Ethical Challenges in the Finance Industry - Assignment Example

ETHICAL CHALLENGES IN THE FINANCE INDUSTRY: WHAT MUST YOU DO TO PREPARE YOURSELF FOR THOSE CHALLENGES? Prepared by (Student’s Name) Institutional Affiliation Course Name Date There is a great deal of research that indicates that ethical investment was first formulated and promoted by distinctive religious institutions (Richardson, 2009). These religious institutions are said to have taken efforts to conduct rigorous and robust campaigns for social and environmental-based concerns and, also to ensure that there is morality needed for improving the world; as opposed to solely focusing on possible financial gains that comes with unethical investment. It is noted both social and environmental-based challenges that emanate from ethical investment cannot be keenly analysed by business investors in the event that they are not deemed to be financially tangible (O’Rourke, 2003). In most cases, reputational risks that are attributed with unethical investment practices might result to intense level of actions. In essence, the focus of this report is on examining the aspect related to ethical issues that emanate and thrive in finance industry and provides a personal opinion on how I am placed to ensure that I favourably positioned to tackle them in the course of conducting my practice. The first section of this report provides different set of ethical challenges that face the finance industry practice as a whole. The second section provides a personal reflection on the matter related to how I am prepared to tackle the issue favourably in the course of my practice as the very last section provides a conclusion of the discussion at hand. A. Ethical Challenges in Finance Industry According to CFA Institute Code of Ethics and Standards of Professional Conduct(2014, p.2) ability to adhere to these standards is indeed crucial and thus, essential for purposes of accomplishing highest degree of ethics as well as professional knowledge for all financial personnel for the benefit of the society as a whole. It is important to note that high level of ethical standards are a core component deemed necessary for purpose of gaining and maintaining public trust in overall financial markets as well as within the extended investment practice as a whole (CFA Institute Code of Ethics and Standards of Professional Conduct, 2014). It is ascertained that CFAs are at all times called upon to act with immediate integrity and diligence as well as in an ethical way especially whenever conducting business with the public; potential and private clients as well as with other distinguished stakeholders within the overall international capital and finance markets. The CFAs are called to always position the interests of their clients; whether public or private, above their own self-interests to avoid possible conflict of interest (CFA Institute Code of Ethics and Standards of Professional Conduct, 2014). Notably, they are expected to adopt the principle of reasonable care and invoke independent professional judgment in the course of conducting investment analysis. In addition to this, they are expected to emphasise and call on others within their area of practice to engage in professional and ethical ways that will be reflected on their extended professional duties. Goyal and Joshi (2011, p.53) notes that the notion related to social banking and finance has since the last global crisis, become crucial trends amongst many US-based banks as well as in Europe. In fact, the financial crisis witnessed across the different capital markets in the world was transformed from being mere niche facilities to extensively publicly noted players within the finance industry as a whole. As envisioned, the improvement was a result of growing degree of awareness amongst a distinctive number of bank clients in relation to the aspect of social banking that is deemed to be less speculative in nature but more ethical and responsible in the way it engages in money-based transactions. Social banking, in its entirety, is focused on ensuring that clients are satisfied in both the existing economy as well as the society at large (Goyal & Joshi, 2011). Going beyond the crisis, most of the bank clients were of the mere opinion and belief that the activity of social banking is indeed more caring for the entire improvement of the society as opposed to reliance on conventional and out-dated banking practices (Miller & Parkhe, 2002). The immediate emphasis on the adoption of social banking seeks to provide imminent lesion for the entire banking and financial sector for purposes of avoiding possible further financial crises in the near future. Social banks are meant to avail both financial and banking services within a conscience environment. They are entirely focused on investing in matters affecting the underlying community, providing opportunities for the disadvantaged members of the society while also assisting on matters related to social, environmental and ethical aspects (Goyal & Joshi, 2011). The need to adopt social banking relate to financial and capital institutions focusing on investing their resources in operations that are perceived to result to the greater benefit of the society as a whole as opposed to engaging in those activities that are directed towards generating private profits for fewer number of people. Social investment likewise cares about making a profit and equally for the promotion of human and environmental-based concerns (Miller & Parkhe, 2002). Ethics in social investment and banking ensures that there is social and economic achievement of sustainability whenever coming up with financial decisions. It is thus emphasised that finance sector as a whole should engage in socially sustainable investment and lending practices that would generate into a perfect quality of life for the greatest possible level of members of the society and whose overall effects can withstand the test of time and therefore, continue with the generation of only positive benefits that would exist long even after the very first investment was made. Hartikainen and Torstila (2004, p.63) ascertains that aspects related to ethical ideology; demographical factors and, also job-related conditions are the most-known factors that would influence practical and ethical judgment. It is argued that the capacity of people to portray distinct personalised differences in the course of executing moral judgments is indeed associated with their respective personal ethical ideologies. In consequence, these personalised ideologies are further perceived in two notable dimensions that are relativism and idealism. Ethical ideologies for most cases directly affects individual personalised moral judgments and, as a result of this notable set of literature evidence, it is expected that most of finance practitioners would certainly exhibit absolutist ethical ideology for purposes of portraying even more stricter judgments in job-related conditions (Bonvin & Dembinski, 2002). In relation to demographic factors, research indicates that women are more sensitive to ethical issues in comparison to their male counterparts, which is an indication that women are stricter in their attitude of moral judgment than men. In addition to this, age is seen to be another notable demographical factor in ethical ideologies and moral judgments within the financial sector as a whole (Bonvin & Dembinski, 2002). Considering the fact that matters related to work experience and salaries tend to relate to with the aspect of age, their immediate effects do affect ethical decision-making process. In fact, it is argued that as people age, they tend to becoming more conservative in their immediate set of attitudes and beliefs for that matter. Certainly, researched literature indicate that older people would mostly enjoy secure job placements within an organisation and thus, will not engage in unethical activities that would likely jeopardise their financial security especially when they are found to be engaging in immoral actions (Christensen, et al, 2007). In regards to job-market related conditions, it is ascertained that organisational roles have a direct effect on the aspect of ethical ideologies. For instance, it is noted that auditors of a given firm would certainly conduct lots of the dealings with a huge presence of people and company situations and, as a result of this they may not likely engage in stricter ethical rules and regulations (Hartikainen & Torstila, 2004). Having looked at what a different set of literature ascertains on matters related to financial ethical considerations, the next section provides a discussion on the possible degree of ethical issues that financial practitioners would likely face in their day-to-day undertakings. The section looks at the different conflicts of interests that might arise as a result of engaging in different financial-based duties like investment banking, financial analysis amongst others within the overall financial sector. First, in the course of conducting financial practice, there is the probability that the financial practitioner will be faced with the ethical issue related to competing values. In regards to this issue, the financial practitioners will be faced with the immediate challenge of overlooking the needs and interests of their clients and instead focus on meeting and accomplishing their own. A perfect example is seen when financial analysts and brokers are deemed to misguide potential investors into investing in specific portfolios that are in reality not as profitable as they seem but rather focused on ensuring that they cash in on commissions from such huge investments. Just recently, ANZ planner was charged and thereafter jailed for more than 6 years for engaging in theft of $1M from elderly customers for purpose of meeting of his own gambling debt (The Guardian, 2016). It is worth to note that competing values is an issue that ascertains that professional duty can in some notable cases conflict with the overall interests and demand of an organisation. For instance, financial managers might opt to focus on maximising their overall bonus share as opposed to ensuring that they maximise the overall shareholder’s wealth. As a result of being greedy and desire to self-actualise in the profession, managers might engage in earnings manipulation that is fairly perceived in cooking financial figures for purposes of deceiving a set of stakeholders about sound financial performance of an organisation (Donaldson & Dunfee, 2002). There is extensive set of literature that provides pertinent information on how management failed to disclose pertinent information to clients and thereby placing them in an unfair position for which they could defend for their investments. For instance, according to The Guardian (2011), a notable subsidiary of Westpac Banking Co. was compelled by the Australian court to pay penalties after a major regulatory body; ASIC found out that the organisation indeed went against a crucial consumer protection provision that related to repossession of motor vehicles that further included the immediate provision of clients with default notices before making good the threat of repossessing their mortgaged vehicles and, also a failure to furnish them with legally required information that elaborates on their immediate rights and duties as customers. Secondly, financial practitioners are faced with the ethical issue that ascertains that for most cases, the code of ethical engagement will likely conflict with the underlying social norms. As discussed earlier in the paper, social banking is a product of social norm whereby individual financial practitioners are called to engage in activities that would result to the greater good of the society as a whole as opposed to only focusing on making profits for less number of people. In consequence, it is argued that some financial practitioners would mostly suffer from redundant moral development so that they fail to look beyond their personal perspectives and into the immediate needs of others. This is mostly attributed to their lack of proper training in matters related to client apathy and, also a lack of necessary and proper mentoring process. A perfect example of this argument can be seen with the sole purpose and goal for which any business exists; to maximise profits and shareholder’s wealth at the expense of other pertinent aspects that relate to offering direct assistance to other stakeholders like the surrounding communities. Until recently, businesses were only required to engage in matters related to profit maximisation, however; with the immediate introduction of GRI Guidelines where corporate social reporting was required then attention was directed towards other issues affecting societies at large. In fact, prior to corporate social responsibility reporting, businesses would only direct their cash resources to those activities that were directly linked with profit making. Financial managers would mostly make overlook the needs of the society and invest money in activities that might be detrimental to the health of the people as long as it generates substantial level of profits for the firm at hand. It is only recently that organisations were called to engage in corporate social responsibility for purposes of ensuring that they prioritise people over profits or rather integrate them in their course of doing business. Consequently, ethical issues in finance industry could possibly arise out of the mere fact that some of the financial practitioners might try and relate moral behaviour with legal behaviour. It is important to understand that while most of businesses engage in activities that are not deemed to be illegal; they could not be perceived as being morally right. For a substantial number of years, businesses have continued to engage in activities that are only tilted towards achieving financial benefits while overlooking on the concept of whether or not; the operations being conducted are moral in nature. For instance, there are many cases of business organisations engaging in activities that pollute the surrounding environment like dumping chemical wastes in people lifeline areas like rivers and lakes. Notably, financial practitioners might be compelled to understand that positive ethics relate to whether professional ethics will go beyond their personalised legal compliancy mechanism. It is not just enough to be a complaint financial practitioner to be an ethical person rather; it is argued that one has to subject themselves to professional code of ethics at all times and learn from criticisms and past experiences. Compliance should be fairly-integrated with ethical engagement in order for operations to make sense (Leigh, 2014). Ethical engagement occurs whenever employees are directly involved in the course of conducting responsible activities meaning that their objective should extend beyond requirements set forth by compliance systems. It means that the financial practitioners would therefore rely on personal values in order to execute challenging ethical judgements in the course of their daily routines for the benefits of the organisation as a whole. The process of successfully shifting financial practitioners into a state of ethical engagement is an entire task on its own as research suggests that less than 3% of all employees are ethically engaged or thereby self-governing (Leigh, 2014). In fact, the ability of personnel going beyond compliance and into ethical engagement will certainly result to top notch performances in production process; it fosters aspects related to innovation as well as ensures to formulate and implement superior customer service mode (Paine, 1994). To successfully achieve this, financial practitioners are called to secure a social license, which seeks to ensure that they meet the immediate expectations of the society and make sure to avoid engaging in activities that are perceived to be unacceptable. In some instances, the immediate call for securing social licences is deemed to be even a tougher aspect in comparison to impositions set out in legislation thereby resulting in going beyond compliance even in cases when it is perceived to be unprofitable in nature (Paine, 1994). For example, an organisation may make the decision that while it is not compelled by regulatory bodies to assume specific environmental measures; it never the less engaging in it for purposes of remaining with the social licence bracket. B. Personal Reflection on How I would Tackle Ethical Issues in My Finance Practice Personally, I understand that a successful integration of finance practice with ethical engagement is an uphill task. This is especially so when as a financial practitioner I am expected to meet the needs and interests of an organisation while at the same time make sure to check on my career growth and development. I am certainly focused on enhancing and practising integrity in my undertakings. It is crucial for me to note that a strategy that is entirely based on integrity will hold me into a more robust standard of practice. While it is noted that compliance is deeply positioned in order to avoid possible legal sanctions, I will enhance a personal-based integrity with the concept of self-governance in relation to the underlying set of guiding principles. From an integrity point-of view, my task as a financial practitioner will be in defining and giving life to the organisation’s underlying values and propositions; create within my means a workable environment that is in support of ethically sound behaviours while at the same time ensure to be held accountable (Boutin-Dufresne & Savaria, 2004). The need for being compliant with the law and acting morally correct is indeed perceived as an aspect of personal life as opposed to being seen as a restriction that is imposed by external authorities. My reliance on integrity is far much positive since it will provide me with a common platform of reference in my current undertakings and thereby serve as a unifying factor across a set of different set of functions. It will help me define my practice and what I stand for. A perfect example is when I practiced as assistant fund manager in one of the companies in Australia when I received an invitation to a private meeting where the CFO of a certain IT firm revealed to me and some other members that the quarterly report that was going to be released was going to avail a very positive news about the company. I chose to overlook the deal since it contravened with my integrity position and instead was directly associated with the criminal law related to insider trading. While it is mostly expected that most financial practitioners would respond positively towards insider training; it does not confine to standards set for accomplishing a personal moral obligations for a financial personnel. To sum up the discussion above, it has been noted that the finance industry just like any other industry is faced with a great deal of ethical issues. Financial practitioners are faced with ethical challenges associated with competing values; social norms and going beyond compliance and invoking elements of ethical judgement. On my opinion, I will surely have to rely on professional integrity to ensure that I face these challenges as and when they fall due in the course of my practice in the future. References List Bonvin, J. & P. Dembinski, 2002, “Ethical No. s in Financial Activities,” Journal of Business Ethics, vol. 37, no.2, pp.187-192 Boutin-Dufresne, F & Savaria, P., 2004. Corporate social responsibility and financial risk. The Journal of Investing, vol.13, no.1, pp.57-66 CFA Institute. Code of Ethics and Standards of Professional Conduct. Retrieved from http://www.cfapubs.org/doi/pdf/10.2469/ccb.vol.6.no.1 Christensen, L.J., Peirce, E., Hartman, L.P., Hoffman, W.M. & Carrier, J., 2007. Ethics, CSR, and sustainability education in the Financial Times top 50 global business schools: Baseline data and future research directions. Journal of Business Ethics, vol.73, no.4, pp.347-368 Donaldson, T. & Dunfee, T.W., 2002. Ties that bind in business ethics: Social contracts and why they matter. Journal of Banking & Finance, vol.26, no.9, pp.1853-1865 Goyal, K.A. & Joshi, V., 2011. A Study of Social and Ethical Issues in Banking Industry. International Journal of Economics and Research, vol. 2, no.5, pp.49-57 Hartikainen, O. & Torstila, S., 2004. Job-related ethical judgment in the finance profession. Journal of Applied Finance, vol.14, no.1 Leigh, A. 2014. Why going beyond compliance makes business sense. Ethical Leadership. Retrieved from http://www.ethical-leadership.co.uk/beyond-compliance/ Miller, S.R. & Parkhe, A. 2002. Is there a liability of foreignness in global banking? An Empirical Test of Banks' X-efficiency. Strategic Management Journal vol.23, no.1, pp. 55-75 O’Rourke, A., 2003. The message and methods of ethical investment. Journal of Cleaner Production, vol.11, no.6, pp.683-693 Paine, L, S. 1994. Managing for Organisational Integrity. Harvard Business Review. Retrieved from https://hbr.org/1994/03/managing-for-organizational-integrity Richardson, B.J., 2009. Keeping ethical investment ethical: Regulatory issues for investing for sustainability. Journal of Business Ethics, vol.87, no.4, pp.555-572 The Guardian. 2016. Timeline: Banking Scandals in Australia since 2009. Retrieved from https://www.theguardian.com/australia-news/ng-interactive/2016/apr/29/timeline-banking-scandals-in-australia-since-2009 Read More