Analysis of the Practice of Charging Client’s Insurance Premium Fees after Death

      Analysis of the Practice of Charging Client’s Insurance Premium Fees after Death

Introduction

In recent times, a number of Australian banking institutions and insurance companies have come under investigations by the Banking Royal Commission in relation to practices that include the charging of insurance premiums and other charges following the reception of notification on a client’s death (Baselga-Pascual et al., 2018). One such bank is the National Australia Bank. The National Australia Bank has been accused of engaging in a number of alleged misconducts that include the charging of its clientele fees despite not offering any service, charging its departed clientele fees, as well as inappropriately grandfathering commissions. Additionally, the National Australia Bank has been accused of withholding vital information from ASIC (Australian Securities and Investments Commission) regarding the scale of the bank’s fee-for-no-service matters. According to the findings of the investigators, the National Australia Bank acted in a manner that departed from the anticipations and standards of the community (Baselga-Pascual et al., 2018). This, therefore, raises the question on whether it is ethical for National Australia Bank to charge fees on its clients’ insurance premiums even after getting notified of a client’s death.

Analysis of the Practice of Charging Client’s Insurance Premium Fees after Death

In order to fully understand the ethicality of the National Australian Bank in relation to the charging its clientele premium fees even after death, it is vital that one looks into the stakeholder theory of corporate governance. According to Freeman (2015), the stakeholder theory maintains that the organization owes some responsibilities to the broader group of its stakeholders, as opposed to only its shareholders. Thus, a stakeholder has been described as any individual or group that can either be affected be or can affect the organization’s actions. The stakeholders, therefore, include the company’s workers, suppliers, clientele, creditors, as well as the broader community and rivals.

According Edward Freeman, who is widely acknowledged for developing the stakeholder theory, it (the stakeholder theory) is a vital component of the Corporate Social Responsibility (CSR), which refers to the conception that acknowledges the various responsibilities of organizations in the globe at present, regardless of if they are legal, economic, ethical and philanthropic (Freeman, 2015). At present, a number of the globe’s biggest organizations have claimed that they have CSR at the core of their operations and corporate strategies. Even though there are several instances of organizations with genuine conscience, a number tend to exploit CSR as public relations means aimed at enhancing their images and reputation as they do not act upon their words (Baselga-Pascual et al., 2018).

The recent occurrences at the National Australian Bank with regards to charging its dead clients fees even after notification of their deaths have once more brought the stakeholder theory into the limelight. Even though NAB‘s banking business is seen as legal given that it is involved in banking activities, it action with regards to charging fees on the insurance premiums of its dead clients is unethical means of making profit (Freeman, 2015 ). Thus, it can be construed that the major responsibility of the managers of NAB bank is to make profits for their shareholders, as they are morally and legally obligated to serve the shareholders interests (Pigé, 2017). However, the act of charging fees on its dead clients even after receiving death notifications not only goes against set banking standards but also fails to conform to the fundamental rules of the society in which it operates, including the rules embodied in the law as well as those that are engraved in the ethical customs (Batten, Lončarski & Szilagyi, 2018). With regards to the set banking standards, NAB might have infringed on the Corporations Act through its failure to provide adequate information to ASIC, approving the conflicted remunerations, as well as the observation that the bank’s workers were offering the fiscal product advice to the clients in form of recommendations whose intent was to influence the customers so as make decisions with regards to certain fiscal products offered by the bank (Batten, Lončarski & Szilagyi, 2018).

Nevertheless, it can be noted that the NAB bank makes use of the shareholder’s theory that maintains that it is the responsibility of the organization to enhance its profits, and the theory is also founded on the premise that the organization’s management comprise the hired agents of its shareholders tasked with running the organization for their benefits (Danielson, Heck & Shaffer, 2015). For that reason, the management is morally and legally tasked to serve the interests of the shareholders. However, in doing so, the shareholder theory requires NAB’s management to conform to the society’s basic rules found in the law and moral traditions (Pigé, 2017). However, though the shareholder theory is perceived as one of the historic ways of conducting business, organizations are prone to come across the various disadvantages of focusing on the shareholders interests only (Danielson, Heck & Shaffer, 2015).  For instance, by focusing on the need to make profits for the shareholders by taking on strategies that are unethical, NAB’s management now faces various challenges including facing legal suits and prison terms. The actions might also result in the reduced performance of NAB in the future as it is prone to lose clients (Baselga-Pascual et al., 2018).

On the other hand, with regards to Creating Shared Value, which is a theory that is based on the premise that an organization’s competitiveness and the health and wellbeing of the community that surrounds it are mutually dependent (Beschorner, 2014), it can be observed that that the actions of NAB did not create any shared value with the community given that it unethically exploited members of the same community with the view of increasing its profits (Pigé, 2017). Though NAB acknowledged and capitalized on the interdependence between it and the community, its exploitation of the members of the society is unlikely to bring about any economic or societal progress that may bring about the desired growth (Font, Guix & Bonilla-Priego, 2016). Rather, NAB laid emphasis on creating shareholder value as opposed to concentrating on the creation of stakeholder value.

Lastly, with regards to the theories of justice and economic distribution, it can be observed that NAB’s activities were unethical for a number of reasons. Thus, with regards to justice, one may conclude that NAB’s activities were unethical as they resulted in unjust practices as a result of exploiting its clientele through the provision of fiscal product advice to the clients in form of recommendations whose intent was to influence the customers so as make decisions with regards to certain fiscal products offered by the bank (Richard, 2017). Moreover, they unjustly charged fees on their clients’ accounts even after being notified of the clients’ deaths. Consequently, with regards to economic distribution, it can also be noted that NAB also acted unethically with regards to its commercial activities aimed at increasing its profits (Miller, 2017). While the bank exploited the community, it failed to carry out any CSR activity as a means of giving back to the community (Batten, Lončarski & Szilagyi, 2018). In most instances, the bank focused on increasing the shareholder value as opposed to the stakeholder value.

Conclusion

The need for banking institutions to adhere to the set standards and moral customs cannot be understated. Unethical activities aimed at increasing the shareholder value have always resulted in the loss of clients and the ultimate collapse of the institutions, as was seen in ENRON case. Owing to this observation, it is recommended that banking organizations engage in ethical activities by not only focusing on shareholder value but also concentrating on stakeholder values.

References

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Batten, J. A., Lončarski, I., & Szilagyi, P. G. (2018). When Kamay Met Hill: Organisational         Ethics in Practice. Journal of Business Ethics, 147(4), 779-792.

Beschorner, T. (2014). Creating shared value: The one-trick pony approach. Business Ethics          Journal Review, 1(17), 106-112.

Danielson, M. G., Heck, J. L., & Shaffer, D. (2015). Shareholder theory–how opponents and        proponents both get it wrong.

Font, X., Guix, M., & Bonilla-Priego, M. J. (2016). Corporate social responsibility in         cruising: Using materiality analysis to create shared value. Tourism Management, 53,    175-186.

Freeman, R. E. (2015). Stakeholder theory. Wiley Encyclopedia of Management, 1-6.

Miller, D. (2017). Distributive justice: What the people think. In Distributive Justice (pp.   135-173). Routledge.

Pigé, B. (2017). Stakeholder theory and corporate governance: the nature of the board      information. Management: journal of contemporary management issues, 7(1), 1-17.

Richard, J. A. (2017). Equality and equal opportunity for welfare. In Theories of Justice (pp.         75-91). Routledge