Ethical Problems Worldwide - Essay Example

? Much has not been talked about or documented on how the public perceive the ethics of United States business executive, yet investors and relevant stakeholders consider integrity to be important. Organizations struggling with ethical issues have trouble attracting customers and investors. Such organizations suffer low customer base leading to low market share and lawsuits. This case study looks at the United States’ relative standing on the Corruption Perceptions Index and the Edelman Trust Barometer in relation to ethical issues in the banking sector. Besides financial losses for the business, other problems such as lawsuits and market share decrease may be witnessed (Baumhart, R. 1968). Ethical Problems Worldwide Corporate ethical issues have not been confined to the United States. 80% of companies worldwide suffered business fraud in the years between 2004 and 2007. Parmalat, a dairy company in Italy filed for bankruptcy in 2003 because of fraudulent accounting issues. Founder Calisto Tanzi was found guilty of fraud in 2010 and sentenced to prison for eighteen years. The company reported earnings every year but never earned any earnings. Conrad Black, a former chairman of Hollinger International, was found guilty in the 2007 of embezzling funds of the media company’s shareholders by back-dating stock options (Baumhart, R. 1968). Millions of dollars was stolen through falsified documents. In Sweden top management of the insurance business Skandia engaged in corruption awarding themselves large bonuses in excess of $350 million, some of which were never disclosed. This action made Shareholders to be extremely unhappy with the losses and executive corruption. The prices of shares in the company dropped drastically (Helin and Sandstrom2007). The fines levied against investment banks and brokerage firms in 2003 did not stop investment banks such as Lehman Brothers from closure five years later over undervalued mortgage-backed securities. Banks got into a new part of finance that escaped banking rules through bundling bad mortgages into securities (Lewis2010). The United States experienced the largest financial disaster since the great depression was felt around the world. Even though Lehman Brothers assets exceeded $600 billion, it collapsed due to their deep connection with derivatives, this enabled investment banks to shift money from one company to another. The Ethics of U.S. Bankers The ethics of banks have been measured frequently by the Gallup Polls. Though in 1988 polls that was conducted during the savings and loan crisis, there was a drop in number of people rating the banker’s ethics as high or very high by 12%. There was a further drop from 23 % in the poll taken in 2008 to 19 % in the following year. This was the lowest record for the profession in the banking industry. In 2009 polls, 33 % of respondents rated the ethics of bankers as ‘low or very low’. This indicated a level of distrust and also poor ethics in the US banking industry. From the figures, it is a clear indication that the blame was pointed to the bankers for the financial crises. The public felt that the financial problems were due to bad ethics in the banking sector. Bankers have been criticized for issuing risky loans but according to (Lewis 2010), he argues that it is too crude to blame the financial crisis on ethics of bankers. According to Graafland and van deVen (2011) the three areas where of U.S. government has failed include encouraging the credit extension in the real estate market, failure by the government to keep a strong financial policy, and finally failure to regulate and monitor the markets. According to Graafland and van deVen there should be an improved sense of professionalism and duty to the public is needed. When an organization or industry loses its authenticity, the benefit of doubt is also lost. This is according to Kopeck Berenbeim, R. (1987). The Corruption Perception Index The corruption perception index (CPI) can also be used to measure the ethics of the US businesses. This method ranks countries on the degree of corruption in the government and also public officials. The method was inaugurated in 1995. The Corruption Perception Index ranks countries on a scale. The scale runs from10-0. The 10TH scale is perceived to be the least corrupt country and one as the most corrupt country Berenbeim, R. (1987). Corruption is a hidden activity hence measuring it is a challenge and that is why organization such as transparency international bases the index on a number of polls which is challenging to measure. The corruption perception index began with 41 countries in the year 1995 and has since grown and expanded to 182 countries and this is included in the 2011 index (Choi et al 2008). The challenge with this method is that measuring the degree of corruption and also ranking is hard. Significantly there has been a steady decline in the United States CPI score over the last sixteen years with the highest score of 7.79. Edel-man Trust Barometer is also another way of measuring trust; this is according to a study from the UK which has been assessing trusts levels worldwide in the last 12 years (Choi et al 2008). The method examines trust in different sectors such as government institutions, business sectors, media industry, and Non Governmental Organizations worldwide. The 2012 survey involved 25,000 people that were polled from the general population. An additional 5,600 individuals were also chosen from a population with high incomes and also good educational backgrounds. The results indicated a significant drop in government trust worldwide; business also lost trust globally. Analysis of Ethical Codes United States have a long history of organizational codes. A code of Ethics which was published in the 1920 has 134 ethical codes from certified organizations. It includes codes from the peanut butter, straw hat manufacturer and the National Automobile Dealers Association. Additionally, the National Confectioners Association was not for the idea of packaging candy with prizes inside since it encouraged gambling habits among children (Helin,et al 2007). These codes for organizations were the basic of corporate ethical codes of conduct in business. In the last three decades, ethical codes were praised as the solution to the malfeasance and corruption in the corporate world. Following the scandal of the Watergate in the year 1973 and misbehavior, businesses and organizations came under immense pressure in 1980 to manage or decrease corrupt practices (Helin,et al 2007). Many ethical codes were written as a response to this unethical issue as a warning sign to stakeholders that they had adopted a moral position. Bribery, a vice common in many countries had to be banned under the Foreign Corrupt Practices Act that came into use in 1977. Quite a number of companies were bribing foreign officials which made the practice to be common (Helin,et al 2007). This was illegal and hence forbidden in so many corporate codes. Most Companies increasingly took into practice the codes the year 1980s and 1990s and since then they are common place today. Work citations Baumhart, R. (1968). Ethics in business. New York: Holt, Rinehart and Winston. Berenbeim, R. (1987). Corporate ethics. New York: Random House. Choi, T. H., & Nakano, C. (2008). The evolution of business ethics in Japan and Korea over the last decade. Human Systems Management, 27, 183–199. Graafland, J. & van deVen, B. W. (2011). The credit crisis and the moral responsibility of professionals in finance.Journal of Business Ethics, 103, 605–619. Heermance, E. L. (1924). Codes of ethics Burlington, VT: Free Press. Helin, S. & Sandstrom, J. (2007). An inquiry into the study of corporate codes of ethics. Journal of Business Ethics, 75, 253–271. Read More