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 Donovan Bank Ltd is a major retail bank that operates in the Republic of Southland, a  prosperous, developed economy in Europe. Like many other financial institutions, the  bank was adversely affected by the global financial crisis but recovered both quickly and  strongly. In the past 10 years the bank has been consistently profitable and has grown  at a faster rate than most of its competitors. The bank offers competitive products and adopts an aggressive sales strategy. Managers  and staff working in customer facing roles are given demanding sales targets, with  generous performance-related rewards comprising annual bonuses based on the value  and volume of products sold and linked to the profitability of the bank.  Experts working in the capital markets regard investment in the shares of Donovan Bank  Ltd very positively. The bank has increased its dividend payments for eight consecutive  years and analysts believe that the financial performance of the bank will continue to be  robust, especially in the short-term. These factors have driven up the share price, and  hence the market capitalisation, of the bank. The financial regulator of the Republic of Southland arranges annual review visits to all  major financial institutions in the country. At the most recent review meeting, regulatory  officials raised several matters of concern with the board and executives of Donovan  Bank. Two years ago, the regulator introduced a set of Putting Customers First guidelines to  promote positive outcomes for customers. These included a requirement to put the  interests of customers at the heart of all banks activities, to ensure that products and  services meet customer needs, to ensure fair dealings at all stages of the customer  journey and to provide appropriate after sales service. The regulators concerns included  the following: The number of customer complaints against Donovan Bank were at least 20% higher  than any of the banks major competitors. The complaints related to lack of  transparency in relation to fees and charges, poor administration and delays in  responses to routine communications, failure to address errors and obstacles to deter  customers from closing accounts and switching to competitors. The regulator noted that Donovan Bank was often regarded negatively by the  financial press, with frequent articles accusing the bank of complacency towards  existing customers, as it could rely on securing new customers based on the  strengths of the products offered. The regulators statistics showed evidence of a high level of customer attrition,  suggesting that the bank was selling products that were not consistent with customer  needs. This resulted in some customers closing accounts soon after opening them. It  was also suggested that customers were being advised to buy more products than  they actually needed, and it was possible that some existing customers would  3 continue to maintain account relationships that were not actually beneficial for them  as a result of customer inertia. Several former managerial employees of the bank had written in confidence to the  regulator complaining that they had left to pursue alternative employment because  they had felt pressurised to achieve increasingly demanding sales targets. The board of Donovan Bank convened after the annual review meeting to discuss these  issues. Several of the non-executive directors who had attended the review meeting  were concerned at the findings of the regulator and insisted that it was imperative to  change the culture of the bank by moving away from an aggressive, sales-led approach  in favour of a more customer-centric approach. The regulator had made it clear that it  regarded compliance with its Putting Customers First guidelines as mandatory and it  would not hesitate to take action if it felt that service standards at any bank were  compromised, even if the bank was financially strong. When discussing the best way forward, the board was divided. Some directors argued  that as a public company listed on the stock exchange, its primary duty was to its  shareholders, and that they bank had exceeded all expectations in recent years.  Conversely, the majority of directors concluded that they would have to act to ensure  that customers interests were served at all times and that urgent change was  necessary. Required: As an independent consultant engaged by the board of Donovan Bank Ltd,  prepare a report addressing the following: a) The ethical case for aligning the strategy of the bank with customer  interests and how these interests may be reconciled with the objective of  maximising shareholder value. b) Actions that the board should implement to change the culture of the bank  to ensure that customers interests are consistently protected and promoted  at all times 

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