Current Ethical Issue in Business
Current Ethical Issue in Business Angela Fraley, Jill LaLonde, Susan Kunz, Klay Gardiner PHL 323 Aubrey Weekes October 17, 2011 Current Ethical Issue in Business Several factors account for the changes in the way business is conducted today. Factors such as increased global competition, economic conditions, technology, electronic commerce, workforce diversity, and ethics have played a significant role in how business is conducted. How a company conducts itself as a business and a corporate citizen is critical to its success. Investment clients of Mr. Madoff operated using both relativistic and entitlement ethics systems.
Within the trading business, many organizations exist to monitor and hold traders accountable. The financial system in the economy is not well, which makes this a scary situation thinking that it could happen more. Mr. Madoff did not have the best interest of those he was working with in mind as he just was looking out for himself and making large amounts of money. Ethical business behavior, “behavior that is consistent with the principles, norms, and standards of business practice that have been agreed upon by society” (Trevino & Nelson, 2007, p. 19) is necessary to maintain order and progress within society.
The ethical system at work with Bernard Madoffs scheme was an entitlement-based ethics system. Mr. Madoff showed little to no regard for others affected by his actions, yet focused totally on his own best interest. He “ran the business along antediluvian lines: clients and feeder-fund managers were denied online access to their accounts” (“Economist,” 2011). The level of secrecy was irresponsible and deceptive, leaving his clients in the dark about the unethical decisions made. Mr. Madoff’s investment clients operated using both relativistic and entitlement ethics systems.
Although many were advised against investing because the suspicions of wrongdoing, few spoke up, going along with the elements of self-interest and what others were doing in the investment community. Investors who were aware of Mr. Madoff’s inappropriate dealings did not seem to mind because “they thought he might be trading illegally for their benefit” (“Economist,” 2011). Within the trading business, many organizations exist to monitor and hold traders accountable. Advisory firms and quantitative-research firms had identified red flags in Mr. Madoff’s business strategy, few listened.
The trading business itself turned a blind eye choosing greed and profit over transparent honesty. Due diligence was disregarded and the Securities and Exchange Commission failed to monitor Mr. Madoff’s business despite complaints from many sources. Had Mr. Madoff’s dealings been monitored and his business practices screened by financial firms, the negative impact could have been reduced. As it stands, the alleged fraud may have a price tag of more than 50 billion dollars, numerous lives of investors and their families are impacted and the court system will be occupied sorting through the expected litigation.
In this case, Mr. Madoff’s investors in addition to the industry management organizations had a responsibility to be engaged with the business. Did the investors ask questions about the business strategy before decided to align with Mr. Madoff? Did they insist on information sharing and transparency about the business decisions made? Did the managing organizations evaluation Mr. Madoff’s performance? Was there a disciplinary strategy in place to manage the wrongdoing? Everyone involved had a responsibility to behave ethically; problem is each group appears to have been operating from different ethical systems.
Ethical dilemmas can be destructive to organizations if the business is not aligned, accountable, and operating within the agreed upon behavior and decision-making criteria. The application of these ethics has a far reaching effect on individuals, organizations, and society. The positive outcome is slim, but does present an opportunity for change. With fund mismanagement occurring, lack of management and accountability adding to the damage, it has forced the industry and government to enforce rules that exist and create laws needed to protect investors in the future.
Bernard Madoff managed what appeared to a hedge-fund shop, he was managing client money in brokerage accounts within his firm. Similar to Merrill Lynch or Smith Barney would. Many of Madoff’s investments came from funds of funds, which invest in pools of hedge funds and was channeled to Madoff via “feeder funds” with which he had special relationships. Madoffs reputation was excellent, he was a highly regarded and sought after investor. He was considered a pioneering market maker; he had chaired NASDAQ, had advised the government on market issues, and was a noted philanthropist.
Madoff made his business appealing and exclusive, many people were turned away but those were not instructed not to talk to outsiders. He generated unbelievable, but consistent returns in the vicinity of 10% a year, through thick and thin. This consistent return percentage made his investment firm attractive for investors, especially prominent American figures such as Steven Spielberg and the New York Mets baseball team who invested millions in Madoff’s firm (Economist, 2011. ) Even in the worst of markets, Madoff claimed gains in his trading but most others lost.
He confessed that these false gains were attained by creating a pyramid scheme in which existing clients’ returns were topped up, as needed with money from new investors entering the investment firm. With new investor’s money and the banks “feeder funds,” Madoff created the largest ponzi scheme in history, essentially stealing upwards of 50 billion dollars from his investors. Madoff’s investment business was overseen and audited regularly. The Securities and Exchange Commission (SEC) is tasked with investigating and examining illegal trading practices.
In Madoff’s case, The SEC failed to carry out any examinations despite receiving complaints from investors and rivals for over a decade. Being a successful veteran on Wall-Street, Madoff was close to several SEC officials. Madoff’s niece, his firm’s compliance lawyer, married a former member of the team that had inspected the market making division’s books in 2003—though there is no evidence of impropriety (Economist, 2011. ) Madoff liquidated his stock holdings every quarter, most likely to avoid reporting big positions.
Madoff ran the business in a secretive and blurry fashion: he denied clients and feeder-fund manager’s online access to their accounts. Even more worryingly, Madoff cleared his own trades with no external custodian or oversight. Madoff’s investment firm was audited, but by a tiny firm with three employees, one of whom a secretary and another 80-year-old based in Florida (Economist, 2011. ) Transparency would be the foundation of an elaborate prevention plan. This would cause major business conflict because of the business’s practices and would be in jeopardy from a prescriptive approach it would be beneficial to parties involved.
For instance the National Football League lockout, if the team owners were to open their books and business formats to the players, the players could take the business format a create their own league excluding the team owners. That argument could have reframe transparency, but the deal was if there was substantial business transaction debt the owners agreed to open the books and explain. Dealing with stocks and investments transparency would guarantee the knowledge of the operations of any particular business.
Acquiring the knowledge of a business’s operation would allow an investor to make an ethical choice to take on the investment or pass on it. “Transparency International’s policy and research work rigorously analyses the many aspects of corruption and searches for practical actions to combat it – globally, nationally and locally” (Transparency. org). In the case of Madoff, if transparency was involved with parties they would bring their books and formats to the table therefore portions could not be hidden or falsely reported.
Psychologically this approach would help ease the mind of investors and investees. The prevention plan would require an implementation plan that everyone by a certain date would be in agreement. The plan would also have to be communicated and explained to the parties involved. If any party does not follow any part of the agreed transparency plan they cannot take part in the investments. The party also can be dropped or lose investments. Incorporating business audit firms eligible to the books and formats to parties will help keep the honesty and ethics within the business deal.
Short term measurements involving the transparency plan would come with many arguments and very little to show because of the conflict it may cause because of parties and their different business plans. Fear for their strategies and other means of their business will be in question. Long term measurements could give the business world the results that they need, which is no more cases of Bernard Madoff and prevent scams of this nature from happening. Within the trading business, many organizations exist to monitor and hold traders accountable.
Ethical dilemmas can be destructive to organizations if the business is not aligned, accountable, and operating within the agreed upon behavior and decision-making criteria. Even with Madoff receiving audits, he was still able to run the business in a secretive and blurry fashion. Factors such as increased global competition, economic conditions, technology, electronic commerce, workforce diversity, and ethics have played a significant role in how business is conducted. Madoff created the largest ponzi scheme in history, essentially stealing upwards of 50 billion dollars from his investors.
References Transparency. org. (n. d. ). Policy and Research. Retrieved October 17, 2011, from Transparency International: http://www. transparency. org/policy_research Trevino, L. K. , & Nelson, K. A. (2007). Managing business ethics: Straight talk about how to do it right (4th ed. ). Hoboken, NJ: Wiley. Www. economist. com. (2011). Retrieved from http://www. economist. com/node/12818310/print Www. nypost. com. (2011). Retrieved from http://www. nypost. com/p/news/local/bernie_late_payment_kXkQMORJfKETl3H8MiKhnN
