Background and Ethical Question

The study seeks to investigate the perceived misconduct by the AMP Insurance Limited Company. The Banking Royal Commission opened an inquiry to investigate alleged complaints from customers that the company had continued to deduct premiums from superannuation accounts even after being informed about the death of the account holders. The main issue is to establish whether or not AMP was ethically right to continue making such deductions as well as charging death customers for unoffered services. The study is based on ethical theories, corporate governance and social responsibility practices, and the ASX 2010 principle and recommendations.

The Banking Royal Commission was founded by the Australian government in 2017 contrary to the Royal Commission Act 1992. The objective of the commissions is to conduct inquiries into the misconduct and perceived unethical practices in the Australian Superannuation, financial services, and banking industry. To date, the commissions have completed numerous inquiries while other financial institutions are still under investigation. One of the companies being investigated by the Royal Commission for misconduct is the AMP Insurance Limited Company (Chalmers, 2018).

Early 2018, the Royal commission opened an inquiry to investigate alleged misconducts at the AMP financial service company. There were complaints from customers that the company had continued to deduct premiums from superannuation accounts even after being informed about the death of the account holders. Based on this allegations, the commission summoned Paul Sainsbury, AMP’s Customer, and wealth executive, to respond. In his words, Sainsbury admitted to the claims adding that the Company intended to repay the deductions at the maturity of the death benefits. However, Sainsbury could not explain why the company had continued to make deductions when there was no life to insure. Likewise, AMP had failed to take corrective measures when two years after the first concern from internal personnel and customers was raised (Chalmers, 2018).

On his admission, Sainsbury agreed that the refunds to customers did not include the profits that would have been realised if the premiums, after the death of customers, had not been deducted from superannuation accounts. Existing statistics showed a case where deductions had been made for a decade after the death of customers. Further investigation established that premiums were either refunded incorrectly or not refunded. AMP had recorded cases of 4,645 death customers who owned an accumulative $ 1.3 million in lost earnings and unrefunded premiums. Besides the deduction of premiums, Sainsbury also admitted that there were other fees that AMP was deducting from the superannuation accounts after the death of owners (Chalmers, 2018).

Although the investigation into the matter is still ongoing, several ethical issues have arisen. First, why did AMP continued to deduct premiums from the superannuation accounts even after being notified about the death of the account owners? Second, why did the company opt to charge for unoffered services? Third, why would AMP steal from its customers? And fourth, are there ethical theories and principles that support the perceived misconduct by AMP?  

The concepts of Corporate Governance, Corporate Social Responsibility (CSR), Creating Shared Value (CSV), and Corporate Social Performance (CSP). Corporate governance can be described as the rules, practices, and processes that govern the operations of a Corporate. The concept offers a balance between a company’s goals and objectives and the needs of its stakeholders (Fernando, 2010, p. 113).

Corporate Governance, CSR, CSV and Corporate Social Performance Analysis

Just like corporate governance, CSR also elaborates the roles of corporates in societal well-being. CSR states that businesses should be responsible for the environmental and social impact in the society arising from their operations. The concepts seek to ensure that corporates do not make a profit at the expenses of the plights of a community. CSR should be practiced on customers as well by safeguarding their interest. Good CSR provides a win-win situation for the company and customers. While companies use CSR to improve their brand and corporate image, customers should be satisfied with the activities of the company (Shailer, 2004, p. 17).

Lastly, both CSV and CSP refer to improving a company’s competitive advantage in the industry by promoting societal needs. Corporate strategies should support the growth of a company while benefiting its stakeholders as well. As a superset of the other concepts, CSP holds that the performance of a company is influenced by its relationship with its stakeholders (Crowther & Seifi, 2015, p. 89).

Although the objectives of the abovementioned concepts ten to overlap, they have a common message. The only way in which businesses can do well is through doing good to their stakeholders and the society (Keay, 2011, p. 217).

AMP was supposed to safeguard the interest of its superannuation customers. First, the insurance company would have stopped the deduction of premiums from the customers’ accounts after being informed about their death. Second, the company should not charge death customers fees for non-provided services. Third, upon realising the mistake and identifying over four thousand cases of unrefunded funds, the company failed to take a corrective measure. Fourth, Paul Sainsbury stated that the premium payments made after the death of customers would be made less the profit that would have been realised if the deduction had taken place (Bonnafous-Boucher & Rendtorff, 2016, p. 76).

AMP did not act to the best interest of its customers. The company used the confusion to maximising its profit without considering the impact of its action of its customers and its reputation in the market. Instead of doing well by doing good, AMP did well by doing bad which is against the concepts of corporate governance. CSR, CSV and CSP (Afza, 2014, p. 214). Likewise, AMP did not care about its reputation as far as it made a profit by extorting lifetime investments from its customers. Good corporate governance required that AMP would have released the entire superannuation funds to the beneficiaries upon the death of customers without further deductions (Collier & Roberts, 2001, p. 67).

Stakeholder theories assume that there several stakeholders, besides shareholders, with a stake in a corporation. Stakeholders who are affected by the success or failure of a company include customers, financiers, communities, employees, suppliers, trade associations and trade unions. Besides maximising the wealth of the shareholders, managers should also ensure that other stakeholders also receive fair treatment such as fair returns from the company (Hilb, 2016, p. 99). According to the stakeholder theories, corporations should observe corporate social responsibility even when it means a reduction of long-term profitability. Therefore, it the duty of the corporate executive to ensure compliance with the international business laws and ethical standards. Likewise, the board is responsible in protecting the interest of other stakeholders and also ensure that the business practice is in line with the sustainability of the surrounding community (Kose, 2011, p. 121).

Stakeholder Analysis

The application of stakeholder theories has a direct impact on business strategy and objectives. Corporates must ask themselves why they are doing business. Some corporates are more interested in using any means to maximise their profit without taking the interest of stakeholders into account. This is the case of AMP Company. The management was more interested in maximising the shareholders’ wealth. One way of increasing the company’s investment portfolio was to continue deducting premiums from customers even after their death.  To make matters worse, AMP decided that it was not going to share the revenue realised from investing the premium deductions with the customers. This way, the company would increase dividends payable to its customers by stealing from its customers (Kahane et al., 2013, p. 154).

The employees and customers raised complaints about the company’s misconduct. According to the stakeholder theories, a business stands to benefits a lot when there are goodwill and cooperation from its stakeholders. AMP failed to protect the interest of the employees and customers who were forced to present their grievances to the Banking Royal Commission (Wasieleski & Weber, 2017, p. 79).

If AMP Company had applied the stakeholder theory, the current issue before the royal commission would not have arisen in the first place. Second, AMP would have used the theory to iron put the arising differences with its stakeholders. Therefore, the company should carefully reconsider its business strategy and reorganise its way of doing business. AMP lacks shared values with its stakeholders. The first step is to develop a shared sense of belonging that brings its stakeholders together. Through shared values, AMP would follow ethical standards to generate more income (for the shareholders) while safeguarding the rights of other stakeholders.

Although profit-making is a key goal for a business corporation, creating economic value that seeks to improve the wellbeing of different stakeholders should be a priority for AMP. Stakeholder theory does not state that the business should forgo its profitability duty. However, in making a profit, AMP should take the interest of its customers into account (Wells, 2013, p. 213).

ASX 2010 Principles and recommendations provide ASX listed companies with good corporate governance practices that govern their daily operations. The expected ethical conducts of the companies can be found under the Principle 3 named Act ethically and responsibly.

The principle outlines that:

First, listed companies should treat their reputation as a valuable asset which should be protected at all cost. It would difficult to restore a reputation once it has been damaged. Stakeholders expect listed companies to act responsibly and ethically. Failure to act ethically and responsibly is likely to destroy an entities value in the long run (Australian Security Exchange, 2018, p. 24).

Second, acting responsibly and ethically does not end with complying with the legal requirements. Entities should act with integrity, honesty, and a manner that align with expectations of its stakeholders. In other words, ASX listed companies should portray good corporate citizenship by; 

1. Respecting employees’ rights,
2. Creating a non-discriminatory and safe work environment;
3. Dealing fairly and honestly with stakeholders especially with customers and suppliers;
4. Protect the environment;
5. And, deal with partners who portray ethics and responsibility in their business activities.

Third, the board of a listed company is exacted to lead by an example by developing a culture that promotes responsible and ethical behaviours. Good corporate practice relies on the personal integrity of the management and board members (Australian Security Exchange, 2018, p. 24).

The following issues can be extracted from the inquiry facing AMP Insurance Company based on the ASX 2010 Principles and recommendations;

First, AMP failed to act responsibly and ethically by deducting the premium from the superannuation account even after the death of customers. The management was unable to observe honesty and integrity as expected by its customers and employees.

Second, the admission by Paul Sainsbury stated that the refunds to customers would not include the profits realised if the premiums are invested. Likewise, investigations showed that refunds were either done incorrectly or were not done at all. Therefore, AMP failed to act with integrity, honesty, and a manner that align with expectations of its stakeholders as stipulated under the ASX 2010 Principles and recommendations (Schachter, 2004, p. 144).

Third, the management of AMP failed to treat its customers fairly as required by the ASX 2010 Principles and recommendations. The company was more interested in enhancing the wealth of its shareholders than protecting the interest of its employees.

Fourth, the board of AMP failed to lead by an example by developing a culture that promotes responsible and ethical behaviours. The board was unable to ensure that the management acted ethically and responsibly by treating superannuation accounts as required by the law and accounting principles (Freeman, et al., 2017, p. 123).

Last, the company destroyed its integrity and reputation, and it would take it a long period to rebuild it.

The issue facing AMP can also be analysed using a moral aspect. In corporate governance, besides promoting the welfare of shareholders, a company is also expected to protect the rights of its other stakeholders such as employees, customers, suppliers, financiers, government and the community.

First, corporates should treat all its stakeholders with equity and fairness. Companies should strive to safeguard the legal, social, environmental and contractual rights of its stakeholders. Failure to do so would result in ethical issues (Allhoff & Vaidya, 2005, p. 177).

Second, ethical behaviour and integrity should govern the operations of any corporation. Integrity is a fundamental factor in the success of any organisation. Board members, management and employees are required to act with integrity while executing their daily activities. Therefore, companies should develop codes of conducts that guide their operations.

Third, corporates are required to promote transparency to the best of interest of their stakeholders. Although transparency is a responsibility of the management and the board, it offers accountability to organisational stakeholders.

Fourth, ethics is important is the operations of any organisation because it helps in differentiating between the right and wrong behaviours. The management should observe ethical practices through accountability to the stakeholders. A business is considered to be ethical when it balances between corporate objectives and social obligations. Being ethically right help businesses to enhance their reputation among its stakeholders. Some practices that are considered to impact ethical values of an organisation negatively include coercion, insider trading, conflicts of interest, Disclosure of wrong and false financial position and using illegal means to gain profit (Ransome &, 2013, p. 114).

The following issues can be extracted from the inquiry facing AMP Insurance Company based on the ethical analysis.

First, AMP failed to treat its customers equitably and fairly. The Company could safeguard the legal and contractual rights of its stakeholders. AMP continued to make a premium dedication from dead customers against the pre-contractual agreement between the two parties. Second, while other customers were refunded, over four thousand customers were not refunded at all. This shows unfair and unequal treatment of customers. Such behaviour resulted in unethical issues.

Second, the Board members, management and employees at AMP failed to act with integrity while executing their daily activities. Although the company has developed a code of conducts that guide its operations. If the code of conducts had been observed, the management and the board would not have failed to identify such misconduct in the daily activities of a company for two years. Instead, it can be assumed that the management chose to ignore the unfair treatment of its superannuation customers (Plessis, 2010, p. 56).

Third, the insurance company failed to promote transparency to the best of interest of its customers. The management and the board had been unable to perform a most important responsibility: Ensure that transparency is observed in the operations.

Fourth, the management failed to observe ethical practices through accountability to the customers. Ethically, the company was supposed to balance balances between its corporate objectives and obligations/ responsibilities to its customers. However, the management of AMP ignored its responsibility to its customers and chose to use illegal means to gain profit.

Using the ethical aspect, AMP was wrong to continue deducting premiums even after the death of its customers. The company went ahead to use the money for the organisation benefits without the consent of the next of kin/ beneficiaries (Cohen, 2013, p. 153).

Conclusion and Recommendations

Conclusion 

Since the year 2016, the customers have been complaining that the AMP Insurance Company had continued to deduct premiums from superannuation accounts even after being informed about the death of the account holders. Two years down the line, the company has not taken a corrective measure to rectify the issue. With the increasing concern to customers and employees, the Banking Royal Commission has been forced to intervene by opening an inquiry on the alleged misconduct by AMP. Although the investigation is still ongoing, Paul Sainsbury, the AMP’s Customer, and wealth executive member have already admitted to the allegations.

The study focused on the ethical aspect of the alleged misconduct at AMP based on the Corporate Governance, CSR, CSV, CSP, Stakeholder theory analysis, the ASX 2010 Principles and recommendations, and the ethical analysis. The findings can be summarised as shown below;

1. Corporate Governance, CSR, CSV, and CSP: AMP did not act to the best interest of its customers. The company used the confusion to maximising its profit without considering the impact of its action on its customers and its reputation in the market. Good corporate governance required that AMP would have released the entire superannuation funds to the beneficiaries upon the death of customers without further deductions.  
2. Stakeholder theory analysis:  AMP failed to protect the interest of the employees who were forced to present their grievances to the Banking Royal Commission. In making a profit, AMP should take the interest of its customers into account
3. The ASX 2010 Principles and recommendations: The management and board of AMP failed to act responsibly and ethically as required by the ASX 2010 principles and recommendations.
4. The ethical analysis: AMP acted unethically by continuing to deduct premiums even after the death of its customers. The company went ahead to use the money for the organisation benefits without the consent of the next of kin/ beneficiaries.

1. Based on the findings, the board and management of AMP Insurance Company should take the following recommendations into account;
2. The company should admit to the wrongdoing and accept any recommendation made by the banking royal commission. Acknowledging the wrongdoing and accepting the recommendation of the commission will be the first step to rebuilding its already destroyed reputation.
3. The company should stop further deductions from the accounts of the dead superannuation customers.
4. The company should share the profits generated from investing the premium dedications with the beneficiaries of the superannuation funds.
5. The company should develop a useful code of conducts that will promote honesty, transparency, and integrity.
6. The board of AMP should lead with an example by developing good corporate governance and morally acceptable practices.  

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