In a world where each person wishes to pursue his or her self-interest and maximize their satisfaction, having ethical boundaries becomes extremely important. Similarly, a business environment requires a set of ethics so that each person’s rights are safeguarded, and people are not subject to treachery, fraud and physical / mental harm. Many of a times, certain ethical decisions need to be taken, but it means that the organization would have to forgo some short term profits. Complying with ethical standards can offer significant benefits to the organization; firstly it builds a positive organizational culture which translates into a favorable public image for the company. It boosts customer sales by attracting many customers, hence huge profits are earned. It reduces employee turnover by making employees want to stay in the company, and it increases their productivity.
Since the company will portray a positive image, it can become an employer brand by attracting more people to seek employment in the organization thereby, reducing recruitment costs by a great amount. Unethical business practices and failure to take initiatives as part of corporate social responsibility may harm a firm’s reputation in the industry and, as a result, profits can take a sharp downturn. Business ethics must be adopted as an integral part of the organization; compliance with the code of ethics can be an important contributor to the business’s overall success. Therefore, companies should make sure that all of their employees know what type of ethical behavior is expected from them, this should be communicated through a well thought out code of conduct and ethical guidelines document. Moral behavior can be encouraged through reinforcement, which means that for every illegal act or behavior that may be termed as unethical, severe penalties should be charged, and superior performance should be rewarded and recognized.
There have been several instances of unethical and fraudulent behavior at the workplace. A similar trend can be noticed in the transactions conducted in Wall Street, where many stakeholders are concerned with maximizing the money they make even if it comes at the expense of their clients. The success and progress of the clients are not taken into consideration. There exists much public suspicion regarding the Wall Street culture of focusing on short – term gains. According to Greg Smith of Goldman Sachs, those who only care about making money are less likely to sustain their businesses and maintain trust with their clients. (Scwartz) The ever famous financial market has always managed to make high profits; however shareholders and other market players should possess foresight and an aim to achieve longer term gains, which is reflected in Gus Levy’s words “with long term greed, money was made with clients, not from them." (Bailey)
A survey was recently conducted by Labaton Sucharow, a law firm that indicates that ethical business practices are on the rise in Wall Street. A total of 250 professionals from different finance related fields were the respondents in the survey. (Pavlo) A substantial amount of individuals engages in unethical business practice in order to make profits and have an edge over competitors. A major problem is ‘insider trading’ which is the cause of such practices. Employees do not know how their organization would react if they report wrongdoing, therefore many just remain quite. Similar instances of such dilemmas were seen in the Galleon Group case and can currently be seen at SAC Capital. Both companies having compliance departments failed to flag insider trading activities.
It is fair to say that maybe Wall Street has lost its moral compass because there is now, what can be referred to as a tsunami of scandals. Many surveys and studies have been conducted on this area and findings demonstrate that many people have first-hand experienced wrongdoing at their workplaces. In a rather quite brazen scandal at Wall Street, a number of famous and large banks were involved such as Bank of America, Citigroup, HSBC, JP Morgan Chase and Royal Bank of Scotland. (Stout) They were all investigated for manipulating the interbank lending interest rate, Libor that is the basis of interest charged on loans and credit cards. Behavioral science suggests that those who work in the financial services field become ‘criminogenic’ which means they are more likely to engage in illegal activities and resort to unfair means of making profits. The case of Rajat Gupta, Director of Goldman Sachs, who was a renown philanthropist who was in recent times convicted of being involved in an illegal practice of insider trading. Another case occurred at MF Global where a sum of more than $ 1 billion funds just disappeared. (Stout)
Rajat Gupta’s case of insider trading is said to be one of the biggest insider trading cases in the history of USA. Mr. Gupta allegedly shared confidential information with Mr.Rajaratnam relating to $5billion investment by Berkshire Hathaway Inc in Goldman Sachs. He also disclosed some non-public financial information about Goldman Sachs’ quarterly financial results for the year 2008. The SEC filed a civil complaint against him in 2011 for insider trading with Rajatranam of Galleon Group and also Anil Kumar of McKinsey, whom Gupta had known from before was also involved in the case. In 2010, Gupta was arrested by the FBI in Newyork City but he pleaded not guilty and got released on the same day after paying $10 million bail. Rajat Gupta’s trial began on 22nd May 2012, in June of the same year he was found guilty on account of 3 criminal charges involving conspiracy and security fraud. The FIB’s wiretap recordings of the telephonic conversation between Rajaratnam and Gupta were analyzed in great detail to assess the standing of the prosecution and defense. Following the verdict, Gupta was imposed a fine of $92.8 billion for insider trading charges, he was also sentenced to 10 years imprisonment followed by a 1 year supervised release which is the longest ever sentence in such a case. In addition to these, he was commanded to pay $5 million as a criminal fine. As of July 2013, Gupta was charged with $13.2 civil penalty. In addition to the above, he was permanently banned from becoming an officer/director of a public company and also barred from engaging in any transactions with dealers, brokers, investment advisors, etc. ("Rajat Gupta fined $13.9 million for insider trading")
In today’s world where everyone is involved in pursuing his or her self-interest, instances involving ethical breach are increasing at an alarming rate. People now choose personal gain over morals; shortcuts over worthwhile and properly thought out solutions. However, those who take ethically wrong decisions are now faced with major legislation and lawsuit; they are faced with adverse publicity and press coverage as the example above shows. This eventually leads to declining sales and profits in the long run. Therefore, the bottom line is that leaders should inculcate ethical and moral accountability in their organizations as such measures will reap rewards in the longer run. (Robins)
Works Cited
Bailey, Sebastian. "Business Leaders Beware: Ethical Drift Makes Standards Slip." Forbes. Forbes Magazine, 15 May 2013. Web. 30 June 2014. <http://www.forbes.com/sites/sebastianbailey/2013/05/15/business-leaders-beware-ethical-drift-makes-standards-slip/>.
Pavlo, Walter. "Survey Says 'Wall Street Is Facing An Ethical Crisis'." Forbes. Forbes Magazine, 18 July 2013. Web. 5 July 2014. <http://www.forbes.com/sites/walterpavlo/2013/07/18/survey-says-wall-street-is-facing-an-ethical-crisis/>.
"Rajat Gupta fined $13.9 million for insider trading." The Hindu. N.p., n.d. Web. 6 July 2014. <http://www.thehindu.com/news/international/world/rajat-gupta-fined-139-million-for-insider-trading/article4927746.ece>.
Robins, Ron. "Business Ethics." Business Ethics RSS. N.p., n.d. Web. 30 June 2014. <http://business-ethics.com/2011/05/12/does-corporate-social-responsibility-increase-profits/>.
Schwartz, Nelson D.. "Public Exit From Goldman Raises Doubt Over a New Ethic." The New York Times. The New York Times, 14 Mar. 2012. Web. 30 June 2014. <http://www.nytimes.com/2012/03/15/business/a-public-exit-from-goldman-sachs-hits-a-wounded-wall-street.html?pagewanted=all&module=Search&mabReward=relbias:s%2c[%22RI:5%22%2c%22RI:18%22]&_r=2&>.
Stout, Lynn, and Jordan Thomas. "Column: How Wall Street creates criminals." USATODAY.COM. N.p., n.d. Web. 5 July 2014. <http://usatoday30.usatoday.com/news/opinion/forum/story/2012-09-04/wall-street-scandal-crim/57585822/1>.
