The thesis statement of this study is that of ethical business issues Australian financial institutions in recent times face that. The study focuses on the unethical business practices that are adopted by AMP that has resulted in legal action from the Australian Securities and Investment Commission (ASIC). The legal actions and ethical issues regarding leadership have been discussed in this context.
In the article, it states that ASIC has launched legal action against the financial services giant AMP for handing over the documents in respect to fees for no service scandal. The Australian Regulator ASIC is in the process of taking interview reports of staff in respect to the independent report of Clayton Utz regarding the fees for no service. It has been found that the company has been deducting service fees unlawfully from the customer accounts and misleading the regular for a number of times. This scandal has resulted in resignations of a number of executives from the company, including Catherine Brenner, the former Chairman.
Section 33 has been imposed on the company under which it is required to produce documents regarding its fees for no service (Khadem, 2018:1). It has been reported that fees for no services can result in $1 billion loss for the company and loss in its reputation. The company expects that its compensation for the issue along with the inappropriate advice to $440 million (Danckert & Yeates, 2018:1). It has been alleged that the company will incur huge losses because of this ethical issue. The Corporate Regular has appealed the Federal Court over this ethical issue as it has alleged that the reports that have been produced by the company are not accurate. (Refer to appendix)
The ethical issues that have been raised in this article are the inability to effectively manage and control the internal operations of the company. It shows that the failure of corporate governance and leadership failures in this ethical issue. Failure of corporate governance is evident in this issue, as it has failed in its moral code of conduct. Firstly, it has failed to produce authentic documents to ASIC. Secondly, it has misled the customers on giving service fees to it. According to Berger, Imbierowicz & Rauch (2016:730), failures in corporate governance occurs when important information is not provided to the stakeholders. In this case, the company has not provided adequate information and authentic documents to its stakeholders and shareholders and thus has misled them. In the words of Admati (2017:138), corporate governance failures result from a failure in ethical leadership, as the leaders are not effective enough to deliver practices as per their ethical and moral responsibility.
In this case, this ethical issue has resulted in resignations of a number of top-level executives for the company. It shows the failure of leadership capabilities of Clayton Utz, the CEO of AMP. the report that has been produced by him does not reflect the opinions of the management or the staff. It implies that the ineffective leadership has resulted in this fee for no service scandal where many consumers have been misled by its financial services. It has violated the regulations of Companies Act 1961 in providing transparent and effective financial and banking services to its customers. Section 4(a) of this act states that any company operating in the territory of Australia is required to furnish documents as per the demands of the Corporate Regulator ASIC (legislation.vic.gov.au, 2018).
Appropriate ethical decisions have not been made as far as the company has made no significant changes in its policies and procedures for ensuring ethical business practices. The company has not given compensation to its customers in view of its misleading practices of deducting fees from the customers' accounts. Besides these, it has been misleading ASIC in furnishing right reports and information regarding its internal practices. It has been reported that almost two million accounts have been affected because of this fees for no service. In Australia, ethical issues have been more prevalent in banking and financial institutions like ANZ, which has been forced to pay millions of dollars as compensation to its customers regarding errors in processing accounts. The bank in recent times has reported five various errors of not receiving or overcharging benefits or discounts regarding the home loans. It has admitted its failure and for mitigating this ethical issue has paid compensation fees to its customers (Neil, 2018:1).
However, AMP has failed to act on its ethical and moral failures and abide by the ethical code of conduct as it has not paid any compensation nor provided reports to the Corporate Regulator. It has been reported that the organisational structure of the company is not effective enough to overcome the ethical problems (Neil, 2018:1). In a similar instance, ANZ has been criticised for its ineffective corporate structure that has resulted in these errors. However, AMP is required to have an effective organisational structure that can help in connecting dots and ensure systematic internal processes for devising innovative solutions for its ethical problems. In another instance, Westpac has been found to refund its customers over the fees for no service ethical problem. It has given true reports of its operational practices, unlike AMP who has misled the Australian Regulator. It implies that effective decisions have not been made in AMP as per the moral code of conduct and regulations of the territory.
The seven moral philosophies underpinning the ethical decision-making processes are Utilitarianism, Egoism, Deontology, Virtue Ethics, Justice and Teleology. Out of these seven moral philosophies, the one, which can be relevant in this ethical decision-making process, is Teleology. Teleology implies looking at things in ethical and moral terms through examination of results. In this case, the leadership of AMP should look things from a moral prospect so that the greatest good can be done for the greater number of its customers. There are two philosophies of Teleology, which helps in making effective decisions. According to Greene (2015:146), the aim of this approach is to ensure that the leaders make appropriate decisions while implementing policies and procedures. It is required to determine the cause before making any judgement. Clayton Utz needs to make effective decisions by considering the opinions of the Board of Members so that it can reduce the chances of legal actions from the Federal Court. This type of ethics is referred to as consequentialist ethics, which implies that the company needs to understand the consequences before making proper decisions.
The organisational structure of AMP needs to be a flat structure instead of the hierarchical one as it leads to the dominance of the leader. In this case, Clayton has not considered the decisions and opinions of other Board of Members before making any reports, which are evident from the interview of the staff to be taken by ASIC. Bazerman & Sezer (2016:100) stated that it holds that ethics generally consists of some functions that are appropriate for a man as a human being, so it tends to emphasize the cultivation of excellence or virtue to end all the negative actions. It implies that giving compensation by AMP can help the company to overcome its consequences of ethical issues. This type of ethics deal with wisdom, justice, temperance and courage, which is required, is required to be shown by Clayton. This can help him to exhibit appropriate leadership that can promote the ideal man as laid in Greek principles of being a rational animal or having theological virtues like love, hope, and faith.
It is the moral and ethical obligation of AMP to ensure that the consequences of its decisions benefit to its customers rather than harm to them. Bazerman & Sezer (2016:100) stated that ethical decision-making implies that the company has certain corporate and social responsibilities, which ensure a professional code of conduct and effective corporate governance. Therefore, the basic actions of the leader are dependent on the ethical actions that can generate and promote good in the society and community. Clayton needs to be visionary and emotionally intelligent to overcome the ethical problems of AMP and legal actions initiated by ASIC. Besides these, opinions and perceptions from its key stakeholders can help the company to get rid of ethical woes and financial distress. This can help it to regain good reputation as a wealth manager among its investors and customers.
It can be concluded that the Australian Territory is facing ethical issues in its banking and financial sector due to the inability of the companies to adhere to the moral code of conduct. In this case, AMP has been facing legal action for its inability to give accurate reports regarding the deduction of fees from the accounts of the customers. In such a juncture, it is required to follow the approaches of ethical decisions making processes to overcome legal proceedings from the Federal Court. Teleology philosophy ensures that the leaders make decisions, which can yield better outcomes and ensure operational efficiencies of the organisation. Thus, ethical decisions making processes ensure that the firms are morally and ethically responsible to its shareholders and stakeholders.