ETHICAL DECISION-MAKING Ethics Decision-Making Webinar Ethical Landscape Why ethical people engage in questionable conduct Developing Ethical Decision-Making (EDM) Framework Group case Breakout discussions Group analysis/voting
Webinar is NOT: 60 minutes of Lecture Regulatory/Compliance Training Creating a Moral Compass Graded No Test! Ethical Landscape Market collapse was devastating to faith and confidence in the investment industry Functioning capital markets depend on trust Trust is earned through ethical conduct Ethics are fundamental to market integrity Clients demand ethical conduct from managers not just good performance
FINANCIAL SERVICES FARE WORST--AGAIN 5 How much do you trust the following industries to do what is right? 79% 66% 64% 62% 60% 59% 56% 53% 51% 47% 45% Technology Automotive Food and Beverage Consumer Packaged Goods Telecommunications Brewing and Spirits Pharmaceuticals Energy Media Banks Financial Sevices 2012 Results 77% 69% 66% 65% 62% 62% 59% 58% 53% 50% 50% Technology Automotive Food and Beverage Consumer Packaged Goods Telecommunications Brewing and Spirits Energy Pharmaceuticals Media Banks Financial Sevices 2013 Results Source: 2013 Edelman Trust Barometer ALIGNMENT OF EXPECTATIONS AND PERFORMANCE Source: 2013 Edelman Trust Barometer How important are each of the following actions to building trust? 63% 59% 58% 57% 54% 41% 38% 41% 23% 28% 24% 23% 26% 22% OFFERS HIGH QUALITY PRODUCTS OR SERVICES PLACES CUSTOMERS AHEAD OF PROFITS HAS ETHICAL BUSINESS PRACTICES HAS TRANSPARENT AND OPEN BUSINESS PRACTICES COMMUNICATES FREQUENTLY AND HONESTLY ON THE STATE OF ITS BUSINESSS HAS HIGHLY-REGARDED AND WIDELY ADMIRED TOP LEADERSHIP DELIVERS CONSISTENT FINANCIAL RETURNS TO INVESTORS IMPORTANCE PERFORMANCE Investor Perceptions DILBERTReprinted by permission of United Feature Syndicate, Inc. WHICH HAS MORE INFLUENCE ON WHETHER A PERSON WILL ENGAGE IN UNETHICAL CONDUCT?
A. Disposition: A persons moral character. B. Situation: Outside circumstances.
Situational v. Dispositional Some studies have shown that situational influences have more to do with a persons ethical behavior than a persons character.
Under the right conditions good people can be induced, seduced and initiated to act unethically.
--- Phillip Zimbardo, Prof. Emer. Stanford University WHICH OF THE FOLLOWING SITUATIONAL CIRCUMSTANCES WILL INFLUENCE A PERSON TO ENGAGE IN UNETHICAL CONDUCT?
A. Obedience to authority B. Conformity with others C. Incrementally engaging in unethical behavior D. Following group decisions E. Over confidence in ability to act appropriately F. Responding to incentives
Obedience to Authority We are less likely to take part in unethical actions on our own than when requested by a supervisor. We want to please authority: may lead us to carry out instructions without thinking about the ethical implications Supervisors rarely directly ask us to perform unethical activities, instead they infer it based on incentives. Rationalizations: I want to be a team player, I want to be loyal. I was just following orders. Conformity We often take our cues from our reference group about the proper way to act We become acculturated to behavior and we assume that this behavior is normal and acceptable We conform our judgments to the judgments of our reference group
Rationalizations: Everybody else does it, so it must be okay Its how you succeed around here Incrementalism The Slippery Slope Unethical behavior often occurs when we subconsciously lower our standards over time through small changes in our behavior
Rationalizations: J ust this one time It doesnt really hurt anyone Its not a big deal Group Think v. Independent Thinking Being in a group lessens our individual feelings of accountability and responsibility Our moral doubts are assuaged by the groups concurrence
Rationalizations: We are a good and wise group This is the way it has always been done Overconfidence We tend to believe that we are more honest and fair-minded than our peers and competitors This often leads us to make decisions that have ethical implications without engaging in serious reflection
Rationalization: I am more ethical than they are, it wont happen to me Framing Objectives are often framed to focus on one factor (AUM, bonuses, stock price) We often overlook or justify behavior if it leads to the achievement of that goal or objective Rationalizations: That is the way they do it at Firm X, so it must be okay If we do not do it, someone else will Smart people created the incentive structure, Im just responding to it Effective Ethical Thinking Begins with: Becoming more conscious about your thoughts and behaviors, to increase the likelihood that you will notice and act on ethical issues before they become destructive
Recognizing that ethical dilemmas are a normal and predictable part of most jobs
Discussing approaches for dealing with ethical issues Case Studies Illustrate ethical principles and ethical analysis in real- life scenarios
Prompt discussion and exploration of key concepts and ideas from differing perspectives
Focus on issue-spotting and analysis rather than correct or incorrect answers
Develop an ethical framework for decision making Developing a Framework for Ethical Decisions 18 I. Fundamental Ethical Principles Client interests come first Preservation of confidentiality Avoid/manage conflicts of interest Full and fair disclosure Fair dealing Reasonable care and prudent judgment Maintain independence and objectivity II. Ethical Analysis What are the important facts? To whom is a duty owed? What are the issues? What are the ethical principles involved? Are there any conflicts of interest? How are the conflicts managed? Developing a Framework for Ethical Decisions:
Cases 18 You are the assistant to a senior portfolio manager at the firm responsible for submitting the managers expense reports. Because the manager often does not have receipts for minor expenses such as meals and cab fare, you have learned to override the accounting system when he submits the reports. The manager recently returned from a trip without receipts for larger expenses. When you inquire about the receipts, the manager tells you he lost the receipts and to just override the system like you usually do. You should:
The Expense Report 16 A. Submit the report without the receipts. B. Submit the report for only expenses that are backed up with receipts. C. Create receipts to back up your bosss expenses this one time but inform the manager that you will not do so again. D. Ask the manager of accounting what to do. Expense Report: Key Issues Ethical Principle: Honesty Loyalty to Employer v. Manager Important Facts: manager asks you to deviate from rules overridden system before Situational Influences incrementalism obedience to authority
CASES: BREAKOUT DISCUSSIONS Each Breakout will discuss one case (5 - 6 min.) Use the ethical decision-making framework to analyze the case (to the right of the case) Select a spokesperson When the large group reconvenes, the Breakout cases will be presented and the large group will vote on each After the voting, the spokesman for each Breakout will present their analysis Resolving Ethical Dilemmas Ethical issues are normal and predictable. Be more conscious about thoughts to notice and act on ethical issues before they become problems. Be aware of and address negative situational influences. Apply Ethical Decision-Making Framework. Live and breath fundamental ethical principles. Know your duties/gather relevant facts/manage conflicts. Discuss with colleagues.