Jack Stauber 1

FIN 635
11/15/23
Ethics In Finance

1. Briefly discuss two positive arguments on why ethics is important in financial decision
making.

Ethics is important in financial decision making because it discourages and

prevents bad behavior from happening in the first place. With proper procedures and
policies in place there will be less incentive to do bad when good behavior is awarded.
Such bad behavior includes fraud, accounting manipulation and or artificially raising
prices to an unsustainable level to squeeze out as much profit as possible from your
customers. If incentives are misaligned and employees are encouraged to do bad in
order to make the most profit, then there is an organizational problem that must be dealt
with from top to bottom. With proper incentives that follow universally accepted morals
and values along with a healthy level of consequences to enforce it, this will help to
prevent or discourage negligence and will lead to more effective communication when
mistakes are made. If mistakes are known then proper care can be given to solve root
problems but if organizational problems are kept under wraps then it’ll only be a matter
of time before the situation implodes on itself.

To expand on what I said before, when you adhere to ethics in finance you
promote sustainability within your organization including externally with your supply
chain, business connections and transactions leading to a better reputation with
customers and creating a legacy that people will respect. This of course can lead to
more sales, more influence/power and a legacy to be proud of. When you build trust with
your customers and your customers understand the quality of materials they are buying,
how it’s made and “other attributes of quality” that your brand is selling they will be more
likely to let their friends and family know leading to more “effective and economically
attractive financial transactions and policies.” Ethics can also lead to greater team
building and more collaboration between participants which can lead to more effective
outcomes and process excellence when agile and creative responses to problems are
encouraged and reciprocated. By keeping promises and building trust between you and
the stakeholders you not only build a good reputation and conscience but you are setting
a higher standard that promotes good behavior everywhere you go leading to a better
society.
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2. Under the topic of “For whose interests are you working”, which school of thought makes
more sense to you? Briefly explain.

When considering the options, I find myself falling in line with the 2nd option
because while it is true that stockholders are important to consider, “stakeholders” also
have an important role in the businesses success. The first school of thought makes it all
about the stockholder but the problem with that line of thinking is that it devoids the
impact that other constituents have in the overall success of an organization and that
without the employees, the customers, suppliers and the community in which it serves,
the business would not be as successful. While I admit that it would be hard to meet the
needs of all groups, it is important to at least acknowledge their existence and focus on
the most concerned stakeholders on specific issues that have the greatest impact on our
operations.

By focusing on the stakeholders and not just the stockholders you have more
opportunity to grow your business, you can build a stronger reputation, have a greater
impact in the communities you serve and achieve greater long-term success. Creating
the most shareholder wealth is more attainable this way because when you strictly focus
on the “stockholders” it comes with a lot of problems that tend to focus more on
short-term gains rather than focusing on good business practices that actually solve
certain issues and usually ethical sacrifices are considered to meet those short-term
demands.

3. What does Warren Buffett think of ethics? Among the three schools of thoughts
regarding “right and wrong”, is he more likely to define right and wrong as
“consequences”, “duty or intention”, or “virtue”?

When considering the different options, Warren Buffet is more likely to define
right and wrong as a “virtue” rather than as a consequence or as a duty/intention
because Warren Buffett is not the kind of person to focus on consequences or duty
because he doesn’t bound himself by staying within compliance or limiting himself to
certain rules and regulations instead he does what he believes will yield the greatest
results and is consistent with taking action that is closer to being a virtuous person. This
perspective takes on the idea that “personal happiness flowed from being virtuous, and
not merely from comfort (utility) or observance (duty).” It focuses on personal pride and
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acknowledges that vices are corrupting. It considers the qualities of the practitioner and
whether or not certain actions that the individual took would make them proud if they
followed through with it and if it were reported in the newspaper would it make them
proud? This comes directly from Warren Buffett himself who “issues a letter to each of
his operating managers every year emphasizing the importance of personal integrity.”

He argues that financial losses can be afforded but not losses in reputation since
respect must be earned through one's hard work and be maintained which is much
harder to do than in earning profits. However in saying that there were two main
objections that were raised in the book. The first being that a virtue to one person may
be a vice to another. People hold different values, cultures and societies behave and act
differently and virtues can change over time. As a result virtue ethics may be
context-specific and have a lot to do with the environment that you grew up in and that
you currently reside in. However, in saying that, certain frameworks can be developed
through asking questions such as these. "How will my actions affect others? What are
the consequences? What are my motives and my duty here? How does this decision
affect them? Does this action serve the best that I can be?" These are all very good
questions that can lead to being a more ethical practitioner.

4. Briefly discuss how you could promote ethical behavior in your workplace.

There are a number of ways to promote ethical behavior within our firm. The first
is by adopting a code of ethics to get everyone on the same page to promote a shared
vision along with creating certain policies and procedures in place that can encourage
participation to lead to better outcomes and discourage unethical behavior. Systems can
also be set up where employees can anonymously let management know that there is a
problem. It is argued in the book that “observing guidelines in order to reduce liability is a
legalistic approach to ethical behavior” and instead firms should adopt an “integrity
strategy” that incorporates and implements actionable plans along with creating systems
that uses ethics as the driving force within a corporation. This creates deeply-held values
that become the foundation for decision making across the firm integrating business
functions with ethics.

A few other ways to promote ethical decision making is to promote and

encourage discussions within your team and firm. This can be done through seminars,
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modules, and proper training in ethical reasoning. Also if the leaders bring up ethical
developments and encourage reflection through informal discussions like during a lunch
or coffee break then it helps reinforce that it is an important topic of discussion that
needs to be addressed. Lastly it is important that in confronting a problem of ethics in a
team or organization, that you follow a “hierarchy of responses” through first addressing
the dilemmas, asking specific questions to seeking coaching for these issues and
reflecting on the dilemmas eventually whistle blowing if necessary. Firms can offer
whistleblowers assistance through internal ombudsperson, anonymous reporting
systems, or through independent 3rd parties before it gets leaked to outside sources.