Ethical Management Essay Example for Free

Ethical Management EssayThis essay identifyks to identify the study of ethical management on a broad scope, and to specifically sieve out the issues which are common within the banking sector. This would include a case study on UBS and ethical problems which UBS have faced. As morals rumpnot be divorced entirely from the study of sustainability and corporate social responsibility, this essay get out also feature a look at banks, and their decisions which top executive be been unethical. The Study of Ethical ManagementWhile there might be many reasons why unethical behaviour happens, this essay would be feel at three of them in particular 1) Personal Gain, 2) Strong Organisational Identification, and 3) Personality. . To examine the relationship amidst organizations and why ethical issues occur within them, we first narrow the term Business and Businessperson. The book, Business Ethics, written by William(2008), states that a business can represent and range from a start -up venture by some students, to a multinational corporation.Businessperson might be a sole proprietor running a business for themselves, or a chief operating piazzar responsible for a multinational corporation. To take a broader view, we view the businesspeople under the personal point of view, and couple them with the other individuals who are within the organization. This would depart us to see why unethical behaviour can derive not except from the top management, but from every aspect of the organization. To expound on the individual, we invoke to the book written by Schminke(2010), Managerial Ethics, where he identified four individual decision-making styles.The first belongs to an individualist learning ability, this mentality ignores the stakeholders. The second mentality is altruistic, where the benefit of others is of the essence. The third group is the pragmatists, and lastly, the idealist, whose decisions are governed by principles and rules. Common Ethical issues fa ced in the Banking sector 1) Insiders Trading Insider concern, defined by Cornell University Law School, is when caller-outs stocks or other securities are traded by individuals who have access to undisclosed and confidential discernledge.These individuals are known as insiders. To better comprehend the concerns of insider trade, we refer to the paper by Yulong Huey-Lian(1998). Two things must first be addressed. First, who do these insiders refer to? Secondly, how is insider trading illegal? By definition from the U. S. Securities and Exchange Commission(S. E. C. ), insiders are, chairmen, directors, officers, etc. , and atomic number 82 stockholders with 10 percent or more of their own firms common stock.People in these positions are likely to be sufficient to gain access to the firms undisclosed information. However, not all insiders trading are illegal. For example, managers of firms can often purchase its own firms stocks to increase their own individual share and votin g power within the firm. This train of thought also believes that the more stock of the firm the manager holds, the great their ownership and thus a higher work morale is derived from it.Insiders are still allowed to purchase its own firms stock, if they truly believe that it is a good investment. Insider trading becomes illegal however, when trades are made by insiders with the prior knowledge of an announcement for the investors personal gain. When an act as such(prenominal)(prenominal) is committed, insider trading becomes illegal. This action is deemed unethical as it is unfair to investors who do not possess the material information. Other transgressions can include the manipulation of undisclosed firms information from a firms insider to a public investor.For a trade to occur under the basis of the privileged information, and for the recipient to have personally gained from the trade, both parties can be charged under the S. E. C. s regulation of Fair Disclosure. An example of illegal insider trading within banks can be seen from as recently as January 16, 2014, where David Michael Gutman from J. P. Morgan colluded with Christopher John Tyndall from Meyers Associates. As long time close personal friends, the Financial Industry Regulatory Authority(FINRA) discovered that Gutman had shared material, undisclosed information withTyndall over a span of 19 months. This information included pending corporate mergers and acquisition transactions, which allowed Tyndall to make informed, no-risk trading using personal and family accounts. Quoting from Cameron K. Funkhouser, he said, David Gutman had the keys to the res publica through his position at J. P. Morgan as a gatekeeper.. , we can see to how unethical behaviour driven by an individual in the position of power, can taint the image of the firm. Enforcements have been put in place to prevent and to deter insiders from carrying out such behaviours.The SEC has instituted new rules, 10b5-1 and 10b5-2 under the code of federal official Regulations, and the enforcement of these regulations being made global just recently in 2013 after the insider trading inquiry regarding the acquisition of H. J. Heinz Company. 2) Profits before Ethics The relationship between business ethics and profits can be complicated at times. Profits values will sometimes conflict with ethical values which will lead to unethical business behaviour in the managers bid to raise profits within the firm, consequentially affecting the firms stakeholders.Watkins (2011) brings about the argument that for those who ethics concerns, the chase of pecuniary values creates a potential compromise between social ethics and profitable opportunities, a cistron that links to the Goldman Rule. The rule states that the great the profitable opportunities, the higher the opportunity cost for the firm to consider ethical behaviours. This is further described by Weber (2006), as he states that companies are not evaluated on their suc cess based on their reputation for ethics, but on the basis of profitability.It is plausible now to see why banks are driven by a sole concern for profit and to raise the value of their stock. With that in mind, what are some ethical boundaries a bank could trespass upon? As a corporation whose sole objective is to increase profit, they carries the potential turn a blind eye to internal ethics explained in the book by Reynolds (2011) titled, Ethics in Investment Banking, which defines internal ethics as ethical considerations in regards to their employees welfare and the considerations in the use of the shareholder re get-gos.These transgressions can range in forms of overworking employees, to an audit coverage of losses to portray a higher stock market price. As individuals looking for greater profits either for self or the firm, especially under the investment wings of banks, individuals can turn rogue and make unauthorised transactions which goes beyond the risk limits of the ban ks in hope of a greater profit. Jerome Kerviels case in 2008 where even the hierarchy turned a blind eye to his risks imputable to the profit he was generating, and Nick Leesons famous collapse of Barings Bank in 1995 are two such examples.Investments in environmentally harmful industries environmentally harmful projects have been a major factor against Global Warming Awareness efforts. Such investments are being funnelled by banks who are less ethical in the area of sustainability. There have been numerous campaigns to counter banks from investing into unethical projects, some of which protestors even boycotted such banks. Citigroup the worlds largest project pay bank has been known to grant loans to these projects, which are harming the environment.Citigroup was indirectly related to the Camisea pipeline in Peru which has at least 5 spillages along the pipeline to date. Which not only damages the local ecosystems, but also detrimental to the livelihood of people around the world and threatens the well-being of mankind via climate change (Hogue, 2002). A glimpse of such unethical activities reveals something prevalent. It destroys our natural environment, by means of deforestation and the release of harmful gases from the burning of fossil fuels.However, Citigroup has yet see that their funding of major embrocate drilling and pipe laying companies not only worsens the global warming situation but also encourages environmental insecurity. Several other big-scale European banks, such as Dutch Bank and ABN Amro, came up with a policy which prevented funding of these industries. According to (ABN Amros) sustainability policy, limited to financing of companies or projects related to timber, paper, agricultural plantations, mining and/or oil and gas.The bank would consider exceptions only when extractions are delicately prepared, and holds responsibility on issues of national forest management. A positive example of how banks can fund environmentally friendly p rojects can be seen from analysing the Banking Environment Initiative (BEI), it aims to lead the banking industry in directing bank investments towards environmentally and socially sustainable scotch development. The objective of the BEI is to also unravel ways to invest in clean energy and soft commodities.As quoted from (CPSL, online), the group, currently comprises of 10 global banking institutions which stretches across Asia to Europe, the unify States and Latin America. The best way of creating a united force amongst them was if they were acting on behalf of their clients. Consumer Goods Forum (CGF) has the intention to eliminate deforestation from their supply chain. As such they would prefer to form alliances with banks and work together to counter and ultimately eliminate deforestation.Banks have got to find ways to come up with a significant source of funding to finance the journey to sustainability. 4) False Accounting Frauds False accounting duplicity, defined by the United Kingdoms police, is the practice where a business, workings in tandem with an accounting firm to overstate or understate companys asset or liabilities with the intention of making the business go forth financially stronger or healthier than it really is. As there are a multitude of reasons to commit false accounting fraud, we will not be listing all.False accounting allows for a corporation to gain higher credit ratings, report unrealistic profits, and hide losses to appeal to potential shareholders with an high-flown share price. Some extraordinary cases which occurred regarding the falsification of accounts are such as the Enron scandal in 2001 where the audit and accountancy firm, Arthur Andersen was involved and convicted of assisting in audit fraud and subsequently dissolved. Enron was declared bankrupt and new laws were instituted to increase the accountability of firms who are auditing to remain independent of the clients whom they audit.Didnt the code of conduct pro mise proper handling of UBSs assets? He first began his illicit deals in late 2008, doing it for personal gains while covering his tracks with false accounting to the back office. This led to the back office being ignorant of the unauthorised trades as the regular books did not show it, instead, the profits were filed into a secret account called his Umbrella. Adobolis desk colleagues admitted to being in the know of the secret accounts, and his two bosses did not enquire into the suspicion despite the daily trading maximums being exceeded.This breakdown in corporate beliefs at the managerial take aim led to the unethical trading arising within the ranks of the department, and it going by unnoticed. While the integrity of the individual must be questioned, the work culture of UBS could be a factor to encourage the individual to behave unethically. Since the incident, UBS has taken a few measures to facilitate the new risk management practices. Firstly, the bank has taken step to f inish from proprietary trading. A bank would engage in proprietary trading as it benefits firms to make extra revenue.However, the disadvantage of engaging in this form of trading is that with high returns, often comes high risks. Conclusion In summary, how ethical management is derived has no hard and fast rule. However, implementations such as a Code of Conduct, or a company policy helps in setting the tone right within an organization. Through the paper, it is seen how ethical dilemmas can arise on an individual train or an organizational level. If one were to follow the many trains of thoughts regarding ethical management, they would get lost in the plethora of unions and activist fighting for ethical beliefs.