In this report I will be looking at how my businesses activities and ethical behaviour affect different stakeholders with in my business. My organisation (RBS). Royal Bank of Scotland is one of the world’s top ten financial groups.
The group employs 140,000 people across 30 countries and operates out of more than 2000 sites worldwide. Its subsidiaries include NatWest, Lombard, First Active and insurance groups such as Direct Line and Churchill. RBS’s aims and objectives are focusing on customers since the credit crunch in 2008 and they lost a large amount of customers since then. So their aims and objectives are to work harder to make cooperate banking better, to Provide service and support to make other businesses grow and provide them succeed in the most competitive markets and finally Improving customer service and gaining customer loyalty.
As a financial institution it is necessary that RBS think and plan carefully before they make any decision or take any action in the business. They are dealing with financial products and service so they really need to focus on being ethical and behaving in a way that crime is not involved. Regulatory bodies work very hard to prevent any unethical behaviour that will not be tolerating by the authorities in charge for banking behaviour.
Regardless regulatory bodies monitoring banking activities and putting laws and procedures in place for banks to abide by; unethical behaviour still takes place in banks often by individuals or groups or the bank as a whole. Looking at RBS’s history I have discovered RBS has had ups and downs during the previous few years. Unethical behaviour has taken place in RBS and their behaviour has had a huge impact on various shareholders in different ways. RBS just like many other banks has had history of mis-selling Payment Protection Insurance to customers. RBS and other banks who mis-sold PPI have had to pay back customers.
PPI was a Payment Protection Insurance that is insurance on loans and other borrowings; people used this insurance so if the debtors die or lose their jobs then the insurance will pay off the loan. Customers bought this insurance knowingly or unknowingly but were not told clear information about what the real circumstances will be if the person is unable to pay the loan. This insurance only paid out minimum repayments for only a minimum time for about twelve months. Customers were tricked and they paid the PPI which was no use to them when they were unable to pay off their loan. RBS has already lost a lot of money paying back compensation.
Since people are allowed to clam back their money on PPI and interests they were charged RBS has made an estimated loss of between £580million and £1. 3billion. At the moment they have kept an amount of £500 million aside for future PPI compensation they may still have to repay. After the PPI loss they have really focused on how to prevent misspelling products so they will not have to face paying out compensations again. As the result of RBS misspelling PPI stakeholders were affected in in many ways. RBS’s shareholders are missing out on the high amounts of dividends they should have received.
As RBS has to pay out the PPI fines they owe to customer from their profits. This means that because RBS’s profits have decreased then this will affect the amount of dividends shareholders receive as the dividend will also decrease. This is not a good image of RBS in front of their shareholders as they have disadvantaged their shareholders by decreasing their dividends. Customers have been victims of PPI as they have been paying extra charges on their loans and on other amounts borrowed from RBS . some customers struggle to even repay their minimum repayments; so PPI had made it harder for them to pay off their loans.
Mis-selling gave people the wrong impression that they were insured if they lost their jobs or their source of income. People lose trust in banking products as they expect to be assured in difficult times but when they find out they are not insured and will still have to repay loans they get mentally stressed and they feel like they can’t rely on banking products provided by RBS. The Financial service authority and other regulatory bodies also have also suffered financially as they had to pay employees at FSA to investigate the PPI scam.
This is time consuming for them as they need to make sure that everyone who paid PPI is compensated. They have to spend time to investigate and fine banks so next time they will not do anything unethical again. After this incident FSA are being stricter on the way that banks operate and have amended laws regarding selling products to customers and banking what the bank is allowed to do and what they are restricted to do. The FSA is looking into how banks interact with customers and are paying more attention to all products that banks are selling.
Most customers have been compensated by RBS; however I believe RBS’s trust bond with their customers has already been damaged. This influences customer’s behaviour before they buy and insurance products or additional insurance products as they will think twice before thinking of buying these products as RBS additional products may be seen as just another scam or unnecessary products. RBS needs to build up their trust with stakeholders again by providing them with information based on facts and only sell them with products that are relevant to individual customers depending on their needs.
On 3rd August 2010 the FSA announced fines of £5. 6 million for RBS group for the failure in its systems and control with respect to the UK financial sanctions regime. UK banks and businesses are not allowed to provide financial services to people on the HM Treasury Sanctions list. The money Laundry Regulation 2007 states that RBS should have policies in place to prevent funding and services to people on the sanctions list, RBS is said to have not considered it important to investigate where the money was coming from into customers’ accounts.
They did not look into customers to see the source of money they received or cashes out of their accounts. FSA believe that RBS funding’s could have facilitated transactions involving sanctions target and terrorist financing. After RBS admitted that they had made the mistake by not paying attention to these issues they were fined £5. 6 million. This outcome influenced different stakeholders in different ways. When the word “terrorist” is used with an organisations name then people want to stay out of the story; this is why after RBS was fined for failing to screening procedures stakeholders did not want anything to do with RBS.
I believe the main stakeholders that will influence RBS was their customers as they will stop opening accounts with RBS, NatWest and Ulster Bank and Coutts and Co. this was because they thought that the money they deposited in their accounts was being financed for criminal activities and financing terrorism activities. Customers stop using RBS and NatWest banking and moved their money into other banks. The number of people opening accounts with them decreased as they were named as terrorist financers by some people. RBS’s reputation will go down as people will think they are involved in criminal activities.
RBS needs to make people have trust in them again and they need to take an action to prevent this from happening again. People stopped buying RBS market shares in the stock exchange and this left them with shareholders wanting to sell their shares as soon as possible. Shareholders suffered as share prices decreased and RBS’s reputation was bad which meant they lost value in the stock exchange. RBS profits decreased as they had to pay the fine from the profits; this means they will pay out less dividends to their shareholders.
RBS have not been ethical all the time however they have worked to improve and build strong relationships with their stakeholders. RBS have done this by showing the community that they care about them and they have invested some profit towards the community. Corporate Social responsibility has been RBS’s strong activity which will make people they are ethical and care about the society. RBS has proved this by taking part in a number of activities and supporting projects to help the future working generation and support rojects that are operating to make the earth a better place to live.
RBS has been working with The Princes Trust for more the 11 years they have financially supported the enterprise programme. The Enterprise Programme supports and guides people aged from 16 to 30 to overcome their personal barriers to success and achieve their goals. RBS has been helping young people develop their ideas and become entrepreneurs. RBS are doing this to show people that they care about the younger generation that they spend their profits on projects that help provide young people a promising future.
They want to show society that they are helping build businesses and are helping the society as a whole by helping young people. They will be successful in winning customers trust and in bringing their reputation back up if they continue supporting the society. RBS have used 61% of their gas from natural gases in 2011. They are now lending massive amounts of money to organisations that are working on renewable energy. They spent £50 million helping small businesses to start up their projects on renewing energy.
They then lent out £366 million pounds in 2011 to help renewable projects in 2011. RBS has also made other small changes to the way they carry out activities that have helped the environment a lot. They have showed that they operate ethically and that they operate ethically by doing simple things on a daily basis such as they have reduced the usage of paper by using electronic systems instead. RBS do not send customers statements by paper anymore because they have started providing electronic statements.
I believe by showing that they support the environment and practice ethically they have showed campaigns like Greenpeace that they are willing to help the environment and prevent global warming. In every success story at green peace projects; RBS will be mention for making it possible to prevent global warming as they have invested in these projects. I believe that RBS performing ethically and making the right decisions has a major impact on the Government. I say this because RBS was bailed out by the government in October 2008 after going bankrupt.
The government bailed them out because they couldn’t afford an established bank to go down as this would affect so many things and create so much loss to the nation as a whole. RBS was bailed out because they are one of the main companies that operate in the UK and they will lose so much money. The government invested to bail out the bank so that they will have their say on the way the banks run and control over bonuses paid to management. Bonuses and dividends were cancelled by the government and RBS had to forcefully sell their shares to the government as no other investors were willing to invest.
The government buying 605 of their shares meant that they were owners of RBS. This gave the government a better insight of how the bank operates and they are now able to order RBS of how they want it to operate. I think the bank has only invested in the banks so that they can make more money from RBS’s profits in the future. This will also allow them to have a better grip of the banks finances so they make profit and the shareholders majorly the government can get high dividends in return on the profit in the upcoming years.
If the government let RBS get bankrupt then the government would suffer severely. RBS going bankrupt means the nation losing one of their well established banks that means staff will be made redundant. When they are made redundant these unemployed people will turn to the government for financial support in the form of various state benefits. In my opinion the government invested money to save the bank so that they can get a return on what they invest rather than just paying out benefits.
Since the government has bailed RBS out of financial crises, I think there has been an improvement in the way they operate as the government is kept a close eye on RBS’s activities to ensure make a profit and are able to pay off tax payers. RBS has paid off £163bn in emergency loan they received from US and British taxpayers during the financial crises. Of their loan to the government with high return as the interest charged on the loan. I hope after clearing off their loan they still behave ethically so that they can avoid paying out more compensation to people they have affected with their unethical activities.