Where is the business ethics compass taking us? Sometime in the early days of WWII, scientists and engineers perfected the gyroscope, a brilliant invention that kept bombers on a keen and even course so that they could maintain a proper compass heading. I wish someone had invented an ethical compass, 
because it looks as though many in business are in the process of losing control.
In an article by Kevin McCoy for USA Today (July 16, 2013) entitled: “Survey questions Wall Street ethics,” the author summarizes the results of the very latest ethical questionnaire disseminated to 250 Wall Street financial professionals. If the results of the findings hold true, I am afraid our ethical bomber is headed for a very rough landing.
Among the results Mr. McCoy reports:
• More than half of the respondents felt it likely their competitors had engaged in unethical or illegal activities.
▪About one-quarter of respondents felt their very own co-workers had committed unethical acts.
• About one-quarter admitted they would engage in illegal insider trading to make $10 million if they could get away with it.
• Nearly thirty percent said they believed financial services professionals may need to engage in unethical or illegal activity in order to be successful.
Casting the “Madoff Stone”
As McCoy points out, “Michael Santoro, a professor at Rutgers University Business School, and Ronald Strauss, an assistant professor at Montclair State University School of Business, concluded that ‘no amount of structural reform and government regulation will ensure the stability of the global financial system unless the ethical practices and values of Wall Street professionals are aligned with market efficiency and the public welfare.’”
I would agree. Though we have seen many pieces of legislation enacted to help protect us against elaborate Ponzi schemes and other ethical misfires, it is just not enough. The survey respondents, the very same individuals who, I am positive will pound podiums and pontificate over the terrible crimes of people such as Bernard Madoff have committed, are really not much different than Mr. Madoff himself.
Let’s examine the last of the bullet points I included above; the fact that close to 30 percent of financial service professionals believed that they had to engage in unethical or illegal activities in order to be successful. My first question is: how many millions or even billions of dollars does this represent? Whether one “professional” defrauds an investor of $200 million, or 10 “professionals” defraud 20 investors of $10 million each, does it really make an ethical difference?
A pension fund defrauded of $200 million is pretty serious stuff; a crooked financial advisor intentionally defrauding a middle class family of $20,000 is also catastrophic. The point I am making here is not an issue of the size of the “theft,” but of intent.
Financial fraud need not be a sophisticated scheme. It can be as simple as putting a client into an investment the advisor knows will fail (simply to gain commissions) or even poor insurance policies sold to clients with hefty kick-backs to the advisor.
How Do We Right the Compass?
It does come down to the public welfare and it does come down to an ethical transparency. It should not ultimately rest on layers of government regulation, but of professionals doing the right thing. Nevertheless, even I am not naïve enough to believe that sitting 250 financial professionals in a conference room on ethics training for eight hours will completely change the mindset.
While I believe ethics training will help, I also believe that the very language of Wall Street; the descriptions of investments, advanced knowledge of risks, the need to create better firewalls and much more disclosure must be put into play.
If, as the study suggests, nearly 25 percent of respondents know of someone within their companies who they believe committed unethical acts, should there be a firm system in place where the unethical person can be reported to a third party for investigation? Why should the majority be penalized for the lack of ethics of a minority?
Should financial professionals be subject to randomized review by an agency? Can’t be done? Well, we have randomized drug testing for athletes, inspection of food service establishments, randomized sobriety test stations and even automobile emissions testing.
Perhaps the compass needs to be made right by all of those who have been wronged. When recognition that the public welfare is far more important than rewarding greed we will be well on our way to solving the problem.
YOUR COMMENTS ARE WELCOME!
