Ethics and Governance

Assignment : Ethics and Governance

Executive Summary

The ethical reputation in the Australian financial service, banking and insurance sector has fall down since past few years due to evidence and stories of malfeasance and unethical business practices.

The Hayne royal commission has highlighted the enquiries, damaging exposure and unethical accusations for this sector. This report makes an application of a theory of ethics to perform an evaluation of the different sections of the Royal Commissioner report in relation to the banking, insurance and financial services entities and their responses towards the unethical business practices and misdemeanors as documented in Volume 1.

To do this, the normative ethical theory is chosen from which the Virtue Ethics theory applied to state the responses from the Royal Commissioner report. The report also use the chosen ethics theory and the Code of Ethics for Professional Accountants, APES 110 to analyze the ethical issues in the case study of Freedom Insurance Group Limited as recorded in Volume 2 of the Royal Commissioner report for their aggressive and inappropriate sales tactics.


Ethics is related to a person potential to use their choice in relation to development of mutual interest or harm or a reason for conflict of interests.

In the context of the financial services banking and insurance this autonomy ought to have analysis to justify their decision or actions to be ethical or unethical.

There is a lack of good governance and ethical culture in this sector due to which there has been negative reputation due in relation to the practices of the using the mortgage brokers and the prevalence of unethical business practices in Australia (Boatright, 2013).

To develop an understanding of the found by the ethical issues by Royal Commission Bank and their responses towards the moral character of financial entities the Aristotelian ideas of virtue ethics is selected and applied.

The theory of virtue ethics is concerned with the identification of virtues that can give the impression of good/ excellent people and their conduct and does not focus on the outcomes in a direct manner.

The virtues in a virtuous personality are fairness, truthfulness, self-control, empathy and trust which focus on the mind and personality of a person. On the other hand, it disregards corruption, fraud, cheating, dishonesty and lying.

The theory underlines a character based approach towards making correct choices during the situation of ethical dilemma (Hursthouse & Crisp, 2013). The theory assumers that moral character develops as a person acquire virtues and admire virtuous habits through practice (Crossan et al., 2013).

Use of a theory of ethics to explain the statements and responses of Royal Commissioner

Virtue theory of ethics is the most applicable to determine the ethical aspects of the sayings of Royal Commission. Virtue ethics theory gives emphasis on the integrity of the moral actor rather than the act itself. It is required to have fair intentions to make an ethical decision.

If an individual adopts the moral standards while making decisions then it is considered as ethical. But at the same time, these standards are determined by the special communities like peers, role models, family, religious body, governing body, etc. (Boatright, 2013).

This theory is applicable to the responses of Royal Commission because it evaluates the decisions based on the moral values. From the report, it is identified that financial entities make fraudulent practices that causes a big losses for the customers. In concern of this, it can be stated that it is crucial to be honest to trade in fair way.

People keep trust on the banks and financial institutions as this trust should not be broken. No one can do something bad with another one intentionally with ignorance of virtues like honesty, taking care of others, patience, the ability to nurture, self-sacrifice, integrity, etc.

The financial entities should take care of others and should not cheat them through unethical and unfair practices.

The key objective of business is to earn higher profits and generate gains for the individuals in form of sales incentives, remuneration and rewards that they distribute on achieving business objectives. But they should not forget their virtues while generating profits because e their motive should be based on customer satisfaction.

Due to losing the trust because of unreliable decisions, these firms can lose their customers. If the financial entity does not consider the virtues in providing their services to the customers then it can be unethical perspective because it is ethical responsibility of the business to fulfill the interest of the client.

Conflicts of interests or sales targets can be a big reason for the misconduct in the Australian financial services industry. But these targets or interests should be assessed to evaluate the impact on the value of the firm or owner whether the intentions behind the fulfillment of own interest or sales targets are contributing to the fulfillment of the target valuation of the organization.

If these interests and targets are not contributing to increasing shareholder value then they should be eliminated (Vasudev, 2015).

Apart from this, another response by the Royal Commission on the misconduct by the banks and financial institutions is lack of disclosure about investment risks or fees. Virtues ethics consider that there should be a distinction between reality and unreality that depend on the proper information and facts available for making decisions.

If the Banking, Superannuation and Financial Services organizations do not disclose the investment risks and fees, it becomes unethical them due to not providing the real information.

Virtue begins with the effort for confronting reality as it is. There is a need to make rational decision in logical order based on the real information available to the investors and the facts of reality. Rational judgments and choices are possible on the basis of the proper disclosure of the investment risks and fees (Harrington, 2018).

Apart from this, ignorance of the clients’ best interests and the fiduciary duties to those clients is also a big reason behind the misconduct by the banks and financial institutions. Many organizations misconduct has stemmed from unethical practices that ignore the interests of the clients.

Absence of good leadership also contributes to this issue because they don’t focus on the fulfillment of the interests of the clients and also ignore the responses taken for the issue address (Plato-Shinar & Borenstein-Nativ, 2017).

Boards of the firms and trustees of superannuation funds engage in unethical practices that allow the advisers to charge the fees for no service. It means they ignore the interests of the clients and provide them the services at higher charges that cannot be said an honest act.

The morality act falls under the honesty because dishonesty conflicts with the reality. It is crucial for the businesses to recognize and deal with customers and employees to meet their goals and desires.

In addition, structure of the industry also promotes the favorable environment for the financial service organizations to make money rather than the consumers (Oates & Dias, 2016).

The misconduct appears in the policies and procedures adopted by these firms that adopt conflicts of interest. But this is not ethical in perspective of virtue ethics theory. Justice is related to the faithfulness to reality that shows the rationality in dealings with others.

So, it is mandatory for the financial service organizations and banks to show justice in their dealings to the customers. For this, it should be ensured by the financial organizations that the customers should get what they pay for (de Bruin, 2014).

In addition, they need to identify the employees who could serve the customers fairly. There should be no discrimination based on sex, race, and nationality while providing services to the customers and also offering compensation to the employees.

The virtues can be significant for the banks and financial service organizations to direct their actions towards the achievement of the goals and values of the firm with the maximization of the owner value.

It can also be significant to enhance the customer service and increase productivity and efficiency and employee morale to get the business objectives. Integrity should be maintained as it prevents the breach between the through and action. It is crucial for the organizations to act consistently with rational principles to get the success (Roulet, 2018).

It is crucial for these organizations to show their commitment to achieve the organizational goals as well as serve the customers by adopting ethical practices. So, virtue theory considers all these aspects related to misconduct in financial and bank organizations that can be avoided by adopting virtues.

Evaluation of the ethical issues related with Freedom Insurance Group Limited

In order to understand and evaluate the ethical issue in Freedom insurance case study, the theory of Virtue Ethics is applied together with the guidance of the ethic code, APES 110. There is an ethical issue with the company expectation towards its sales agents to make use of a hostile and improper sales tactics.

Considering the fundamental principles of ethics under APES 110, it can be said that for the professional practices there are ethical issue in the insurance company as the sales agents are not complying to ethical principles and standards in their professional dealings with customers.

The fundamental principle of professional practice are integrity, professional skill and due care, confidentiality, objectivity, and professional behavior (APESB, 2010).

In this case, the fundamental principles of integrity, professional competence and due care and professional behavior is not obeyed by the sales agents thus, they are not meeting their terms to act responsibly towards the interest of their customers/ public.

In selling their life insurance products, the sales agent was not direct with their customers as in the case of selling their Freedom protection plan to Mr. Bruce Stewart son who had a disability.

The sales agent in making call their phone call to Mr. Stewart son did not comply to integrity in the professional dealing. Referring the virtue ethics theory, it can be evaluated that a basic moral virtue in a person is integrity and the foundation of developing a moral character (Annas, 2015).

Here, the sales person did not have this virtue which means that the agent lacks an understanding of one’s principles and did not choose to act in according to this moral virtue.

The professional skills as well as professional behavior principles and standards were not obeyed by the sales agent in the insurance company which needs to be demonstrated by a competent professional.

The lack of professional competence of sales agent is found towards their product of accidental death and accidental injury policies as it is promoted as an alternative cover to life which is not true and also the clarification what injuries and on what claims accidents the policy would cover is not clarified to customers.

It can be evaluated that lack of professional competence and behavior determine the unethical behavior of the sales agent (Low & Davenport, 2009) as in the case of Freedom Insurance as the moral character of the person can be indentified by their unprofessional behavior that is behind their carrying out their actions (inappropriate sales approach) under the virtue ethics theory.

Thus, it can be evaluated that there is an ethical issue towards the aggressive and inappropriate sales tactics expectations as virtue ethics evaluates the ethical issue from the standpoint of moral integrity of the sales agents that are involved in making sales decision whether or not they should meet the company’s expectation of hostile and unethical sales practices.

Thus, the ethical decisions towards non-aggressive and apt sales approaches were not based on the sales agent virtuous character which should include integrity, professional friendly behavior and patience in professional dealing while closing sales with Mr. Stewart son.

This also related to the issue of company sales agents in targeting and making their sales by selling their life insurance products to vulnerable customer groups those who lacks sufficient understanding of the product plan, the payment terms (Bateman & Valentine, 2015) and policy terms towards their premium dues and are easily manipulated by the sales agents to buy the products/ policies.

The moral character is not considered by the sales agents in making the choice towards targeting vulnerable customer groups (Palanski et al., 2011).

Besides this, the above mentioned fundamental principles of ethics are related with the threat of advocacy and self-interest in the knowledge of APES 110 (APESB, 2010).

Considering the integrity principle, the sales agents have given high prevalence to their self-interest and have ignored the interest of their customers by using improper sales approaches to sell their products and gain rewards.

The sales agent have made sale to vulnerable customers without considering their professional judgment, values and standards which points to the threat of advocacy.  Under the virtue ethic theory, the self-interest motive is seen as a concern for self well-being thus, related to virtue but in relation to this case study, an ethical decision based on virtue is related to making a choice towards mutual interest over focusing oneself on the cost of other person.

Referring to APES 110, a few safeguards that are available to bring the threats linked to fundamental principles at acceptable level and to eliminate them are indentified at regulatory and professional level, organizational unit level and at the personal level.

The first safeguard is to acquire sufficient know how the APES 110 fundamental principles which every CPA members need to obey in professional dealings and demonstrate them in their decision-making practices when faced with ethical dilemma.

Moreover, it is also important to understand the nature of insurance business and its requirements from sales operations and approaches and evaluate with the relevant industry specific regulations and marketing ethics.

The promotion of ethical culture and good governance through enforcement of ethical workplace polices and a transparent way of working is another way towards protection. At the same time, an ethical committee can be set up to provide guidance, advice and ethical training by the ethical experts to the organizational members.

The third safeguard is to make the customer aware of the engagement terms and on what the premium are, when they are due and what plan or policy claims will covered. The fourth safeguard is to develop understanding of one’s moral character and virtues that are behind the right decision and action that is ethical.


It can be concluded that the use of virtue ethics theory have been useful to comprehend and evaluate the what the different sections of the Royal Commission report stated and their responses towards the misconduct, and unethical business practices in financial, banking and insurance sector.

The virtue ethics theory and APES 110 code was used to evaluate the ethical issues at Freedom Insurance Group Limited for their expectation of hostile and inapt sales approaches to vulnerable customers and for their accidental and injury polices.

It can be concluded that there was non-compliance of principles of integrity, professional skill and due care and professional behavior that results in threat of advocacy and sales agents’ self-interest. A few safeguards were identified that are available to manage and tackle the ethical threats.


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