Corporate Ethics Report: Royal Commission Case Study Analysis

This report provides an in-depth analysis of corporate ethics, specifically focusing on the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Hayne Royal Commission). The report begins with an executive summary outlining the commission's work and its focus on identifying ethical breaches within the financial sector. The core of the report examines the application of virtue ethics in evaluating the commission's recommendations, particularly in relation to the banking, finance, and superannuation industries. It delves into the commission's response to various issues, including the importance of ethical codes of conduct, governance, and remuneration. A key component of the report is a case study on Freedom Insurance, highlighting instances of misconduct and unethical practices, such as the sale of insurance products to individuals lacking the capacity to understand the terms and conditions. The report concludes by emphasizing the significance of the commission's recommendations in fostering improvements, reducing risks, and promoting ethical behavior within the financial services sector, ultimately aiming to enhance customer relations and industry integrity.

Running head: CORPORATE ETHICS
Corporate ethics
Name of the Student
Name of the University
Author Note

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Executive Summary
The report summaries the working of the Royal Commission into investigating and
indentifying misconduct in organizations ethical code of conduct. The commission works in
the financial, banking and superannuation industry. The theories of ethics have been
discussed to provide understanding of the theories and its uses in the industry. The
investigation done by the Royal Commission on Freedom Insurance showed breaches in
ethical code of conduct. Thus the report will highlight the working of the commission and its
function to maintain work ethics.

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Table of Contents
Introduction................................................................................................................................3
Royal Commission.....................................................................................................................4
Freedom Insurance.....................................................................................................................8
Conclusion................................................................................................................................12
References................................................................................................................................13

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Introduction
The Royal Commission is a public inquiry forum whose function is similar to that of
the Commission Inquiry. The commission investigates into banking, finance and
superannuation sector to identify any misconduct into the system. Commission believes this
will improve the health of the service industry and eventually reduce the prominent cases of
misconduct in the service industry. The commission came up with recommendations to
which will benefit overall working of the banking, finance and superannuation industry.

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Royal Commission
Response to question 1.:
1.1 The theory of ethic considered to analyze and evaluate Royal Commission’s response is
Virtue ethics.
Virtue ethics:
In recent the concept of virtue ethics has garnered attention in the public domain and
the major approach in the normative ethics (Vardy, 2016). The basic definition of virtue ethic
is about what makes a person good. Virtue theory emphasizes on the virtues that is the
significance of character and moral grounds rather than on consequences, rule and duty (Heti,
2019). Virtue ethics involve the person to have ideal character attributes; morally upright,
honest in his or her work and to hold integrity. The qualities are natural tendencies, which
need nurturing to stabilize in the long run (Annas, 2015). A virtuous person can he identified
as someone who is kind and caring in situations not because the person wants to gain favors
or maximize utility. Virtue ethics principle is to improve and support personal as well as
professional relationship (Hunt, 2016). To measure the ethical values of an enterprise,
integrity is a tool. This particular virtue asks an individual to be honest and true to its work
and in all professional relationship (Petrazycki & Trevino 2017). Integrity is the link between
ethics and action (Crane & Matten 2016). Virtue theory has diversified into three directions:
care ethics, agent-based theories and eudaimonism. Care ethics challenge the proposal which
focuses only on autonomy and justice. Theory of care ethics dictates to consider feminine
aspects like nurturing and caring (Isaak, 2017). Agent-based theory discuses virtues like
intuitions and common sense to develop judgment. Lastly eudaimonism emphasizes in
flourishing human character which is directly equated with the performance of an

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individual’s function (MacCormack, 2016). The theory provides no guideline for behavioral
conduct as to have the capacity to cultivate and harvest virtues has numerous factors affecting
the individual’s moral conduct (Dierksmeier et al., 2016).
1.2 The Royal Commission is a public inquiry forum whose function is similar to that
of the Commission Inquiry. It’s a formal platform that investigates various service industries
for breaches of professional conduct (Tefler, 2017). The commission is formed to look into
controversial matters and which hold significant importance. If any misconduct is identified
by the commission, the criminal offences need to be referred to commonwealth (Bayerlein &
Timpson 2017). The Royal Commission into Misconduct in the Banking, Superannuation and
Financial Services Industry which is also known by Hayne Royal Commission inquires and
investigates reports on any kind of misconduct in the financial, superannuation and banking
services industry. Other than being known as The Hayne Royal Commission it is also
familiar by the name of Banking Royal Commission. Honorable Kenneth Madison Hayne AC
QC heads the commission. The commissioner conducts inquiry in service industry. He is not
authorized to resolve any individual disputes or award compensation to a dispute. The
commissioner cannot take any legal action against any service industry. The Royal
Commission has released the final report for the present year. Forged documents, mal selling
of insurances and alleged bribery has been identified and noted by the Banking Royal
Commission (Jentzsch, 2016 ). Commissioner Hayne believes in certain ideologies that will
help in the working of the commission and maintain the ethical code of conduct in these
service industries. Under the supervision of various entities, non-financial risks are also taken
into consideration. Commissioner Hayne exclaimed that the overall damage done to the
reputation and health of the banking and financial services industry is large
(royalcommission, 2019). Commissioner Hayne made certain recommendations to reinforce
improvement in the sectors to reduce risks and gradually eradicate future misconducts. He

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believes in the role play of supervising culture, proper governance and remuneration will
improve intrinsic code of conducts.
The final report by The Royal Commission highlighted the several misconducts in the
banking, superannuation and financial service sectors. Commissioner came up with
recommendations to initiate information flow which will help the board to easily discharge
duties and reduce the misconducts noticed in the industry. Commission Hayne made certain
key recommendations for the banks, insurance, financial services and superannuation.
Mortgage brokers are required to act according to the interest of the borrower and not about
the bank which is giving the loan (royalcommission, 2019). Any breach to this law will result
in fine. The next point he mentioned in this context is that the borrower need to pay to the
broker. In case of new loans, lenders will not be allowed to pay trail commission to brokers
(mortgage brokers). The Banking Executive Accountability Regime laws will be expanded to
track the breach of laws. For farmers and individuals lacking proper English skills, a national
scheme will be established to mediate debts of the farms. Banks will not be allowed to charge
dishonor fees for basic accounts. Amendments will be made in the banking code of conduct
to help individuals staying at remote locations and those who lack English skills. Interests
will not be charged on lands which are declared as drought prone land (Policy, 2019).
National Consumer Credit Protection laws will cover car dealers as well. For the financial
industry, new disciplinary schemes will be created for financial advisors. Commission on life
risk insurance need to be reduced which will ultimately reach zero. For the insurance sector
any heavy handed insurance selling will be barred. Any kind of settlement and handling
insurance products will be considered financial service. Each financial company will be
required to review their remuneration feature and design at least in a year. Compensation
schemes will be introduced who will not be able to receive recompense (royalcommission,

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2019). These recommendations drew huge criticism but the Commissioner believes
implementing these key features will minimize misconduct risks.
The Royal Commission in his report and recommendation have provided ample
opportunities for growth and reducing misconducts in the banking, financing and
superannuation industry. The Royal Commission has provided means to maintain integrity
and professional code of conduct. The new schemes recommended by The Royal
Commission will enable better professional health of the industry. The banking, mortgage
company and brokers are doing so to enhance their growth and customer count in the market.
The banking, mortgage and broker services industry has drawn a lot of negative criticism
from the public for their past misconducts. These misconducts have greatly affected the
service industry health. Abiding the virtue ethics, will provide them the path to honestly
conduct business and practice ethical work (Dunn & Sainty 2019). The principle of virtue
ethics is to be honest, caring and hold integrity in one’s work, the schemes which will be used
by these service industries will exactly do the same (Ethics, 2019). Virtue ethics also include
caring ethics that is to care about the customers they are serving in the industry. The schemes
introduced will enhance the personal relationships and shows care towards the customers
from all classes. Customers will benefit greatly from the schemes. The motive of these
service providers is to improve customer relation and services and win more customers.
Virtue theory offers the best explanation for the above as the definitive principle of the theory
is to do good for the people with honesty and not to maximize utility (Yasir & Mohamad,
2016). The scheme promises to provide excellent services for the good of customers and
giving priority to the customer first which completely justifies the virtue ethics (Peels, 2016).

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Response to question 2.
Freedom Insurance
Freedom Insurance Group limited provides several administrative services and sells
insurance products. The company promises to serve the customers to the best of its abilities
taking into considerations their overall condition. The company has several insurance plans
which are provided to its customers to secure their life (Freedom, 2019). The initial structure
and model of conduct of the company had sales executive sell insurance policies over call to
its customers (Freedom, 2019).
Case Study summary
The Banking Royal Commission investigated the insurance for misconduct and
unethical practices. The Commission came across the case of Mr. Stewart’s son. Mr. Bruce
Stewart’s son is affected by Down Syndrome (royalcommission, 2019). His son has severe
complexity in comprehending the value and quality of a product. He lacks proper judgment
skills to value the pricing of a commodity, whether a purchase should be made or not with the
money he has. Hence, Mr. and Mrs. Stewart help him in all his financial decisions though he
has the right to take decisions independently. When Mr. Stewart’s son bought the insurance
product from Freedom Insurance Limited, he was solely supported by the funding of
Disability Support Pension. Freedom sold accidental death cover insurance to Mr. Stewart’s
son. Mr. Stewart has no knowledge about the insurance policy his son bought from Freedom,
until he found a letter that Freedom sent him containing the detail of the product bought. The
plan bought by his son covered three different kinds of covers- accidental injury cover,
funeral cover and accidental death cover. The premium covers for the policies were different.

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The funeral cover premium will not be due twelve months but the accidental injury and
accidental death cover will be due from twelve days later. The letter took Mr. Stewart by
surprise as he did not understand how his son signed up for the insurance policy. When he
questioned his son about his purchase, he could recall speaking over the phone to someone
and providing all the details of his debit card to the person. He had no explanation for his
course of action. It could be understood that Mr. Stewart’s son had no idea that he provided
the details to buy the insurance product. It can be said here the company sold an insurance
product to a customer who had no understanding of the product he bought violating ethical
code of conduct (royalcommission, 2019).
When Mr. Stewart telephoned to know the details and cancel the plan bought by his
son, he was unable to do it over phone. It was told to Mr. Stewart by a representative of the
company that would go through the call recording to make any further decisions and revert
back to Mr. Stewart. Mr. Stewart was told that the company representative who spoke to his
son to sell him the policy most probably had no idea of his son’s mental condition. Mr.
Stewart in the next following two days received no calls from the agency so he mailed to the
Operations Head and lodged a complaint. The next interaction with Freedom had the team
resort Mr. Stewart and his son to a retention representative who tried hard to persuade them
not to cancel the plan and highlighted the potential benefits of the plan. They also mentioned
that the company representative had no prior knowledge of Mr. Stewart’s condition. At the
end they had to ultimately cancel the insurance policy sold. Mr. Stewart’s son needed to state
his reasons for discontinuing the policy which he had faced in framing his words and stating
lucidly. The representative of the company engaged himself in a disparaging message thread
with the retention officer which was highly unethical on the company’s from. It was also
accepted by the Chief of Operations that the behavior was highly unethical on the company’s
front. Mr. Stewart asked the company to provide copies of the sales call recording. The

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company delayed in sending him the recordings and send him the recordings when the
Commission was about to consider evidence for the matter. There were two calls made to his
son. The first one was a short call which lasted for around two minutes. The second call
lasted for about eighteen minutes where his son was sold the policy. The call proved that Mr.
Stewart’s son has no understanding of what he was purchasing. This incident is highly
unethical on the company’s professional code of conduct (Keskin & Işık 2015). The
treatment they provide towards their customer breaches ethical code of conduct (West &
Buckby, 2018). The commission also noted the same. The company accepted its misconduct
with the client saying that they the representative’s behavior was not appropriate.
. I am a CPA member and while investigating Freedom Insurance Company, I have
come across certain ethical misconducts concerning the way Freedom expects its officers to
sale insurance products considering the guidelines of APES 110 (Jaber & Fadda 2016). APES
110 dictate ethical guidelines that have been clearly not followed by Freedom Insurance. I
have found on analyzing the reports and interactions that Freedom Insurance uses lucrative
means to encourage their employees. I found that the company was providing high incentives
to its insurance officers on gathering more clients. The target set by the company which when
achieved, the company launched schemes to reward its employees. The foreign trips were
also part of the reward process. The company practices selling of insurance products to
vulnerable clients in the case of Mr. Stewart’s son, who suffers from Down Syndrome. The
company has sold insurance products to six such vulnerable clients. According to the APES
110, vulnerable clients need special attention and support when dealt with (Jaber & Fadda
2016). This is serious breach of ethics that I feel Freedom Insurance has failed to abide by.
The retention officer used desperate means to stop Mr. Stewart’s son from cancelling the
plan. This is highly unethical, as the company claimed they had no knowledge of the young
man’s physical and mental disability, but when the officer met him in person he should not

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have coerced them to keep the policy as the boy could not even articulate his points. I believe
such forceful method to retain customers is unethical as mentioned in APES 110 (Jaber &
Fadda 2016). There is also evidence of the retention officer engaging himself with another
officer in a message to belittle the young man. He was disrespectful. I can clearly say that the
company representative has breached the guidelines for professional behavior (Jaber & Fadda
2016). In my opinion the Chief of operations should have considered the case and asked his
officer to handle such vulnerable cases gently or maybe be train a new team to deal with
vulnerable customers.
The safe guard available is the use of strong internal controls. The management can
work together to find out measures to stop misconducts in vulnerable cases. The internal
working of the company can initiate programs and better schemes to improve work ethics.
Programs like group activities in handling special clients, vulnerable interactions and periodic
checking of the action of the employees can help develop performance and reduce m
conducts. Second safe guard is to implement policies and procedures to monitor employee
performance and improve communication of the employees with the higher management.
When the gap between employees and higher management reduces, the efficiency and
productivity of the organization as a whole increases. Thirdly, stressing the significance of
ethical code of conduct by senior leaders and accepting the misconducts of the past. This will
eventually reduce further misconducts in the future and improve the working health of the
team and the employees. The organization can avoid rewards on financial basis to control
inappropriate behavior influenced self interest more than public interest. As it seen in most
cases that to get higher incentives employees use unethical means to engage with customers
to increase their sales. If such rewarding schemes are modified, then employee behavior can
be corrected.

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Conclusion
The Royal Commission in its one year of working investigated several cases to identify
misconducts in obeying the professional code of conduct of organizations. The Banking
Commission investigated cases in the banking, financial and superannuation service industry.
The Commissioner in his final report provided cases of companies where ethical breaches
have been identified. The final report was comes with key recommendation to improve the
ethical conducts of the organization in the superannuation, banking and financial sector. The
recommendations will benefit individuals in the particular service sector.

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https://www.iep.utm.edu/virtue/
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Retrieved from https://www.freedominsurance.com.au/

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