency in its operations in order to
ensure that the company did not collect private data of its users without their express
consent (Ho, Ang & Tee, 2015). The corporation should also focus on complying with
GDPR which will assist it in ensuring that the private data of users is not misused for
illegal purposes. These guidelines ensure that the management did not misuse their
power to collect the private data of users and use it any way they want in order to
increase the profitability of the company. Therefore, compliance with these policies is
crucial for Facebook to ensure that it is able to address the ethical dilemma faced by
the enterprise.
To conclude, this article highlighted a number of ethical issues which arise
due to the decisions made by the management of Facebook in order to increase the
profitability of the company. The article provided how the share prices of Facebook
are plummeted due to many incidents involving ethical issues. The failure of
Facebook to ensure the privacy of its users resulted in violating the privacy of more

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than 87 million users. Many stakeholders were affected by the actions of Facebook
which include shareholders, users, government and the company itself. As per the
Utilitarianism ethical theory, the decisions taken by the management of Facebook in
order to launch Open Graph platform is considered as unethical. Various
recommendations are included which can assist the company in addressing this
ethical dilemma. These recommendations include implementation of an effective
CSR model to promote the privacy of users and increase the security of private
details of users. Compliance with GDPR will also ensure that the company is not
able to collect private data of its users without their permission and they will guide
the actions of the management to ensure that they did not act unethically. Based on
compliance with these provisions, the company will be able to improve its brand
image and sustain its growth in the market.

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