Ethical Issues of Barclays - Essay Example

A study regarding the ethical issues of Barclays Executive summary Financial services essentially rely upon the trust of customers for their development and growth. In the recent times, a number of cases have emerged where fraudulent practices in financial sector have hampered customer and investor trust. Post recession, due to the weak profit situation of financial organizations in the U.K, a number of firms were seen to manipulate their reporting and financing standards to show inflated profits and keep stakeholder unaware of the actual profit circumstance. In the light of such aspects, the Barclays scandal in respect of alteration of LIBOR has been analyzed. The paper mainly focuses upon the lack of ethical practices existing in the firm due to which it had resorted to fraudulent practices. A vivid analysis has been conducted upon the importance of PR and corporate decision making so that ethical issues faced by the company can be mitigated. The research has provided valuable insights in respect of how the firm can improve its relation with customers and investors so that ethical norms can be met more effectively. Table of Contents Introduction and problem definition 3 Research methods and limitations 4 Research findings 5 Barclays issues and impact on revenue 5 Corporate measures 8 PR initiative 9 Conclusions and recommendations 10 Reference list 12 Introduction and problem definition In June 2012 Barclays Bank’s rate fixing scandal had mottled its reputation in a horrendous manner. The bank was fined £ 290 million pounds for altering LIBOR (London Interbank Offered Rate). Investigation into the matter had revealed that the bank indulged in LIBOR manipulation to earn fraudulent profits and to make the bank activities secure against risks arising out of the financial crisis (The telegraph, 2013). The LIBOR is considered as one of the most vital information in respect of benchmark rates and it crucially impacts financial trading contracts across the globe. In the light of such events, Bob Diamond, the former chief executive of the bank had submitted his resignation. Subsequently, Anthony Jenkins was chosen as the chief executive officer (CEO). The bank was involved in a number of scandals such as the fraudulent selling of PPI (Payment Protection Insurance) and interest rate rigging which tarnished its reputation and had seriously affected consumers who had shifted to other banks. Almost 12 million holders of current bank account had switched to other banks as the credit rating and overall reputation of the bank declined (Cohan, 2013). Public relations in respect of financial services institutions are essentially about communicating important and accurate information to the stakeholders. PR executives are required to maintain the trust of consumers and shareholders so that their investments remain with the financial institutions. Investments provided by customers and shareholders of financial institutions plays pivotal role in continuing and expanding their services. When customers view that profits and management abilities of a firm are declining, they become apprehensive of their investments and shift to other institutions which are more secure. In order to maintain existing customer base, sometimes financial service organization are seen to indulge in unethical activities. This further reduces the trustworthiness of customers. PR agents face adequate difficulties to maintain good terms with consumers when such issues occur. In the view of such aspects, the following research paper has been developed which analyses the potential challenges and issues faced by the PR executives of Barclays for maintaining its reputation and rebuilding trust. The paper also analyses the significant corporate measures and decisions implemented to improve the company’s public relations with external factors (Federwisch, 2014). The public relations efforts of financial institutions are seen to affect the overall marketing strategies adopted as well. Therefore, how the PR activities facilitate mitigation of ethical issues existing at Barclays; and accordingly in the framing suitable marketing strategies for rebuilding customer trust has been suitably analysed through this paper. The paper facilitates in understanding that ethical norms play a crucial role in developing the overall credit worthiness of financial firms which adequately impacts its revenues. In this respect, the PR department plays a significant role in making the customers trust the services of the institution. By doing so, a company remains successful in achieving its marketing targets as well as more customers can be attracted for making investments and increasing their overall goodwill (Seamen, 2012). Research methods and limitations How effectively a firm conducts its PR activities for solving different corporate ethical issues and meeting revenue and marketing objectives has been vividly analyzed in the paper. Such a research objective can be successfully met through qualitative analysis. In order to understand and gain information regarding the ethical issues existing at Barclays and the PR activities undertaken for solving the same, secondary sources of data is mainly relied upon. The research incorporates studying different published materials such as corporate journals and annual reports for gaining deeper insight into the area of study and draw needed conclusions and recommendations. A significant limitation faced during the research period was the inadequacy of information in respect of corporate decisions and policies followed for removal of issues. Majority of the information acquired for fulfilling the needs of the paper was through the information obtained through various types of publications which are essentially secondary sources of information. Due to inadequacy of information from internal organizational sources, the current research has been conducted using mainly secondary sources. The researcher follows the qualitative method of analysis of the information obtained (Oppenheim and Pollecutt, 2000). The philosophy followed by the researcher in largely interpretivism which facilitates in understanding the results of the different corporate measures taken by Barclays to reduce the problems of trustworthiness and the PR measures taken in respect of the same. The interpretative philosophy facilitates adequate scope for the researcher to combine the information obtained from various publications and develop suitable understanding based on his own knowledge and expertise. Hence, the interpretivism philosophy is largely relative in nature. The approach undertaken by the researcher for constructing the current paper is largely inductive allowing the generation of new ideas and understanding based upon the information collected. The inductive approach is seen to be more suited keeping in mind the objectives of the current research which is largely qualitative in nature. The paper is developed based upon the exploratory technique which facilitates understanding the impact of PR activities in mitigating ethical issues and improving customer perception regarding Barclays. Exploratory technique is largely adopted when the subject matter of research is oriented with ethics and customer insights. Research findings The recent scandal surrounding Barclays has adversely impacted the reputation and market reputation of the bank. The trustworthiness upon its financial services have reduced to a large extend. The company in view of its current performance has developed numerous measures by which it expects to restore its tarnished reputation and improve relations with the public at large. The current section of the paper identifies and understands the different aspects associated with the ethical issues at Barclays and how the company aims to mitigate the same using different corporate and PR strategies so that the market image of the firm can be brought back to its former position (Stittle, 2002). Barclays issues and impact on revenue Barclays essentially requires considering reframing its reputation in the market through proper PR and corporate strategies so that the issues surrounding the company’s scandals can be mitigated. The issues have fiercely impacted the company’s its corporate banking functions and subsequently its revenues. Due to the scandals surrounding the firm, a number of customers had shifted their investments from the bank to other institutions. Customers began to believe that the bank’s ability to enter new markets and raise capital will seriously impact its revenues. This may put their investments at risks. As a result, shifting to other financial institutions was deemed as a suitable choice for many former customers of Barclays. This adversely impacted the revenues and cash reserves of the company leading it to loss of revenues and potential financial strength (Davies and Crane, 2003). Figure 1: Important ratios of Barclays In order to understand how the scandals affected the company’s revenues, important ratios from the years 2010 to 2013 has been considered. 2010 and 2011 are essentially the pre-scandal period while 2012 and 2013 are the post scandal period. The analysis of the ratios shows that the important financial ratios of the firm have declined considerably in the post scandal period. The withdrawal of customer investment and decline in banking activities is seen to be the primary reason for such reductions in profitability ratios. Similarly, in the figure below, it is seen that the assets, liabilities, earnings and cash flow position of the firm had also considerably declined in the post scandal period (Irving, Harrison and Rayner, 2002). Figure 2: Financials of Barclays The analysis of the financial results of Barclays is evident of the fact that the scandals had adversely impacted the revenues of the company. In order to improve the financial situation of the company, it is essential that the company revives its goodwill and prestige in the market. This calls in for increased PR activities. Additionally, and most importantly restructuring of the company’s code of ethics in necessitated. Lack of proper governance has been considered to be one of the primary reasons because of which the firm has suffered loss of reputation. Experts have also identified that lack of proper utilization of resources and strategic planning had caused the firm to reach a risky financial position. However, in order to prevent losing consumers, the bank’s upper management indulged in manipulation of vital information and altering the LIBOR and interest rates. When such fraudulent activities came into the eyes of the investors, they began taking serious actions through withdrawal of their investments. The ethical mismanagement had led to the overall loss of brand image of the firm making it lose its market share. Since the allegations of fraud against the bank were quite strong, PR activities and efforts of retaining customers had negative results. It is expected that unless the firm takes strong corporate decisions and ethical restructuring, the revenues of the firm will continue to decline. Corporate measures Reputation is a fundamental aspect which impacts the revenues earned by financial service companies. Reputation and credit worthiness are direct drivers of success and profit for the firm. When customers view that the company trustworthiness is low, they prefer not taking risks by investing in the firms. Customers feel that their own reputation might be at stake by developing partnerships with firms which have indulged in fraudulent business activities. In order to redevelop the companies lost goodwill, Antony Jenkins the CEO of Barclays has considered reformulating the code of ethics of the company. The CEO had strictly announced that those employees who do not which to follow the code of ethics may leave the organization. The administrators of the firm had send out the message that fraudulent activities such as manipulation of vital information will not be tolerated by the management. The new standards established by the management would be used to appraise employee performances as well. Strict vigilance upon the employee performance is considered as an effective way for ensuring that the employees of the business do not indulge in any type dishonest work (Jayne and Skerratt, 2003). Jenkins expects that the strong measures taken are likely to impact the manner in which consumers view the business. In order to mitigate ethical issues and to make the organizational functions more synchronized with its fundamental policies, the company has considered reviewing its organizational cultural norms and business practices is also considered to be undertaken. Antony Jenkins and other upper level managers and administrators of the company feel that the company is required to consider the needs of the society in a more explicit manner. The company’s compliances and public relations departments have been restructured so that ethical norms can be fulfilled in a more effective manner. A number of new mangers have also been recruited in different departments of the company so that better operational efficiency can be achieved. Customers are investors largely demand for banking activities which respects the needs of the economy. Being a part of the globalized business platform, the activities of Barclays significantly impacts other organizations as well. Hence, revealing adequate information in respect of its internal activities is essential (Chun, 2005). In the light of the reform measures undertaken, Barclays has developed it new code of ethics which is based upon the principles of respect, integrity, excellence, service and stewardship. The company’s new policies put forward the needs of the client first. By not following a suitable code of ethics, maximum impact has been caused upon the customers of the organization. Hence, majority of the reform activities of the company focuses upon making customers satisfied and protecting their requirements. Being in the financial services, Barclays must ensure that errors in their activities are corrected immediately as and when they take place. If mistakes are not rectified on an urgent basis, there is a high probability that the activities of the company may impact other organizations. The reform measures of the company also include disclosing results of its operations to stakeholders in a timely manner. Such measures undertaken by the company is expected to increase the goodwill of the firm, thereby encouraging customers to invest in the firm. As customer trust upon the bank gets regenerated, suitable marketing measures can also be undertaken to further popularize its reformed polices and mode of operations (Jayne and Skerratt, 2003). PR initiative In general it can be stated that, even if the PR activities of a firm are strongly developed, if the firm fails to meet its ethical requirements, finds it difficult to survive in the market. This is due to the aspect that fraudulent activities undertaken by financial firms leave a lasting negative impact upon customers. However, through restructuring and changing the manner of communication, it is expected that Barclays can slowly regain its position in the market. One of the strongest initiatives taken by the firm is to increase its communication with investors. Strong PR activities play an essential role in this respect. Barclays through its strongly developed PR activities tries to communicate with consumers and investors in respect of the company’s financial activities and future plan of activities. The PR department of the firm has been restructured in a manner so as to include expert professionals from different fields to mitigate customer issues on time. The PR executives have also taken adequate steps to conduct meetings and seminars with external stakeholders for discussing the company’s reformed measures (Buttle, 2008). PR executives also play an important role in communicating to the management and employees of the organization regarding the importance of ethical measures and motivate them to undertake reformation when it is perceived that the activities of the firm are not being conducted in an efficient manner. The PR department of Barclays has also taken steps for obtaining feedback from customers in respect of the firm’s activities. The feedback provided by clients will be taken very seriously by the bank and areas of shortcomings will be adequately dealt with. The PR initiative taken by the bank also includes increasing the popularity of reformed measures through enhanced media activities (Cowton, 2002). PR executives of Barclays have also identified that if the bank is able to develop a good image in front of existing customers, then through word of mouth promotion, the popularity of the bank’s new regulations and mode of operations may increase. This would encourage the generation of new customers. It is predominantly seen that once a firm faces a crisis, it becomes risk cautious and ensures in all possible manner that such a situation does not rise again. Additionally, the PR executives are also seen to work closely with financial regulators for reformulating the company’s code of ethics. Through such tactics, the company expects to generate a better image in front of regulatory authorities who may again encourage investors to conduct business with Barclays. Efficient PR strategies may help the company to reinstate trust within the minds of customers in a slow and steady manner. As a part of the reformed PR activities, the company has decided to increase the number of internal appraisal and audits. The transformed appraisal and audit process gives higher importance to the compliance with code of ethics. A thorough investigation will be regularly conducted by the PR department to check whether the code of ethics is being followed effectively (McDonald and Rundle-Thiele, 2008). Conclusions and recommendations Even through Barclays has taken a number of steps in order to re-emerge from the tarnished reputation; the overall impact upon customers is seen to be low. It is generally seen that if a firm operating in financial sector is caught in scandals, the revamping of the goodwill of the company becomes a time consuming task. Barclays is now focussing upon providing maximum efficient services and restructuring many of its services and mode of operations. However, one of the significant drawbacks observed is that the PR activities and corporate polices of the company is doing very less to motivate employees. Unless employees feel motivated and put their interests secondary to the firms needs, efficiency would be less achieved. Therefore, the PR department requires taking greater steps towards encouraging employees to follow the new code of conduct and its benefits of the same. The company is required to propagate the message to employees that if the employees serve the community better, it is possible for the company to regain its tarnished reputation and give effect to growth which would ultimately impact employees in a positive manner. In order to mange risks in a better way, the company is required to develop alliances with other smaller firms. Developing alliances with new companies would facilitate the business to display its reformed policies to external factors. Being in the financial sector, Barclays is required to maintain close ties with investors and shareholders. An effective way in which investors trust can be made strong is by including them in important decision formulating processes and thereby achieving the need of transparency. Investors should also be provided with more frequent reports of the companies operation. Care must be taken by the PR department that such publications are not manipulated in any manner and they reflect the true and fair position of the company. Post the scandals, it is observed that the firm has been keeping a vigilant eye upon reporting its activities. This has in turn affected the risk taking policies. The company’s administration must realize that being from the financial services sector, risk taking becomes an obligation. The corporate policies in respect of risk management must therefore be implemented in a more efficient and profitable manner. Additionally, it is also essential for Barclays to encourage other banking firms to undertake reforms in their code of ethics. Restructuring the company’s cultural environment and developing more morals which makes the company answerable to the society is essential. It is observed many at times that in order to meet the needs of profitability and professionalism, ethical norms are overlooked. To prevent such a scenario it is essential for the company to develop a sense of predicting the result of their actions on a long term basis (Ogrizek, 2002). If the professionals of the company had an attitude of predicting the results of their actions on a long term basis, much of their mistakes could have been avoided. Additionally, reforms are also required to be made in which the company takes its investment decisions. The fundamental truth is that if Barclay’s investment decisions were right and profitable, it would have earned adequate revenues. 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