Harry Markham has served as a Chief Financial Officer (CFA) with Investment Consulting

Associates (ICA) for eight years. In his role with the ICA, he is responsible for giving

professional, educated advice regarding pension funds. Pension funds are "money that a

company invests to earn money to pay pensions" (Merriam-Webster(n.d.). Harry found that

the discount rate liabilities the actuaries reported on the public state pension fund were not

consistent with the liabilities he had calculated. Harry grew increasingly worried about how to

approach the Board of Trustees regarding this discrepancy.

The issue of loyalty is raised for Harry as he feels a sense of loyalty to each of the parties

with whom he works; this includes ICA- the firm to which he is employed, the board of

trustees, and others who make public investment decisions.

While looking over the issue presented in the case study, let's gather some data based on the

case study.

1. Actuaries set the discount rate at 8% based on the expected return on assets, which is

arguably incorrect and flagged as a nonsense valuation.

2. Economists felt the proper discount rate should be set to 3%, as this was the highest rate

that can be earned.

3. Harry has the professional responsibility of making ethical investment advice.

4. Code of Ethics and Standards of Professional Conduct states; CFAs must not knowingly

make any misrepresentations in investment analysis recommendations.

5. Reflection on Subprime – In the past, a financial crisis occurred because nobody spoke

up. Could Harry stand by and let this happen again, thus perpetuating the problem?

6. Basing discount liabilities at the expected return on assets is improper and unethical.
 Based on these facts, I believe he should disclose his findings to the board. Yes, it is a

high-risk move concerning how his firm and the plan sponsors may receive it. On the other hand,

the clients will know they have someone who put their best interest first and, most importantly,

follows the ethics and professional standards of the CFA. By bringing this to light, they can then

take measures to reduce the likelihood of this happening again.

I used the Root Cause Analysis (RCA) to analyze this case study. Using RCA, I was able

to identify the root cause of the problem, "Basing discount liabilities at the expected return on

assets is improper and unethical." ICA ultimately needs to adjust how they calculate the

discount rate and stop overestimating to make them look more attractive. To analyze this case

study, I used these five steps identify the problem, collect data, identify possible causal factors,

identify the root cause, and recommend and implement solutions. (Root Cause Analysis:

Tracing a Problem to Its Origins. (n.d.).

References:

Harry Markham Loyalty Dilemma ALearningEdge at MIT Sloan. (n.d.). Retrieved from

https://mitsloan.mit.edu/LearningEdge/Leadership/HarryMarkhamA/Pages/Harry-Markham-

Loyalty-Dilemma-A.aspx

Merriam-Webster. (n.d.). Pension fund. In Merriam-Webster.com dictionary. Retrieved

`February 24, 2020, from https://www.merriam-webster.com/dictionary/pension%20fund

Root Cause Analysis: Tracing a Problem to Its Origins. (n.d.). Retrieved February 26, 2020, from

https://www.mindtools.com/pages/article/newTMC_80.htm

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