The Finance Ethics Journey: A Traveler’s Guide



MOOCS script Finance Ethics definition, importance and promotion

In my Business Ethics and Finance Ethics classes, case studies are the most effective way of teaching. From my lectures I have encountered the following biggest financial and accounting scandals that have shaken the industry. Probably, we are more familiar with celebrated cases like AIG, Lehman Brothers and Enron. But may not be aware of the following examples all around the globe:  First, Satyam Computer Services of India, where they padded revenue by US$1.5 billion; Second, Waste Management, Incorporated, an American waste management and disposal services company who increased after-tax profits by US$1.7 billion; Third, Petrobras Incorporated, a Brazilian oil company who removed US$2 billion of bribery-related cost; and Lastly, Worldcom Incorporated, an American telecommunications company who inflated assets by as much as US$11 billion.


Given its importance, Finance Ethics can be promoted in academic institutions, particularly Business colleges by including information on courses related to business and Finance Ethics during freshmen orientations, aside from discussing the college’s code of conduct and ethical practices. In Business Ethics courses, which are more common than Finance Ethics, Business colleges can also include case studies or discussions with regard to ethics in the financial industry. Academic institutions can also invite academic scholars and industry practitioners that specialize in business ethics to share their knowledge and professional experiences. And the best the Business colleges can do is to create, at the very least, an elective Finance Ethics course.


Professors teaching Finance Ethics should reiterate the balance among what’s legal, ethical, and profitable. It has always been the case that businesses should be profitable in order to survive, compete, expand and extend efforts to being ethical and socially responsible. However, going above what is legal and becoming ethical often sacrifices a certain degree of profitability, thus, negatively affecting shareholders’ wealth. I always remind my students that even if maximizing shareholders’ wealth through increasing profits is the main objective of every business organization, and should be pursued at the very least in a legal way, companies should still strive to increase wealth in an ethical manner to have a more holistic approach in having good relationship with various stakeholders. 


Another important topic is dealing with conflict of interest and moral hazard. Conflict of interest, in most cases, is a strong manifestation of moral hazard (i.e., taking more risks because others will take the burden); and are best demonstrated in the financial services industry particularly in stock brokerage firms and investment houses. I tell my students that in the future, they will be facing a situation wherein multiple interests are at stake – their professional duties, company earnings, client satisfaction, government regulations and other related interests, even including supplier benefits. Through my case studies and lecture discussions, I teach my students how to balance these competing interests by employing these techniques:

  • upholding professionalism and following their job descriptions to save them from legal repercussions in the future; this also includes ensuring clients that they are qualified to do the job by showing professional competence and integrity;
  • maintaining proper disclosure and open communication with superiors, clients and related parties if there are perceived deviations from their job descriptions or contracts signed; this also involves maintaining confidentiality as a way to prove one’s trustworthiness to clients;
  • foregoing a business opportunity is sometimes best if it presents high conflicts of interest, and if it means taking risks to the detriment of the client.


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