Overview of Ethics

Overview of Ethics

• Ethics are values and standards guiding individual behavior, shaped by right and wrong, not personal need.
• Ethics include accountability, fairness, honesty, loyalty, reliability, and trustworthiness.
• Ethics is defined by rules governing a group/profession, moral principles/values, and the study of morals and individual moral choices.
• Morals are societal conduct rules based on perceived standards of right and wrong, underpinned by reason but not changeable by authorities.
• The chapter treats ethics as a continuous examination of behavior within the context of moral principles.

Ethics versus Rules

• A fundamental difference exists between ethical behavior and compliance with rules.
• Rules are followed because people must, not necessarily because they believe it's right.
• Acting unethically is possible even when complying with rules, which cannot cover every situation.
• Ethical behavior requires internal moral judgments, addressing situations where rules are unclear or contradictory.
• Ethics involves compliance with the spirit, compliance with the letter of the law
• Ethical behavior in the securities industry is based on ethics theory and ethical principles.
• The industry's regulatory environment comprises provincial regulators and self-regulatory organizations (SROs).
• Industry ethics involve taking care, using independent professional judgement, and acting with trustworthiness, integrity, honesty, and fairness:
• Dealing with the public, clients, employers and colleagues
• Conducting business professionally
• Improving your professional knowledge
• Acting in accordance with the securities act
• Knowing your SRO requirements
• Maintaining client confidentiality

Values, Ethics, and the Law

• Values are individual/cultural measures of the worth of ideas/behavior, informing life goals and decisions, reflecting importance of people, money, etc.
• Values shift but rarely change drastically.
• Ethics are moral principles governing behavior with personal ethics built on personal values and societal ethics built on cultural values.
• Laws are commonly contained within and grow out of society's ethical sensibility by promoting predictable actions by adhering to common values.
• Rules and laws relate to legally sanctioned behavior, whereas ethics describe relating to other people
• Ethical behavior is not synonymous with legal compliance.
• Laws set parameters/standards, while ethics may exceed the law
• Legal systems define behavior in black-and-white, can be outdated/deficient.
• Deficiencies in the law in the absence of ethics allow for legal but highly unethical behavior.
• Accounting laws, corporate governance, and accountability measures have undergone changes due to inadequacies and fraud.
• Companies solely basing their standard of compliance with laws may have lower profits and greater environmental liabilities.
• Identifying ethical atmosphere grounded in core values norms that meet the mimimum compliance is beneficial.
• Minority shareholder rights are a legal-versus-ethical dilemma example.
• Preferred shareholders can legally have minimal share but high voting control.
• Common shareholders can have financial stake with no company say

Value Awareness

• Integrity, trust, honesty and competency are values prized by securities industry professionals.
• The securities industry justifies self-regulation by expressing core values.
• Compromised values puts reputation of securities industry at stake.

The Nature of Values

• Value awareness encompasses the concept of values within the securities industry.
• Values impact decisions and are rooted in knowledge, education, and life experience.
• Satisfaction varies regarding values, but they guide individuals/companies.
• Values are beliefs, long lasting - not fleeting - but not fixed, and guide goals/behavior personally/corporately.
• Your personal value system guides conduct in daily actions.

Value Clarification

• Challenged values create discomfort, and awareness of value systems assists navigation in such situations.
• Acting in accordance with values comes form knowing core values and navigating unfamiliar locations, whereas wrong decisions can damage reputation.
• Becoming aware of values driving decisions/behavior is called values clarification; a lack of clarity can mean decisions are influenced by unconscious drives.
• Values influence perception, life goals, and actions meeting those goals.
• End values define personal goals, and means values directly influence the actions that achieve those goals.
• A unified value system reinforces end values.
• Corporations/people encounter problems when means values misalign with end values, emphasizing why value clarification is critical.

Importance of Values to an Organization

• Goals must be guided by our values, not other way around and personal/corporate objectives must not dictate process.
• Organizations need values communicating what entities stand for, creating essence of spirit/leadership philosophy.
• The distilled values appears via mission statement which sets expectations its employees live up to.
• The financial services industry strives for ethical behavior to flourish, called tone at the top.
• Tone at the top must filter down, every employee must communicate the firms values.

Importance of Values to Individuals

• Explicit value statements harmonize day-to-day statements via clear employee standards.
• Statements also enable to encourage ethical behavior.
• Explicit statements benefit common direction, social energy, framework creation, stability amidst rapid changes.
• Everyone needs a philosophy to guide life.
• At the core are beliefs needing central justification.
• Your ethical approach requires awareness of core values or justification, this will give direction and meaninng to lfie.
• Thus, essential question during value clarifications is ‘What are my core values?’

Clearly Defined Values

• The ability to interpret situations, make decisions, and solve problems
• Your perception of other people and your ability to relate well to them
• Your perception of success
• Your perception of ethical behavior
• A value system provides moral courage to resists acting opposite what is believed to be wrong
• Values guide our lives.

Importance of Values to Society

• Individuals embody societal values influencing thoughts/actions.
• Revolutions brought breaks downs in ethical norms.
• The ethical relativism supports the individual
• Ethical relativism denies a universal moral behaviour, advocating situation specific actions

Ethical Relativism

• Understanding the individual helps to focus ethical behavior because it helps lead to individual needs before community needs, this creates catastrophic events
• Ethical relativism gives those in positions of power to act for their own benefit
• This behavior is an extremist stance with moral relativistic, with the worst traits leading to:
• I know how the market works
• My client is unsophisticated
• What am I to do now?
• This is only OK is I get benefits, as long as I’m not caught
• Factually, cultures accept underlying values that help promote right and wrong

Ethical and Moral Principles

• Do not lie, steal, or kill
• Do not practice immorality
• Respect parents and love children
• Found common principles world wide.
• These are often the following:
• Love
• Truth
• Fairness
• Freedom
• Unity
• Tolerance
• Responsibility
• Respect for life
• Industry based standards and conduct are based upon there principles
• It is crucial that moral principles have high importance and that every individual acts in a manner so clients interests come first
• The industries concepts of duty of care and fiduciary duty helps clients interests over the RR’s.

Motives and Behaviour

• A firm must comply to standards that are not beyond legal
• This ensure high compliance, and integrity-based firms have good reputations
• Ethics includes managers to do the right thing for the right and wrong reasons
• Regardless of reasoning the ethical choice should be made

Ethical Decision Making: Garret

• Investors are demanding more say, and the ethical issues go beyond legal compliances
• GARRET, portfolio manager at York Investments directs large trades to BLOCK Inc, a small securities dealer run by Mark, his old classmate
• Block is not very competitive except for the free research.
• Garret is not in touch with the client base, but Mark has the means to transfer knowledge
• Garret can access Marks clientele
• Garret wonders if he should charge the research fee for clients, as Mark sees no problem with it.
• Garret is not allowed to withhold information - Garret’s and Mark conflict

Ethical Dilemmas

• Ethical dilemmas arise when facing two or more equally challenging choices for an ethical decision
• Not all ethical decision-making involves an ethical dilemma
• 2 Categories exist
• Right vs wrong issues
• Right versus right dilemmas

Murray Dilemma

• When deciding between right vs wrong, the choice is obvious
• Dilemmas occur when core values are in conflict
• WMS wealth management requires RRs to effectively implement policies, and productivity
• RR Murray only wants high net worth clients due to company incentives, and account restrictions, but loyalty remains with all of their customers
• Elderly - No revenue
• Major - Dabble in the market
• Handful - Day Traders
• Murray doesn’t’ meet WMS’s high productivity requirement

Analysis on Murray

• Murray has an ethical dilemma to only use top accounts to meet productivity targets, or have spaces for clients
• Obligations must be equal
• First step is resolving which conflicts are related

1. Professionalism
2. Financial Wellbeing
3. Fiduciary Responsibility
4. Integrity

Right vs Wrong Issues

• Choices must be illegal, or have consequences and values shared that define right vs wrong
• One course of action is set, and codes of conduct, ethics and compliance policies are the main type
• Most cases aren’t. always black and white, more gray

1. Senior clients must have responsibilities
2. The short term to drop unprofitable clients
3. Financially vs the financial well being of the clients

• Decisions enter the grey shade, where the main choices must enter the shaded regions

Right-Versus-Right Dilemmas

• The most important step is to find and recognize the dilemma itself
• Actions are correct in alignment, but all needs cannot be meet for satisfaction
• We break down dilemmas into paradigms

Dilemma Types and Examples

• Truth vs Loyalty: honesty clashes with commitment, such as recommending an in-house product that’s not the best on the market
• Individual vs Group: rights of the few conflict with rights of the many, such as allocating new shares of an excellent investment
• Short Term vs Long Term: immediate needs counter future goals, like a client wanting to invest in an unsuitable security short term.
• Justice vs Mercy: Fairness conflicts with compassion, like disciplining an employee vs. having mercy and telling her to avoid further cheating

Ethical Decision Making

• Ethical process must take time

1. What are their best moral issues
2. Who must it effect?
3. Make gathering facts.

Recognize There Is Moral Issue

• Must look at actions in your own lens
• How can I act in a difficult situation

Determine Whose Moral Issue Is?

• Step is critical
• The individual who must make all the decisions
• Who must accountable for the outcomes
• The responsible, takes the full heat

Gathering of Facts

• Must be in 3rd person per se
• To whom the duty is
• Policy will follow, but senior client looks at their best

Testing and Knowing Results

In testing for a right-versus-wrong issue:

• Legal Test
• Front Test
• Mom Test
• No options are set unethical. If you determine that that one choice is right, stop the proceeding of taking the incorrect action

Test For Right-Versus- Right Paradigms

At this step, determine if core values are in conflict, per se

• Should the truth be told, even if you are not on the team?
• How can individuals be versus the large group?
• Should short term be long term?
• The choice can change elderly clients.

Apply The Resolution Principles

• In problem solving, the following must exist:
• Ethical thinking must take place
• Rule based is great for others
• Must have harmonies interactions
• Has everyone been considered?

End Based Ethical Thinking

• Weighing out all good, bad, to minimize problems for parties involved.
• Not all outcomes have the option to fit

Rule-Based Ethical Thinking

• Universal principles are critical.
• Have all parts need to benefit if the situation can’t’ get universal support.

Make a Decision

• In decision review the previous steps must fall into place
• None should be to wrong
• To apply make sure everything falls under its respective place.

Reflect On Process

• Reflection in the process
• If things might arise that are a problem after the business ends