Ethical Dilemmas

Discuss about the Applied Business Ethics for Ethical Dilemma.

Ethics can be defined as the code of conduct of individuals or by group of individuals in a situation (Ferrell, 2015). The importance of ethics in business was brought to the forefront by Stoder (1998), during that time many were opposed to the concept (Ritter, 2006). The prominence of business ethics further grew as the implications of ethics in the society advanced. As business functions grew more and more complex it became necessary for the society to evaluate the various implications each business function had on the society. Business ethics is the sum total of all ethical activities encompassed by the various stakeholders. These stakeholders can be internal or external and their choice of decision greatly affects business functioning. The internal stakeholders include the employees in an organization, who might often be exposed to ethical dilemmas when the organization does not conform to ethical principles. The report is a brief outline of an ethical dilemma faced by a banker in his job scenario. As a banker in a reputed bank there are plenty deliverables that are expected. Often these rise to clash of interest in ethical dilemmas as, the organization might expect performance in various fields which may trigger an action that gives rise to ethical questions. The report analyses the case of “bubble” in the financial industry in the United States in 2008  and HSBC hedge fund money laundering ethical issues, faced in order to develop an in-depth understanding of the concept of ethical dilemma in banking (Russell, 2012). It is the values that are an integral part of an individual can play a predominant role in determining where the action performed is morally acceptable or not.

The banking industry is a very prominent commerce activity that involves very high volume of cash related transactions. Every bank has access to individuals, businesses, group’s cash and other monetary instruments. Due to the involvement of monetary instruments and finances it is required that banks and its employees follow an ethical code of conduct and morale behavior. Banks has the morale responsibility to handle and manage the cash or cash equivalent of the customers as ethically as possible, but in many case this has not been conformed to leading to ethical dilemma. Banking organization’s shareholders often have the intention to run the bank in a profitable mode even at the cost of negative impact on customers. Bankers who operate at the interface between the organization and the customers have to provide and sell various products to their customers even if the requirement is not present. When a customer is made to purchase a product that does not have a good credit rating then it can result in substantial financial losses. This affects the morality and faith of the customer giving rise to distrust in the banking system.    

Recommendations and Conclusion

In 2008 the savings and loan (S&L) crisis in the United States was followed by financial meltdown of the industry. The crisis was formed due to bankers utilizing automated credit rating system in evaluating various portfolio investments, especially in real estate. Upon the returns from the real estate investment failing, there was a “bubble burst” and customers who had invested were unable to get appropriate returns and ended up getting losses. Bubble burst meaning, the investments that was reflected in various portfolios with the returns were no longer valid as the returns from them had been misinterpreted (Russell, 2012). This resulted in loss of the banker’s client and banks face value, indulging in ethical dilemma. As a banker it is a moral responsible and principle to provide customers with products post evaluating the various credit policies. The bankers generally charge their fees for such evaluation and knowledge regarding various monetary papers. Shareholders of these banks are interested that bankers sell high brokerage earning products such that the bank’s business can be boosted. But high brokerage earning products may result in customer paying in high expense ratio. Thus bankers in order to meet their monthly or quarterly targets towards the bank often need to influence customers into buying such high expense ratio products. A banker with moral and ethical orientation, who has strong values will face the ethical dilemma as to whether conform to his monthly targets given by his senior managers where his job and promotion is at stake or sell a high cost product to his loyal customer. Selling the high expense ratio to the customer might result harm done to the customer and losing him as well. Conforming to meet the shareholder’s expectation is a view that was proposed by Martin Friedman (1970) (Ferrell, 2015). He highlighted that a business has a moral obligation to support its shareholder’s. Hence there are no social obligations of business to adhere to ethical principles. As shareholders have substantial investment in the bank and functioning of the business, hence expectation from the banker is that he must diligently abide by the organizational goals and value system. This behavior is a contrast to ethical principles but is a popular view that causes ethical dilemma.

Many researchers argues that business derives considerable benefits from the society hence has the morale obligation and duty to serve it as well and do no harm to it. Freeman (1984) proposed that businesses do have the moral responsibility to deliver to ethically responsible behaviors (Razaki, 2012). According, to his postulates the banker should not provide any unethical products to the customer that might cause harm and result in greater loss for the society. As in case of HSBC hedge funds where investments from customers had been invested in several portfolios overseas (Naheem, 2015). The funds were invested in portfolios that had no significant credit history but it was sold by luring customers in favor of the high returns they could generate. Upon the funds failing to perform the customer’s money was lost and HSBC was sued for the case of money laundering. Several bankers from across the world sold these funds to their respective customers. In case of the fund failing to deliver the returns several large amounts of funds that came from charity organization was also lost. These charitable institutions invested the money to do greater benefits for the society, to help underprivileged children, to help the old and ailing and so on. Thus, a bankers effort in selling an inappropriate fund to the charitable organization impacted the society as a whole. Is the bankers moral principles and ethical guidelines would have stopped him from selling such a product then there could be a positive impact on the society. Amongst all the bankers some bankers in the bank also sold more of low cost products against the high cost products, in order to meet their targets. In this case the bankers strived hard to achieve the result and did not adopt an easy way to achieve the target as the positive value system in the banker won over the ethical dilemma situation. In this case the bankers evaluated in favor of the positive impact that a banking system could create against the negative products (Woiceshyn, 2011).

The ethical dilemmas arise due to conflict in interest amongst banker’s personal value system and the bank’s value system. If banks are able to follow ethically and morally responsible behavior then bankers would be facing less of ethical dilemmas. In the example, if they had over-ruled selling of the product which had high cost then the ethical dilemma for the banker would not have risen. Hence businesses need to follow proper and morale ethical codes of conduct such that employees in a job in the organization do not face ethical dilemmas (Rossouw, 2013).

Recommendations and Conclusion

Individuals and businesses at every point face ethical dilemmas but the morals, value system and ethics helps in determining the actions and their subsequent effects. An ethical and sound judgmental decision will help create a positive impact on the society as well as on the broader community. Negative ethical judgments might create several negative impacts including long lasting impression on the brand and individual which is difficult to remove. Corporate social responsibility is an innovative area for business to be able to create a balance between ethics and profitability. Corporate responsibilities can be applied by businesses in order to align communal, business motives. Therefore when a business applies CSR then the individuals who are employed in the organization it will be easier for them to apply and work in ethical practices. CSR practices results in less ethical dilemmas and conduct in businesses that are socially responsible in nature. Hence banks should apply CSR norms and strategies in order that bankers face less ethical dilemmas.

References

Ferrell, O. C. (2015). Business ethics: Ethical decision making & cases. Nelson Education.

Razaki, K. A. (2012). Ethics: the soul of a business capstone course. . Journal of Academic and Business Ethics, 1.

Ritter, B. A. (2006). Can business ethics be trained? A study of the ethical decision-making process in business students. Journal of Business Ethics, 153-164.

Rossouw, D. &. (2013). Business ethics. . Oxford University Press.

Russell, K. D. (2012). Ethical Dilemmas in the Financial Industry. . Case Studies in Organizational Communication: Ethical Perspectives and Practices: Ethical Perspectives and Practices, 35.

Woiceshyn, J. (2011). A model for ethical decision making in business: Reasoning, intuition, and rational moral principles. Journal of business ethics, 311-323.