Transcript Business Ethics - FIU College of Business

State Farm Financial Literacy Lab
(FIU)
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A philosophy that deals with values relating
to people’s conduct when it comes to the
rightness and wrongness of their actions, and
the goodness and badness of the motives of
such actions.
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Objective: Examine ethical principles and/or
ethical problems that arise in the business
environment
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Actions taken and decisions made by
businesses affect:
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Managers
Stockholders/Investors
Employees
Customers
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Businesses, as well as individuals, behave
unethically out of self interest and to the
detriment of others.
◦ greed
◦ “cutting corners” to save money
◦ Profiting from being untruthful
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scams
false advertisement
False reporting (accounting)
Tax evasion (illegal)
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Same ethical principles apply to financial
institutions as they do to other businesses
(large or small)
A major motivation in many cases of
unethical business practices is short-term
profit
◦ seeking to beat quarterly estimates
◦ however, in order for a company to thrive and
maintain viability, long-term goals are more
important than short-term gain
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Deregulation of the banking system
◦ Started in the 1980’s
◦ Commercial banks, investment banks, and other
financial institutions had less restrictions in what
they were allowed to do (i.e. investment, banking
activities)
◦ Deregulation had its upsides, but it also allowed
greed and fraud to run rampant
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Financial institutions lent more money than they held
in their reserves. This extraordinary lending did not
discourage lenders because these loans were being
sold to investors for a profit
◦ This was in the short-term interest of the individual lenders
because they knew they were going to make a profit
despite the risk involved Sub-Prime Mortgage Meltdown
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Home prices were rising to record levels. These
elevated home prices warranted more borrowing
(loans).
Many investors were convinced that real estate value
would continue to appreciate and would never
depreciate. They saw this as an opportunity to invest
in these popular securities (mortgage backed
securities) being sold by investment banks.
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In the financial world, a scam that pays early
investors returns that are taken from the
investments of later investors
Named after Charles Ponzi
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Representation of a company’s performance
and forecasts given to investors.
◦ How truthful is “truthful enough”?
◦ “fudging numbers”
◦ Where should expenses be allocated?
 Different allocations will give different representative
figures to investors.
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Corporations not only have an obligation to
company performance in order to satisfy
stockholders, but also an obligation to
society as a whole
◦ BP Oil Spill
◦ Toymakers’ producing safe/non-toxic toys
◦ Car makers selling cars with effective brake pads
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There should always be constant review of all
business activities
Management should make sure employees
understand the company’s ethical standards
◦ Seminars
◦ Meetings
◦ Tutorials
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Managers should think of the BIGGER picture
◦ How will this decision affect other stakeholders? To
what extent? In the area of conducted business
activity, what are the widely accepted moral
principles?
“be ethical”