Ethics Centre has a message for banks and the royal commission

Moral principles should be given greater weight in any reforms to the finance sector, the banking inquiry has been urged.

The Ethics Centre’s Simon Longstaff is hoping for some ethical nuance in the banking royal commission’s final report. Pic: James Croucher

The Ethics Centre has urged the banking royal commission to resist the temptation to ignore the value of principle “so that the equivalent of equity prevails”.

In a submission to the Hayne inquiry ahead of its final report next year, Ethics Centre executive director Simon Longstaff said while a simplification of the law may be required “we think that the public interest will be best served by a more nuanced approach in which the ethical dimension of reform is given greater weight”.

Longstaff urged royal commissioner Kenneth Hayne to draw attention “to the ethical foundations of the market as part of the intellectual framework that he draws upon in his final report”.

He argued a breach of ethics can be more significant than a breach of the law.

Hayne noted that on issues like the vertical integration of banks the risks “are directly proportional to the quality of the ethical skin enveloping those working in such a structure”.

He said (somewhat bravely) that doctors, engineers and accountants employed by companies would not bow to commercial pressure to act in a manner inconsistent with their professional obligations”.

Bankers should adopt the same rules.

“The ideology of the professions requires the subordination of self-interest. Rather than satisfy the wants, the professions must discern and serve the interests of others.”

Longstaff said “the worlds of banking, superannuation and financial services will change in proportion to the number of true professionals that are employed in their ranks”.

He adopts the free market principles of Adam Smith who noted markets can only be free if they are not distorted by corruption. “So a market cannot be free of people who lie or cheat or use power oppressively.”

Murder, according to Longstaff, is not wrong because it is illegal but because it violates a person’s fundamental right to life.

Honest and fair business is not right because it builds trust or confers benefits but because it is entailed in the principles or respect for persons and their intrinsic dignity.

Smith argued “a market that fails for lack of fairness and equality in its processes is no market at all. To ignore this basic reality is to be truly irrational”, Longstaff said.

In terms of companies he argued “limited liability should not be an inalienable right but one that is earned by recognition of responsibility”.

“In cases of really egregious behaviour it should be possible to remove this right.

“We think the commissioner should consider reminding businesses of the fact that without a measure of care they could inadvertently undermine the legal foundations upon which they depend - especially in circumstances where politicians are exposed to popular outage and disgust.”

Next week the Commonwealth Bank’s Matt Comyn and Catherine Livingstone will get to show how their ethical principles have operated in practice.