Financial Ethics An Introductory Summary

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Financial Ethics - An Introductory Summary A
modern financial system is a trust/credit-based
system. Unethical financial behavior undermines
the publics trust/confidence in financial
system - markets, institutions, and financial
managers Yet, Wall Street would be willing to
break the law if they believed they could make a
lot of money and get away with it. Greed is
healthy. You can be greedy and still feel good
about yourself. Apparently, ethical health of
financial system is greatly affected by social
ethics, which in turn is influenced by even some
isolated, anecdotal unethical incidents caused by
some individuals or institutions.
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Need for Financial Ethics Complete Book of Wall
Street Ethics all blank! Finance is not a
clearly identifiable profession - Unlike law,
medicine, or even accounting where professionals
engage in a relatively uniform activity and thus
can eventually have a single code of ethics, if
necessary, finance people engage in a very wide
range of activities. - difficulty of defining
financial ethics. Financial ethics is concerned
not just with individuals behavior but also with
problems in financial markets, institutions, and
all economic/business units including
corporations, non-profit organizations, and
governments. Thus, financial ethics is not
different from ethics in other areas, but it
takes different forms due to its unique
characteristics of broad, wide, and far-reaching
impact and implications.
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Ethics and Finance Theory Is finance an
objective, value-free science? Is finance theory
ethically neutral? The answer is probably
No. Financial decision do often deal with both
means and ends that involve (implicit) value
commitments. Why the law is not enough? Need of
Self-regulation Crudeness of law cant detail
the fine prints of ethics. Passivity of law cant
accommodate ethical prescription. Minimum
morality in law cant prevent unwanted social
burdens/costs of resolving ethical conflicts.
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Financial ethics can be developed around three
broad themes 1. Fairness in Financial
Markets Problems of financial contracting -
Implicit contracts facilitate opportunistic
behavior due to vagueness, ambiguity, and
incompleteness. Imperfect contracting -
Considerable managerial discretion is required
and exercised in financial practice. Imprecise
standard of performance - Do X vs. Try
to do X Balancing of competing interests -
Externalities, spillover effects
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2. Responsibility of Financial Services
Industry Middlemans ethics intermediaries/broke
rs - cultural? Misrepresentation, misleading
claims through euphemisms Deception, concealment
of information Churning - Issue of
paternalism Unethical practice - good
outcome condoned/praised bad outcome
problem Product integrity, supervision,
arbitration Conflicts of interest stock
analysts Institutional investors ethical duty?
- Socially responsible investing - relationship
investing
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3. Integrity of Financial People
Managers/Analysts/Employees Organizational
Pressures - Just do it! Diffused
responsibility within an organization Corporate
culture, Leadership and Ethics - Unethical
business practice reflects the value, attitudes,
beliefs, language, and behavioral patters than
define an organizations operating culture and
leadership characteristics E-finance and
Ethics? CONCLUSION The level of financial
ethics depends on a complex interplay of
financial markets, industry, leadership, and
individuals personal integrity. What about the
roles and functions played by the cultural
heritage of the society - history, philosophy,
politics, and value system???