Comparative Business Ethics and Social Responsibility - Case Study Example

Comparative Business Ethics and Social Responsibility Name: Lecturer: Course: Date: Explain in details whether employees are allowed to use their positions inside an organization to advance their interests? Is insider trading or the use of privileged information considered to be immoral? Introduction Conflict of interest arises when an individual’s private interest interferes with the interest of the company (NIH 2005). In this case, when workers use their positions within an organization to advance their own interests, it leads to conflict of interest. Example of where such a scenario may occur include; insider trading and through the use of privileged information. This essay argues that employees are not allowed to use their positions within an organization to advance their own interests. It further argues that the decision as to whether insider trading or the use of privileged information is immoral depend on interpretation. Consequently, not all insider trading activities are immoral. To determine whether employees are allowed to use their positions within an organization to advance their own interests, it is critical to describe the concept of “conflict of interest’ within an organization. A commonly used definition is that it comprises a set of situations that make professional actions of judgment that concern primary interests to be influenced by secondary interests. Here, primary interests refer to the key goals of a profession or an individual’s position while secondary interests include financial gains and motives that comprise the favors or desired advancements (Thalassinos, Maditino and Paschalidis, 2012). Towards this end, conflict of interest can arise when an employee or a company director uses his position in the organization to advance personal interests. This may hinder making objective decisions or performing work effectively (Chiang and CHung 2012). Conflicts of interest may further arise when a director, employee or their family members receives benefits that are of personal interest from third parties because of their positions in the company. Such scenarios may also result when directors use their positions of power to guarantee their family members loans or obligations (Kuraitis and Waterman nd; Fernandes 2008). Here, although secondary interests are generally not considered to be “wrong,” they become disallowed or objectionable in situations where they are perceived to have greater weight compared to the primary interests (Kuraitis and Waterman nd). In any case, the conflict that arises in any “conflict of interest” is perceived to exists whether an employee is in actual fact influenced by the secondary interest or not. Conflicts of interest will generally exist when the circumstance in question is reasonably believed to hinder objective or effective decision due to undue influences of secondary interest. This implies that under such scenarios, employees are not allowed to use their positions within an organization to advance their own interests. For instance if a director’s job gives him an authority to award a contract to an organization where he has financial interests, then his actions could provide financial benefit to him, hence creating a conflict of interest. Such actions would be viewed as unethical and therefore not allowed in an organization (Kuraitis and Waterman nd). Specific conflicts include misusing confidential client information, misusing business property or unsanctioned acceptance of gifts or monetary payments from third parties. Such scenarios call into questioning the concept of insider trading. Insider trading Insider trading describes the process where an individual collects information from sources that are non-public in nature, such as friends, private acquaintances and colleagues. The individual later uses the information to enhance his financial advantage (Ostberg 2012). The term also refers to the buying or selling of securities based on information that is not publicly available (Machan 1996). For the purpose of this essay, insider trading is applied in reference to trading through the use of unpublished price-sensitive information an individual has due to the advantages of his position in employment or duties and profession. Ozsozgun, Ozarslan and Akbas (2010) identified five conditions that tell the existence of insider trading. First, an individual can be specifically identified. Next, individuals with information on price conduct trade for personal benefits or interests. Third, equilibrium of equal information principle between those participating in trade is damaged through the use of inside information. Fourth, individuals with privileged information have eliminated loss of the profit made after the trading, and lastly, the information is non-public. This essay argues that the decision as to whether insider trading is immoral depends on how the issue is interpreted. Critics of insider trading are intrinsically immoral. For instance, Machan (1996) pointed out that insider trading undermines the proper and efficient functioning of a free market. On the other hand, proponents of fair dealing contend that insider trading provides a powerful incentive for creativity and compensation of entrepreneurial activities. To determine whether insider trading is immoral or unethical, it is crucial to first define “morality” and “immorality.” Morality is the differentiation of actions, decisions and intentions between those that are good or bad. On the other hand, immorality describes the active opposition to morality or to actions, decisions or intentions that are right (Werhane 1989). Based on this assumption, it appears logical to argue that insider trading is to some extent immoral. Conversely, if insider trading increases the economic wealth of an individual, it is considered to be unethical (Sun 1998). Insider trading can also be termed as immoral since it affects an outsider by being “unfair". Towards this extent, it can be argued that what would cause harm to the ‘outsiders” is not what was known or done by the ‘insiders,” instead, it is what they did not know. It is therefore this lack of knowledge that exposes them to certain risks of loss or disallows them a potential to make profits. Since the outsiders do not have information that the insiders are privileged to have by the virtue of working for the company, they are at a disadvantaged and therefore harmed as they will not be able to take advantage of available opportunities (Sun 1998). On the other hand, to a considerable extent, insider trading or using privileged information is not immoral. This argument is based on the premise that if an individual (an insider) has privileged information that has no impact on what the other person does or knows, then it cannot be argued that any harm that happens to that other person has been caused by an insider. Here, insider trading cannot be considered to be immoral. Further, since misappropriation is what makes insider trading unethical, several implications are noted in this regard. First, it is critical to observe that not all insider trading are immoral. This is since the manner in which information is acquired makes a difference on the assumption that insider trading is immoral or moral. Therefore, trading conducted based on information obtained through conscientious behavior should be differentiated from trading on information obtained through a breach of confidence. Therefore, when these factors are put into play, insider trading through information obtained through conscientious behavior cannot be considered to be immoral (Machan 1996). Similarly, when insider trading is conducted with the full consent and knowledge of shareholders to whom security is traded, then it cannot be considered to be immoral. For instance, some individual shareholders may surrender the privileges of the information they won voluntarily (Sternberg 2000). Such individual are considered to have made legitimate decisions to dispose off their property. Such a decision may be considered to be irrational in so far as it tends to create conflict of interest (Huddart, ke and Shi 2006). Accordingly, employees who trade information for their own gains with regards to the misfortunes of the company have less incentive that holds them in check from doing so. However, information trading that is authorized cannot be considered to be immoral. This is since shareholders determine a corporation’s ends (Machan 1996). In this case, shareholders agree that corporate insiders can trade for their own benefit through the use of inside information, then it can be argued that the shareholders have change their fiduciary responsibilities regarding their activities of trading securities. Under such a scenario, since the insiders are expressly permitted to use insider information for reasons of their own trading, then they cannot be considered to have misappropriated or misused their positions of privileged information (Leledakis et al 2009). As a result, insider trading where the shareholders have given consent is not immoral. Further, if an insider is obligated to share privileged information with others, then this can be described as fiduciary duty. In this case, it cannot be viewed as “inside information”. Rather, it is viewed as information that the insider owes to others that makes trading morally objectionable. The harm to an outsider will in this case happen when the insider declines from sharing the information, divulging the information or using it for self-benefit (Machan 1996). In this case, insider trading is not immoral. Rather, it is a “breach of fiduciary duty.” Conclusion Employees are not allowed to use their positions inside an organization to advance their own interests. Further, the decision as to whether insider trading or the use of privileged information is immoral depends on interpretation. Hence, not all insider trading activities are immoral since manner in which information is acquired makes a difference on the assumption that insider trading is immoral or moral. Therefore, trading conducted based on information obtained through conscientious behavior should be differentiated from trading on information obtained through a breach of confidence. Therefore, when these factors are put into play, insider trading through information obtained through conscientious behavior cannot be considered to be immoral. To a greater extent however, insider trading is not immoral. References Chiang, C & CHung, S 2012, Insider Trading and Option Returns Around Earnings Announcements, 7 Dec 2013, http://bschool.nus.edu/Portals/0/images/Finance/S%27pore%20Scholars%20Symposium/28%20Nov%202012/Paper%201%20-%20ChiangChung_Nov2012.pdf Fernandes, N 2008, "Insider Trading Laws and Stock Price Informativenes," The Review of Financial Studies Vol. 22 No. 5 Huddart, S., ke, B & Shi, C 2006, Jeopardy, Non-Public Information, And Insider Trading Around, viewed 7 dec 2013, http://www.personal.psu.edu/sjh11/Papers/HuKeShi.pdf Kuraitis, V. & Waterman, D. nd, Code Of Business Conduct and Ethics, viewed 7 Dec 2013, http://www.lee.net/governance/code.pdf Leledakis, G, Efthymiou, V 7 Kontopoulou, K, Nerantzidis, M 2009, Insider Trading and Ownership Structure: Evidence from the Athens Stock Exchange, University of Athens, Athens Machan, T 1996, "What is Morally Right With Insider Trading," Public Affairs Quarterly, Vol. 10, pp.135-142. NIH 2005, Conflicts of Interests/Standards of Ethical Conduct Fact Sheet: For Positions Requiring Public Financial Disclosure, National Institutes of Health, viewed 7 Dec 2013, http://ethics.od.nih.gov/topics/COI-Fact-Sheet.pdf Ostberg, P 2012, Insider Trading in the Swiss Stock Market, University of Zurich, Zurich Ozsozgun, A., Ozarslan, E., Akbas, H 2010, "Insider Trading From The Perspectives Of Two Ethical Theories: Utilitarianism And Kant’s Approach," International Journal Of Business And Management Studies, Vol 2, No 1, pp.1-8 Sternberg, E 2000, Insider Trading, Just Business: Business Ethics in Action, Oxford University Press, Oxford Sun, Y 1998, "Where Should the Line be Drawn on Insider Trading Ethics," Journal of Business Ethics Vol. 17, No. 1, pp.1-7 Thalassinos, E, Maditino, D & Paschalidis, A 2012, "Observing evidence of insider trading in the Athens Stock Exchange," Journal of Economic Structures Vol. 1 No. 8, pp1-26 Werhane, P 1989, "The ethics of insider trading," Journal of Business Ethics, Vol. 8, Issue 11, pp 841-845 Read More