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Standard Chartered plc operates as the leading emerging markets bank in the world. The banking group, known by many in the banking industry as Stanchart, operates over 500 offices in 50 countries throughout the Asia Pacific region, South Asia, the Middle East, Africa, the United Kingdom, and North and South America. Its Consumer banking division–responsible for 58 percent of operating profit in 2000–provides customers with credit cards, personal loans, mortgages, and investment services. Its Wholesale banking unit caters to corporate clients in the trade finance, cash management, custody, lending, foreign exchange, interest rate management, and debt capital markets. In 2000, the majority of SCB’s revenue stemmed from its Hong Kong and Asia Pacific region operations, while the Middle East accounted for 18 percent, North and South America and the United Kingdom secured 14 percent, and Africa claimed 9 percent of revenues. The bank derives more than 90% of its operating income and profits from Asia, Africa, and the Middle East, generated from its Wholesale and Consumer Banking Businesses. The group has approximately 1750 branches and outlets located in more than 70 countries.
The London-headquartered Group has operated for more than 150 years in some of the world’s most dynamic markets, leading the way in Asia, Africa, and the Middle East. Its income and profits have more than doubled over the last five years, primarily as a result of organic growth, supplemented by acquisitions. The group employs 75,000 people, nearly half of whom are women. Its employees are of 115 nationalities, with 60 of these represented among senior management.
Highlights on the ethical dilemmas of Standard Chartered Bank
Although Standard Chartered Bank is an international bank and countries tend to trust it for its international standards, but being such a widespread company they have had their ethical criticisms. Some of the unethical dilemmas that the company has faced over the years are-
Credit card complaints- Recently SCB has been facing extensive disputes in Asia particularly in India and Pakistan regarding the marketing of their credit cards.
Figure 1:1- Reduction of the use of credit cards The government’s trade watchdog, the Monopolies and Restrictive Trade Practices Commission, has started an investigation of card-selling practices of certain banks including Standard Chartered Bank, HSBC and the local banks ICICI and HDFC. The commission has the power to fine companies and limit their business dealings. All the banks involved say they have followed all appropriate trade practices and are cooperating with the requests for information. On May 7, the Reserve Bank sent a letter to all commercial banks warning about “usurious” interest rates, asking them to make sure costs to the borrowers were justifiable. The ombudsman’s office at the bank said it received 3,700 consumer complaints about credit card lenders within just the first 5 months of 2006. Newspapers regularly run articles telling consumers how to cancel their cards, and some frustrated credit card users simply stop paying their bills. (http://www.consumercourt.in/credit-card/2638-standard-chartered-bank-complaint.html)
Stock market scandal (International Agenda)- A report on India’s biggest financial scandal during 1991 & 1992 accuses foreign banks of transacting dummy deals to cover up losses or camouflage transactions by favored Indian brokers. The report from the Reserve Bank of India (RBI) exposes what it calls the nexus between Indian brokers and two foreign banks, Standard Chartered and Australia and New Zealand Banking Group’s ANZ Grindlays Bank. The report accuses Standard Chartered of entering into fictitious transactions to cover up an ever-increasing number of unaccounted deals on its investment portfolio. The central bank of India has issued fines of roughly $42 million to 10 foreign banks, including Citibank, Bank of America, American Express Bank Ltd. and Standard Chartered Bank, accusing them of involvement in India’s worst securities scandal. SCB violated its guidelines by financing certain stock market operations, as well as helping out a fathered broker, Harshad Mehta, by putting through a number of dummy transactions. (Sanjoy Zakaria, 1994, New York Times)
Acquisitions and outsourcing threat- In Malaysia, Bank Negara Malaysia in the financial master plan encouraged outsourcing of non-core functions by Financial Institutions. Ever since, banks have been exploring outsourcing as a way to rationalize and streamline operation. While outsourcing is a way forward to reduce cost, manage manpower dependencies and to allow financial institutions to focus on its core business of providing services and financial products, such outsourcing is done without prior consultation with workers’ representative namely SBEU. Reduction of staffs not only occurs to those directly affected by the outsourcing of the job functions, but also other complementary staff areas. Example, outsourcing of Sales and Marketing job in Standard Chartered Bank has transferred jobs originally done by Special Grade Clerical. Indirectly, this will reduce career promotion prospect. The bank has also use rationalization (due to outsourcing) as an excuse to close branches and scale down others. In the case of Standard Chartered Bank, the bank has gone on closing 15 branches nationwide with two in Sarawak according to Law Kiat Min, General Secretary of Sarawak Bank Employees Union.
Evaluation of the Ethical Dilemmas Faced by Standard Chartered Bank
Credit card complaints- The consumer court in India has been tackling problems regarding unfair credit card charges and improper means to withdraw the phony due amount, Credit Card Terms Prompt Indignation Arigit Sengupta, a hotel manager in Bangalore, swears he is never using a credit card again. Skip to next paragraphAfter charging about 30,000 rupees ($743) to his card and paying his minimum balance on time, he said he wound up owing his bank more than three times that amount. “The kind of interest they charge, not even a chartered accountant could understand”, he said. Local and foreign banks are aggressively peddling credit card accounts in India, where a fast-growing middle class with disposable income has created the ideal card customer base. (Refer to Appendix-2) Even though the firm is maintaining the contractual theory with a customer during selling these credit cards, which represents that firms have a responsibility to comply with the terms of the sale, inform the customers about the nature of the product, avoid misrepresentation of any kind, and not coerce the customer in any way. But on the other hand SCB is overlooking the due care theory which focuses on the relative vulnerability of the customer, who has less information and expertise than the firm, and the ethical responsibility that places on the firm. Customers must depend on the firm providing the product or service to live up to the claims about it and to exercise due care to avoid customer injury.
The result is vocal and heated criticism from card holders, consumer advocates and the government. They accuse the banks of levying unfair fees and nuisance charges and of providing miserable customer service. “These banks are cheating the public,” said C. V. Giddappa, general secretary of the Credit Card Holders’ Association of India, a nationwide consumer group. Mr. Giddappa’s organization estimates that Indian consumers are paying 16.4 million rupees a day (more than $406,000) in unfair charges, and is agitating for a debt-free India by 2020.
Stock market scandal (International Agenda) – Regarding the particular scandal in 1991 & 1992 in India a spokesman for Standard Chartered said some of the report was misleading, particularly the conclusion that senior managers were aware of the fraud. Barry Northrop, who heads a Standard Chartered team trying to recover the bank’s losses in the scandal, said the fictitious deals were created without the knowledge of senior management and in defiance of both internal and RBI guidelines. Individuals involved had been dismissed and procedures tightened. In terms of theories SCB has complied according to Milton Friedman’s theory (1970) regarding corporate social responsibility, which interprets that the only legitimate purpose of a company is to create wealth and pursuing their business effectively for the benefit of their customers, whilst providing a profitable reward to their investors. Being a foreign bank SCB acted upon their best interest financially, according to Friedman it’s the role of the state to provide the legal framework that regulated companies’ behaviour in relation to the rest of the community, the government or any appointed monitoring entity should have foreseen such a scandal and prevented it from occurring. But in the context of Kant’s theory, deontology or duty-based ethics that judge’s morality by examining the nature of actions and the will of agents rather than goals achieved or simply a deontological theory looks at inputs rather than outcomes. Therefore since this move of SCB was clearly unfavourable for the economy of India, it worked as a bad reputation for the bank as well as other foreign banks. (Refer to Appendix-3)
Acquisitions and outsourcing threat- The practice of outsourcing is considered as a good option, since it provides guaranteed professional assistance for businesses without the expenses of maintaining fulltime employees, but it also poses as a threat for the domestic countries work force. Outsourcing for talent leads to lack of job security for the local employees. Standard Chartered bank and a few other international banks in Malaysia has been outsourcing extensively which has lead to an inconvenience for the employees of the nation. The provision in the Collective Agreement only requires the Bank to consult the Union prior to outsourcing. Outsourcing has inevitably reduced headcount of staff of financial institutions. Attempts by unions to negotiate with the bank to ensure that when staff moved over to the new entity (outsourcing company), and retain their seniority, pay and benefits has not been successful. While it is not possible to extent exact figure of employees who lost their job due to outsourcing, it is estimated that about 30% of employees are directly affected numbering about 1,000 staffs. This figure is expected to increase due to continued rationalization and system engineering. Outsourcing takes two forms, namely, transfer of job function to head office prior to outsourcing in the case of Bumiputra Commerce Bank or
direct outsourcing which happened in Standard Chartered Bank. Based on such outcomes and considering SCB’s current status as one of the best multinational financial institutions, Carroll’s (1979) four step model on CSR can be used to stress the depth of the duty an organization needs to comply. The first two steps of the model remain evident, but the last two steps addresses particularly to the dilemma SCB is facing. Since Carroll believes that because a company can affect the interests and even lives of people, it should be accountable/responsible, to societal interests over those of the owners and beyond the specific limits of the law.
Best Ethical Values and Practices of Standard Chartered Bank
Even though Standard Chartered Bank has had a reputation of using unethical means to reach a much beneficial end in terms of the company’s market expansion. Although the British Empire isn’t as global as it used to be, that hasn’t stopped Standard Chartered.
Sustainability is integral to Standard Chartered. Worldwide and in Malaysia, the bank champions dedicated causes, one of them being environment. The organization believes that each person can make a difference, and through small steps, the collection action contributes to the overall impact as the community unites to preserve the environment for future generations. The organization is cognizant of getting it right in the home, before moving out to the neighborhood. The strategy of embedding the environment consciousness among the staff was a key focus for SCB in growing green advocates. As such, their green agenda is woven into every level of the bank’s operations.
Environmental and Social Awareness- Over the last two years, Standard Chartered has run multiple activities and programs focusing on self-awareness, reducing wastage and lowering carbon footprint under its umbrella theme, Go Green, Let’s Make a Difference. From cutting back on air travel to implementing shared-printer facility between departments, the results have been very heartening. The bank has seen as much as 50% reduction in air travel, 20% in paper consumption, 50% reduction in air travel and 10% in electricity usage, and the introduction of e-statements with customers.
Higher targets are set for 2011. The bank is already using recycled paper for their business cards, and sourcing to adopt recyclable paper in all their operations
Their other programs, “Seeing is Believing” (preventing curable blindness), Living with HIV/AIDS, Financial Literacy Programme, are being tackled on ground with face-to-face interaction given there’s a higher level of social sensitivity surrounding these causes. All the following mentioned above directs to the theory of “Consequentialism”; consequentialist ethics bases decision-making on the best outcome for the largest group that also results in the least harm. It is a form of utilitarian ethics, which focuses on results rather than ingrained moral imperatives. The utility principle requires the decision-maker to weigh the possible consequences of his or her actions to select options that offer the best results for society. This has lead SCB in attaining the title of one of the world’s most ethical companies in four consecutive years till 2010 all in recognition of its ongoing commitment to build a sustainable business for the benefit of customers, clients and the wider communities in which it operates. (Refer to Appendix-4)
Workforce Diversity- With more and more organizations going global, diversity at work is increasingly becoming an integral part of every organization. Diversity refers to any perceived difference among people like age, race, religion, profession, sexual orientation, geographic origin and lifestyle. SCB has started their journey of diversity and inclusion in India from 2006 with formation of the D&I Council. SCB initially started by concentrating on three aspects of diversity, gender, disability and nationality. Some of the key concerns were the infrastructure of the working women, work-life balance, and barriers to growth. A series of focused group discussions were conducted to understand and address these concerns to help position Standard Chartered as the employer of women’s choice,” states Rajashree Nambiar, GM – distribution and country champion, diversity and inclusion, Standard Chartered Bank. From an ethical perspective the bank has been exercising virtue ethics which focuses on the individual’s moral stature rather than the morality of the act itself. A moral actor will base his or her decisions on ingrained values rather than consequences or duty. However, the individual is part of a community so the virtues valued by the community affect the individual decision-makers thought processes. A culture’s values are incorporated into the individual’s ethical framework. As a global bank, the variety of markets they do business in makes them diverse inherently.
In terms of gender diversity; women make up to 46 per cent of their total workforce and the number of women in senior management roles has also increased. To increase female representation amongst senior management they focused on creating a pipeline of high-potential female employees at middle management. In 2008, they developed a mentoring programme for their middle management talent, with a specific focus on women. The Bank actively supports International Women’s Day. Across their markets, and organize a variety of activities to recognize the achievements of women and highlight role models.
In 2008, SCB renewed focus on attracting and supporting potential employees with disabilities. Over the last 12 months, the Group trained and hired a number of blind employees in Pakistan, employed their first visually challenged employee in Indonesia and Sri Lanka. SCB also launched initiatives to support employees with family responsibilities, and new maternity and paternity leave policies were rolled out in Bangladesh, Lebanon, US and Australia in 2008.
According to the reasoning’s mentioned above it is clear that SCB initially made a lot of wrong moves which was mostly in their own interest, but gradually when they started being internationally recognized they have tried substantially to improve their ethical ways as a corporation. They not only provided international job opportunities in the economies they settled in, they also came up with various social awareness activities e.g. fund-raising, and city beautification programs in the countries they are operating. Since they are a service based organization their only way of communicating to their customers should be through goodwill building and transparent publication of their intentions and actions. On the other hand the governments of the countries where MNC’s like SCB operate should assign more efficient and reliable monitoring bodies for convenience.
Fisher, C & Lovell, A, ‘Business Ethics and Values: Individual, Corporate and International Perspectives, 3rd Edition, Pearson Education, 2009
Crane, A & Matten, D, ‘Managing Corporate Citizenship and Sustainability in the Age of Globalization, 2nd Edition Oxford University Press, 2007
Laurie J. Mullins, “Management and Organisation behavior, 8th Edition, FT Prentice Hall, 2007
Jacques P. Thiroux, Keith W. Krasemann, Ethics: Theory and Practice, 10th Edition, Pearson Education 2009
De Geaorge, Richard T., Business Ethics, 7th Edition, Pearson Education 2010
Lawrence, P.R. and Lorsch, J.W., Organisation and Environment, Irwin, 1969
Press statement April 2002 to Standard Chartered Bank on Closure and downsizing of branches -pages 7-9
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