ACCT 19083 Corporate governance and ethics
Term 3 2016
Assessment 3 Case Study
This is an individual assessment.
Assessment item 3 is made up of two parts. Both parts are based on a hypothetical case study. The case study is found below.
You are required to answer a number of short answer questions based on the hypothetical case study.
Short answer questions for Part A
1. Ferrell, Fraedrich & Ferrell (2015) on pages 196-198 outline many types of power that shape corporate culture. What is the type of leadership power that is exhibited by the Board of Directors of the ABC Bank? Explain and support your response by evidence from the case study.
2. Using the Framework for Ethical Decision Making in Business highlighted by Ferrell, Fraedrich & Ferrell (2015, Figure 5-1, p 129), analyse how Edward comes to his decision- making, supported by facts from the case study. You are also to discuss which moral philosophy or philosophies may apply to Edward in arriving at his decision. The various philosophies are found in Table 6-1, page 157 of Ferrell, Fraedrich & Ferrell (2015).
Requirements for Part A
For Part A, you are not required to present it in a report format. You are to place your answer to each of the questions in a single MS Word document. Number your answer with the corresponding question.
You are not required to reference your responses as page references are given in the questions.
A maximum word limit of 1000 words applies to Part A of Assessment Item 3. Please indicate your word count at the end of your responses for Part A. You are not required to repeat the questions in your responses.
You have been appointed as the new ethics officer following the departure of Edward. A new board has also been appointed for ABC Bank. In light of the whistleblowing incident by Edward, the new board is highly aware of the need for a new ethics program to instil confidence in stakeholders and avoid possible reoccurrence of the whistleblowing saga that has seriously damaged the reputation of ABC Bank.
You have been briefed by the new Board of Directors to strengthen ABC Bank’s ethical practices. You are given authority to insert a new section in the ethics program to specifically encourage internal reporting of corporate misconduct and protect whistle blowers as part of the ethics program.
You have also discovered from your investigation that ABC Bank does not have a Statement of Values.
You are to write a business report to the new Board of Directors on the following matters:
1. The orientation of the new ethics program to be adopted and the reasons for the recommendation of such an orientation.
2. Draft up a Statement of Values for the Board of Directors to peruse and approve. You are to put forward three values in the Statement of Values and explain to the Board of Directors how they these values strengthen the corporate culture in ABC Bank.
3. Three recommendations to be provided to protect whistle blowers and to encourage reporting of corporate misconduct. In your recommendations you are also to set out procedures on how these recommendations are to be implemented and monitored for effectiveness as part of the ethics program.
4. Explain to the Board of Directors how your recommendations in point 3 above have met the reasonable expectations of the stakeholders of ABC Bank.
Requirements for Part B
The format of your business report should be as follows:
• Title page with word limit of Part B to be clearly indicated
• Executive summary
• Table of Contents
• Report body
The in text referencing style that is required for this business report in Part B of this assessment is the American Psychological Referencing (APA) style. A maximum 2000 word limit applies to Part B of Assessment Item 3, excluding title page, table of contents and references. You are permitted to use a wide range of sources for your references, including textbooks, academic journals and websites. There is no prescribed number of journal articles required for Assessment 3.
You must submit your Assessment 3 Short Answers and Business Report on the Case Study on Friday 3 February 2017 (Week 11) by 11:45pm AEST via online submission under the link “Assessment 3 (40%)” in the Assessment Block.
Please name your file with your name and student number e.g. JUDYHUI s0123456 and submit in WORD document format (.DOC).
For those who have not purchased the textbook, you may want to consider renting chapters 5, 6, 7, 8 and 9 from the publisher to undertake Assessment 3. You can access the following website at this link for renting these chapters from the publisher:
Edward, aged 35, is a risk officer in ABC Bank, responsible for managing the risk associated with ABC bank’s $100 million portfolio of residential loans. ABC bank is an Australian regional bank. The Bank employs a significant number of local residents as its employees. The Bank is also the only bank that operates in the region.
Edward is a local resident who grew up in the region. His parents came from overseas with very little command of English. They own a grocery store in town. Edward had always supported himself through his education by working part time whilst studying a Bachelor of Accounting online with a local University. The locals knew him well as he volunteers in a number of charitable organisations. Edward is a respected young leader amongst his community. Edward is married to Josephine who works as a teacher in the local primary school. They have one child aged five years old.
Before Edward joined the ABC bank, the Bank had undertaken an internal investigation into the inflated income to loan applications necessary for the approval of the loans. More than 30% of the customers are overvalued in their income capacity to repay the loan. Edward was unaware of the internal investigation.
Several months after he joined, he figured out something was wrong. He discovered that the Bank has significantly increased the income capacity of borrowers so as to pop up the loan book of the Bank. This practice has been going on for nearly a year. This would significantly increase the Bank’s exposure to risk. He had also read internal memos and emails from some customers who complained that ABC Bank had been very aggressive in pushing home loans to them and some had written to the Bank that they were uncomfortable with the sales tactics. It appears that no one from ABC Bank had replied to their concerns. Edward was particularly concerned about a number of customers that are new settlers in the town from worn torn overseas countries that have very little experience dealing with financial matters. ABC Bank was aware of their limited understanding in financial products.
Edward was so concerned about the issue that he contacted the Chief Executive Officer and was invited to a meeting with the Board of Directors, accompanied by ABC Bank’s in house lawyer. Edward, after gathering the appropriate documents, fronted up to the meeting, feeling confident that he could draw the support of the Board for fulfilling his job as the risk officer.
In the meeting, he informed the Board of the Bank’s lending practice. The Bank’s lawyer told Edward that his conversation was subject to privilege and could not be disclosed to anyone under any circumstances. He also said to him that this is not his concern as the Chief Financial Officer had already undertaken investigation. Besides he says if there is any adjustment done to the balance sheet, it will jeopardise the financial health of the Bank and many employees would need to be laid off. The Board also chipped in and added, “Don’t you dare do anything stupid. If this piece of information goes public, our company’s share price will fall and threaten our shareholdings. Moreover, the Bank’s image will be severely tarnished.”
Edward ponders the situation. Edward believes that hundreds of customers of the Bank may have been duped into entering into the loan agreement without understanding the risk involved should interest rates go up in the future. Edward is troubled by the thought of these people losing their homes if interest rates do go up in the future as their income is not sufficient to support their repayments. He strongly suspects that if he makes further noise, he would lose his job. After serious consideration, Edward decides to contact the media.
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