Understanding Ethics and Morals

Overview of Ethics

• Ethics are values and standards that guide behavior
• Ethics change with right and wrong standards, not personal needs
• Common ethical values: Accountability, fairness, honesty, loyalty, reliability, trustworthiness.
• Ethics defined: Rules for groups/professions, moral principles, morals study/choices.
• Morals are society's habits established by right and wrong standards
• Moral principles are based on reason and not changed by authorities, but underpin decisions.
• Ethics involves behavior examination and decisions based on moral principles

Ethics Versus Rules

• Ethical behavior differs fundamentally from rule compliance.
• Rules and regulations in an industry establish the standards that participants are required to adhere to.
• Rules may lead to unethical conduct, and cannot encompass every circumstance.
• Ethical behavior requires moral judgment applicable in any situation
• It transcends prescribed conduct and addresses situations lacking explicit or clear rules.
• Ethics requires adherence to the law and its spirit.
• Securities industry ethical behavior is founded on ethical theory and principles
• The regulatory environment includes the rules and needs of provincial securities regulators, and self-regulatory organizations (SROs).
• Industry rules coupled with accepted practices set a standard for ethical behavior.
• RRs are expect to take proper care using independent professional judgment
• Conduct yourself with trustworthiness and integrity in all dealings
• Encourage business to be done in a professional manner
• Maintain professional knowledge
• Act in accordance with the securities act by observing the requirements of all SROs
• Confidentiality of client information is a must

Relationship Between Values, Ethics, and The Law

• Values inform life goals, influence decisions, mirror importance of people, money, work, leisure, family, ourselves and others
• Core values shift, but rarely change drastically as we grow old
• Ethics are morals that govern behavior with a personal ethical stance built on personal values
• Societal ethics are built on cultural values.
• Laws aren't synonymous with ethics, but are contained within society's ethical sensibility
• Laws are based on shared values allowing people to live creatively rather than destructively
• Rules/laws deal with legally sanctioned behavior
• Ethics is concerned with the effect on others, encouraging collective living
• Lawmakers address actions important to society
• Violating these actions result in serious consequences
• Ethics addresses day-to-day relationship, such that society benefits socially
• Ethical behavior isn't synonymous with legal compliance
• Laws lay out behavior and responsibility parameters, set standards for allowable behavior
• Legal system requires proof/evidence, attempts to define behavior in black-and-white
• Laws may be outdated, deficient, or absent
• Without ethics, legal deficiencies allow strictly legal behaviour that is also highly unethical
• Accounting, corporate governance, and accountability laws have been created to deal with the fraud in these sectors
• The law held little importance for those professionals who were not inclined to behave within ethical boundaries
• Companies basing standards on law compliance could have lower profits and more liabilities
• Ethical firms identify core values, creating an ethical atmosphere grounded in core values
• The standards comply with applicable laws and promotes higher compliance levels
• Minority shareholder rights are a good example of the legal-versus-ethical dilemma
• A company's preferred shareholders can legally hold only 10% of share offering and have voting say of the company's actions
• Common shareholders have a financial stake without a say in the activities
• This unequal distribution is challenged as unfair and unethical and may lend itself to conflicts of interest

Values Awareness

• Integrity, trust, honesty, and competency are prized values in the securities industry
• Core values justify the industry's self-regulation
• An RR lacking any value is compromised, jeopardizing the industry
• Values enter into company decisions based on knowledge, education, and life experience
• Value is not easy to define, while meanings different it provides important guidelines
• Values are beliefs providing guidelines for both individuals and companies
• Common characteristics of values: Beliefs, not facts, long-lasting but not fixed/unchangeable
• Values guide goals/behavior on personal and corporate levels.
• A personal value system guides ethical stance/behavior, forms life goals, influences actions taken to achieve goals
• Understanding personal values is crucial.

Values Clarification

• Challenged values create an uncomfortable sense
• Awareness of value system helps navigate predicaments
• Value-guided actions are more likely, even in new situations
• Lack of awareness leads to wrong decisions
• Values clarification is becoming aware of values driving decisions and behavior
• Lack of understanding in value system will be influenced by what psychologists call unconscious drives
• They influence life perception, desires, actions, with two types of values: end values and means values
• Values that define personal goals years away are end values
• Actions taken today to achieve goals are directly influenced by means values.
• End values includes a sense of accomplishment, service to people, security, a world at peace, and social recognition
• Means values include ambition, openness, or competence
• A unified value system is where end values and means values mutually reinforce and support each other
• Trouble occurs when values do not align

Importance of Values to an Organization

• Every organization should be guided by a set of values that communicates to all its members what the company stands for
• Whether explicit or implied, values constitute the essence of the organization's spirit and leadership philosophy
• Organizations publish values in a mission statement intended for public use and internal policy manuals
• Statements creates an expectation among the employees to live up to the company's ideal
• The ideal firms strive for in the financial services industry is ethical behavior where trust can flourish
• The term used to describe this ethical climate is tone at the top
• Tone at the top should filter through the organization
• Employees must communicate the firm's guiding beliefs to every other member
• Statements helps harmonize firm values with daily activities giving employees direction
• Additionally, it is used to encourage ethical behavior without physically being present

Benefit of Value Statements

• A sense of common direction for members and guidelines for daily behavior
• Creates social energy that moves the organization into action
• Provides a framework for making any ethical decision
• Generates a sense of stability and continuity in fast changing environments

Importance of Values to Individuals

• Everyone should have a philosophy to provide direction and give meaning to life
• An ethical practice rests on value awareness
• Knowing what core values are allows you to hold them consciously in place as you live
• Clearly defined core values influence ability to interpret situations, ability to relate with others, perception of success and ethical behaviour
• In addition, a value system as a self-aware person will provide moral courage to resist when pressured to do wrong
• You absorb the values that influence society from infancy

Importance of Values to Society

• Societal values influence how humans think/act
• Agrarian and Industrial Revolutions brought new social problems causing ethical norms to break down
• Focus is shifted to the individual, and is seen as more important than a group phenomenon known as the "me generation,"
• The mentality was supported by ethical relatives
• Ethical relativism states that there's no moral principle that governs behavior
• Everything is personal/situational and requires redefining values/actions
• Research states cultures accept universal principles of write and wrong
• World religions teach same moral principles: Do not lie, steal, kill, practice immortality.
• Commonly held worldwide principles includes love, truth, fairness, freedom, unity, tolerance, responsibility and respect for life
• Universal principles make up legal system and industry standards of conduct.
• The individual's right to do what they want regardless of the consequence must be constantly challenged.
• Securities professionals must understand client interests are important over there own

Motives and Behaviour

• Ethical managers stress that their organization's profits must be from ethical actions
• A firm/employees must comply with society's norms when exceeding legal standards
• They must comply with society's expectations of fair competition, respect for life, property, and the environment
• Responsible behavior requires satisfying compliance- and integrity-based requirements
• Narrow adherence to the law erodes a firm's reputation
• Ethically tuned employees may do the right thing with right/wrong reasons
• Managers, respect employees by paying less attention to the reasons behind actions, more attention to actual ethical behavior
• Employee motive is fear of punishment, respect for authority in relation to concern to society's rights
• Exemplary can be a result of self-gratification or duty of care
• Good behavior which makes the ethical choice is what matters
• Employee motives are unimportant for organization
• As investors demand a say in how companies are run, new governance models are emerging, with implication going beyond legal compliance
• Directors, executive liability and governance relates to ethical issues
• Proactive business cannot afford to ignore ethical matters

Case Study - Garret Example

• Garret directed trades to Block Inc. run by Mark
• Block's order pricing is less competitive but supplies free research
• York analysts questioned Garret's Block use
• Mark recommends Garrett's advisory to Block's clients in return
• Garret has not disclosed this arrangement to York or clients
• Mark charges a higher access fee, 80% use research while 20% do not
• Garret wonders if it proper to charge fee to clients that do not use research, while Mark see no problem
• The industry and codes do not permit withholding info that are materially relevant or recommendations
• Garret faced conflict with clients paying but not using
• Representatives are responsible for identifying/addressing those conflict
• If conflicts can't be avoided, conflicts must be disclosed where reasonable

Ethical Dilemmas

• Ethical dilemmas arise when humans are faced with two more choices to make an ethical issue
• Ethical decisions can be right-versus-wrong issues of right-versus-right dilemmas
• Right-versus-wrong, the ethical choice is obvious because the other is wrong
• Ethical dilemmas occur when beliefs regarding the right way, core values, are in conflict. A decision-making process can help the situation

Case Study - Murray Example

• Murray has been an RR with Catskills for past 25 years, but firm was taken over by Wealth Makers Inc. (WMS) that specializes in serving high-net-worth
• WMS implements a new policy of RRs for 100 clients. RRs must meet targets or leave
• Murray wants to stay with the firm despite the restriction.
• A number of his elderly clients rely on him who are not large revenue producers
• If they left it is unlikely they could find someone to manage in the same way
• Morale needs to only keep 90 clients in order to meet high productivity
• A few major clients opened small accounts for teenaged children to dabble in the market
• If he closes them, parents could close it out too for future heir assets
• A handful of day trader accounts are generally dormant but when market is active commissions occur
• Analysis of complex ethical problems that means Murray must meet his high account quota of 90
• He only has 10 extra accounts available
• Each choice he faces has it's own correct answer and no answer is thoroughly wrong
• Murray must identify which of a value are in conflict by professional and financial well beings
• A course of Murray's making must be considered through act
• Actions could also be against one another, creating right-opposite wrong characteristics
• With right-versus-wrong, there is only one right course of action, mainly concerned in the codes of ethics
• Situations are not back and white while also showing conflicting right choice when action is possible
• Murray has entered a grey area where his core values are present is each decision

Dilemmas

• First step of resolving dilemma is recognizing it as one
• Possible choices involve elements of right in each and have confusing demands
• Paradigms in section show methods of looking at dilemmas and evaluating various nature
• Types of dilemmas vary but categorize from the values of of loyalty, integrity and promises
• If you recommend product to client, and is asked if it is the best kind on the market and there are products that perform better with a higher return
• Loyalty will support the in-house product, while truth shows there are products that exist with higher results Individual-versus-group - Rights of few versus rights of many
• Should I offer shares of new issue to your best customers only, or from all represent the bigger group Short-term-versus-long-term - Needs/desires are in relation to long term goals
• Supposed client wants to invest in a security, should you allow or refuse as it doesn't suit long term goals
• Fairness, equity and righteousness conflict with compassion, empathy and love when considering the value Justice versus mercy
• Employee has been working long during busy period and must take seminar for educational courses and decided to take web course and gets answers from coworker
• Do you allow her take seminar or disciplined them publicly for cheating

Ethical Decision Making Process

• Recognize that there is a moral issue
• Determine whose moral issue it is.
• Gather the facts.
• Test for right-versus-wrong issues.
• Test for right-versus-right paradigms.
• Apply the resolution principles.
• Make the decision.
• Reflect on the process.
• Murray looks to identify whether his actions serve clients properly
• Determining who is responsible for decision making
• Acceptable of consequences is crucial of the decision making ethical act
• Garret must perform Murray's decision questions by owing duty of situtation, and policy make sure the elderly are being looked after
• Three Test has shown he is acting professional and the firm Three Tests to figure out right versus wrong issues:
• Legal test Is it Illegal or Against Industry rule breaking
• Front page test Would your public image be affected
• Moms test People who matter opinion will take action

Identifying Right/Right Paradigm

• Truth versus loyalty
• individual-versus-group dilemma,
• Short term versus short time,
• Justice mercy is involved

Apply Solving Principle

• Which brings you the greatest good for greatest cause
• Which results in rule following of the same circumstances
• The goal here create a connection with the group of support
• Show actions affect the welfare of that said group This then lead to making the choice of taking all previous steps and making sure to perform all task
• Support duties and action plan All steps taken must be considered to prevent dilemmas in future crisis.