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Business ethics incorporates professional or applied ethics which assesses the moral and ethical principles that can emerge within the business environment (De George, 2011). This essay has discussed about the different argument about the banking sector as an ethical and unethical. It shows the different corrupt Australian bank as an example for the argument of ethical behavior. . Ethics is crucial in any type of industry and the banking industry is not exempt from it. Ethics in banking encompasses careful consideration of its activities such as ethical investment, the impact of its investment, fair trade movement, ethical consumerism, and corporate social responsibility. Ethical banking upholds principles such as transparency in their activities, social and environmental values. With various cases of management accounting emerging in recent times, the significance of ethics in the banking sector has only increased many folds (Carrasco, 2006). Ethical issues in Australia’s banking in recent year have been highlighted by the Banking Royal Commission in its 2018 report. In situations where banks fail to uphold the ethical standards in its operation, the interest of the entire stakeholder is at risk that can result in an economic and social loss to even redundant friction within the economy.
Koslowski, (2011) suggests that ethical banking operates in on the principle that what banks do with the money and the way they treat people matters and it goes beyond the topic of how banks invest their profits. Banks that endorses ethical practices in their operation ensures that they have strong sustainable credentials, practices ethics in all levels of the organization and commits to transparency. Incorporating business ethics makes sure that a certain level of confidence is established and exists between the organization, consumers and multiple forms of market participants. It ensures that all the parties involved in the business with the organization are treated fairly. Business ethics goes beyond just the moral belief of doing right and wrong; it seeks to reconcile the activities that companies need to do legally against developing a competitive edge in the market. Ethical conduct in banking is as important as in any other sector as it brings a number of benefits to the table such as attracting customers, employee’s retention, improve the brand image of the company, and attract investors towards the company.
Lumsden, (2019) suggests that with the recent turmoil that has been seen in the banking sector in Australia, put forth by the Banking Royal Commission, the significance of ethics in business has only increased that many folds. Banks are entrusted to act in a way that promotes trust of the public in them, confidence, and infusing values like integrity, responsibilities, fairness, accountability, and respect in all of the bank’s dealings. Though these are the beliefs and conducts that banks are expected to carry out, recent scandals and the crisis have led to public generating a belief that the banking industry has some fundamental issue with them. A number of studies highlight that different banks are linked with accepting bribes for loans, cheating customers, bias while lending and so forth. These acts show that fraudulent financial practices in recent times have become somewhat of culture in banks for achieving personal gains. Though a number of legislations has been laid down by concerned authorities in order to regulate the banking operations in Australia, at times it is not enough on its own to guarantee that banks are disciplined. Ethics begins where legislation ends and banks need to strive to be ethical in their actions as unethical actions often lead to the economic and social loss. Banks that fail to meet ethical standards in their operation puts the interest of all the parties at risk as evident from the different banking scandals in Australia (Lodhia, 2015). Some examples of unethical conduct within the Australian banking industry are Westpac subsidiary paying $493,000 as a penalty for breaching consumer protections, ANZ reporting three breaches of dispute resolution requirements, Commonwealth Bank offering $3 million as compensation for financial advice to date and so forth. These incidents show that the needs for ethical business practice in the Australian banking industry are greater than ever before.
To better understand the aspect of ethics in business, relevant theories of ethics can play a crucial role (Casali, 2011). The major theories related to the ethics in business are utilitarianism, deontology, care ethics, egoism and virtue ethics. Utilitarianism advocates that action conduct is morally correct as long as it brings the greatest amount of happiness and good to the highest possible number of people that are affected by that particular action. As per utilitarianism theory, an individual or company needs to choose the action that results in the greatest happiness in general while maximizing the positive outcome for the largest number of people. Deontology or Kant’s ethical theory, on the other hand, stresses the moral significance of the action lies in the principle of the person’s action or conduct. It advocates that one need to choose an action or conduct that best conforms to one’s recognized duties and responsibilities. Under it, the morality of an action is judged against the adherence to the rules. Egoism theory explains what makes an action good or bad is the actions ability to satisfy one’s desires or meet one’s needs. As per egoism, an action whose consequences benefits the action taker it is considered as ethical. Care ethics centers on the action that seeks to care and build an interpersonal relationship with others. It puts forth the principle that an action that is carried out to care for others who need support and are vulnerable is ethical. Care ethics theory is generally considered to be a supplement to other theories rather than being a comprehensive theory in its own. Virtue ethics emphasizes the virtue of mind and character. Under virtue theory, an action can be ethical if it embodies or promotes aspects that are culturally acknowledged as right or wrong. It is crucial to understand that different traditions develop a different list of virtues making single action right in one place and wrong in another. Through better understanding the ethical theories, the banking sector can adopt principles of mutual trust, good intentions, mutual benefit and interest, the conflict between one’s own interests and ethical improvement of business behavior (Buijs et al, 2008).
Banking Royal Commission was established in 2017 to inquire and report about the misconduct in the Australian banking industry (O’Brien, 2019). The report indicated that banking sector in Australia displayed serious lack of ethical consideration as the inquiry noted that a number of financial institutions were involved in money laundering, turned blind eye to terrorism financing, indecency in foreign exchange trading, and ignored statutory responsibility of reporting. Furthermore, the report was able to uncover unethical behavior in the banking of Australia such as charging fees for no advice, selling useless insurance policies to indigenous groups, charging fees to dead people, and lying to regulators. This caused many investors to pull their investments from various banks as it noted that customers were relegated to second place in the companies. Due to these activities, the Banking Royal Commission highlighted some serious misconduct in the banks that consisted of frauds, bribery which are a major concern for ethical investors. Among the financial institutes that were investigated are some of the big institutions in the financial sector of Australia: Commonwealth Bank, Macquarie, National Australia Bank, Westpac, AMP, and ANZ (Davis, 2019). Majority of financial were conducting acts that abuse trust, due to these tighter rules to regulate the banking industry more closely is required. Through its report, the Royal Commission has pointed out a series of entrenched cultural issues that have emerged in the Australian banking sector.
Ethics in banking industry ensures that financial institutes consider the social as well as environmental impacts of its activities. It pushes banks in Australia towards activities like more ethical investment and consumerism, impact investment, socially responsible investment and so on. While banks that adopt ethical practices attract customers, investors and attains competitive advantage, those which fails to do so can impact not only social and economical aspect but lead to the total collapse of the institution. Through the ethical theories: utilitarianism, deontology, care ethics, egoism and virtue ethics the subject matter of ethics in banking can be better understood. The report produced by Banking Royal Commission highlights major breach of ethical elements in the Australian banking scene such as fraudulent activities, bribery and so forth.
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- Carrasco, I. (2006). Ethics and banking. International Advances in Economic Research, 12(1), 43-50.
- Casali, G. L. (2011). Developing a multidimensional scale for ethical decision making. Journal of Business Ethics, 104(4), 485-497.
- Davis, K. (2019). The Hayne Royal Commission and financial sector misbehavior: Lasting change or temporary fix? The Economic and Labour Relations Review, 1035304619847928.
- De George, R. T. (2011). Business ethics. Pearson Education India.
- Koslowski, P. (2011). The ethics of banking: Conclusions from the financial crisis (Vol. 30). Springer Science & Business Media.
- Lodhia, S. (2015). Exploring the transition to integrated reporting through a practice lens: an Australian customer owned bank perspective. Journal of Business Ethics, 129(3), 585-598.
- Lumsden, A. (2019). The Wider Implications of the Hayne Report for Corporate Australia. Available at SSRN 3342855.
- O’Brien, J. (2019). “Because They Could”: trust, integrity, and purpose in the regulation of corporate governance in the aftermath of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Law and Financial Markets Review, 1-16.
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