Ethics and Sustainability
9ETHICS AND SUSTAINABILITY
Ethics and Sustainability
The financial sector is a fundamental component of today’s society especially due to its function in generating growth and development. However, its success is under the threat of continued cases of fraud and unethical practices from the employees to the customers. Without strong policies to correct the lost confidence of the public in the sector, and unclear structure of the norms, the financial industry continues to receive high disapproval from the society. Fortunately, there is the law and the financial regulators to monitor the conduct of business and ensure no self-interest by the employees serving the various finance sectors occurs.
The challenge in the industry is to balance its central role to the society while maintaining ethical standards without impeding its goal of serving the public for the greater good. Therefore, there is need to identify an appropriate alternative to the solution and select the most useful in managing honesty in the sector. It is my belief that the structuring of an active CSR policy will not only align personal values to that of the company but also create a transparent system with quality ethical practices.
Table of Contents
3Table of Contents
4Honesty in Finance
6Alternatives to Address Dishonesty
Ethics and Sustainability
Business ethics and sustainability are common topics in the corporate world, as organizations face ethical dilemmas while choosing strategies for achieving sustainability (Richardson, 2009).The finance service industry is a fundamental part of our world today, especially since all industry has a finance department. According to Boatright, finance is a vital force directing personal, economical, political and social development (2013, p. 2). The vastness of the industry makes it prone to massive unethical practices, particularly influenced by the numerous financial opportunities possible. Therefore, it is necessary to discuss the issue about honesty as an ethical practice mostly abused in the finance sector. In particular, it is important to understand how the lack of honesty affects different stakeholders in the industry. Much as there are multiple alternatives to address the issue, the question remains on what are the major and most preferred solutions.
Honesty in Finance
According to Huddart and Qu, the lack of honesty and ethical observance in finance is not only a result of the pursuit of self-interest but also a psychological and social issue (2014, p. 1). About the psychological motivation to be honest or dishonest, Huddart and Qu identify moral development as an influential force leading to moral reasoning. In moral reasoning, there are three particular stages including pre-conventional, conventional, and post-conventional that direct decision making. Pre-conventional reasoning links with self-interest that drives the person to act in a dishonest or honest manner. Comparatively, conventional identifies with the particular social norms, while the post-conventional model aligns to personal principles (Huddart & Qu, 2014). A comparison of the three mechanisms, about the observance of honesty indicates that conventional design provides the greater force in managing the behavior of an employee. Therefore, the issue of dishonest in the financial industry is to a greater extent an outcome of a weak conventional reasoning in the particular setting. The social aspect develops from conforming to peer influence especially in engaging in dishonest conduct. In an environment lacking well developed and outlined social norms, the workforce is more affected by the unethical practice of dishonesty.
Fraud cases undermine the level of reliability in the finance department (Cohn, 2014). However, research into the causes of dishonesty reveals a negative correlation between the business culture employed in the various financial sectors. Moreover, arguments presented by Cohn et al. identifies the personal financial situation as a contributing factor that may influence persons working in a finance department to engage in acts of dishonesty(2014, p. 86). The study according to Cohn et al. identifies the various impacts of dishonest practices including gaining a bad reputation (2014, p. 88). In particular, the top management loses control of its power when the employees continually engage in the act. Consequently, the managers are forced to ignore the practice as a means to prevent greater chaos in the firm. Comparatively, about the impacts to the customers, high-end client suffer fewer losses compared to the low-income individuals in much need for financial assistance. Usually, a majority of people contributing to the development and growth of the finance industry are low to middle-income people who often procure loans and credit. Therefore, with the increase in dishonesty, the marketing of financial services to the target population becomes quite a challenge, especially resulting from the decreased level of confidence in the public (Cohn et al., 2014).
Alternatives to Address Dishonesty
To respond to the growing deterioration of honest conduct in the financial sectors, Cohn et al. recommend the structuring of relevant norms that align with the professional identity of the business (2014, p. 88). The use of rules provides appropriate background for all employees to compare their behavior to those considered proper and ethical in the firm. Moreover, the in setting norms, there should be an inclusion of signing an oath analogous to those in use in other fields such as medical fields. The establishment of an oath in the profession acts to motivate the professionals to observe ethics when performing the duties assigned regardless of the temptation or social pressures.
Ethics training is also an important area that promises an effective reduction in unethical behavior. Cohn et al. support ethical training as a means to prompt the employees to consider the impacts of dishonesty to the greater society and influence their reformation (2014, p. 88). In line with the training, use of ethical reminders promotes the observance of correct behavior. Nevertheless, the challenge in effecting the reminders is the sophisticated analysis in identifying where and when the company needs to provide the specific reminders. Moreover, it requires a careful study of the work schedules to determine where the workers are prone to make dishonest engagements so as to set the appropriate reminders (2014, p. 88).
Baker and Dellaert identify the use of financial regulatory services as an alternative method for reducing the consumer exploitation by the financiers (2017, p. 1). In particular, the current move to include a lot of automation in service delivery with the example of robo-services generates new kinds of worries in managing a fraudulent free financial market. Therefore, there is a need for the regulators to develop more enhanced scientific solutions, psychological and behavioral practices that meet the trends in the market (2017, p. 3). In respect to the research, the development and fitting of the robo-advisors with the effective mechanisms to monitor dishonesty and provide better advice to the consumers, the financial regulators are in a better position to eliminate unethical practices including the cheating (Baker & Dellaert, 2017).
It is evident that the application of Corporate Social Responsibility (CSR) mechanisms substantially assists a firm to reach greater potential in ethical standards and practices. According to Martinez-Ferrero, Garcial-Snachez, and Cuadrado-Ballesteros, the use of CSR in financial reporting inclines companies to less unethical practices and encourages more social responsibility (2015, p. 45). It is my view that the application of the CSR model will provide more transparency among the different stakeholders and manage real decision making. In particular, it is an efficient tool in communicating about profits and their sources to the shareholders (2015, p. 46). Consequently, with open communication, the presence of dishonest conduct becomes eliminated in fear of exposure. However, the CSR should align to the company’s Financial Reporting Quality (FRQ) so as to provide transparent information to the public that speaks highly of the ethical standards of the firm(2015, p. 49). I also believe that the provision of CRS in the company will enable the employee to align their individual behavior, values, and practices to that of the enterprise. As a result, the possibility to conform to negative behaviors will significantly reduce.
In summary, it is evident that the financial sectors are facing serious ethical dilemmas on issues to do with honesty and achieving confidence of the public. The industries need to effect cognitive mechanisms to curb the spread of dishonest conduct within its branches. Therefore, adopting current technology in robo-advisor is necessary as the system provides more transparency. Moreover, it is important to utilize the power of CSR in an organization, especially in its abilities to promote the observance of ethical behavior. Among other provides alternatives, the use of robo technology and CSR achieve a greater confidence to the public which is vital to the continuity and sustainability of the industry.
1. The use of robo-advisor.
2. Application of CSR to achieve the greater confidence to the public.
3. To maximize the utilization of the financial regulatory bodies in investigating cases of unethical conduct.
4. Set norms.
5. Teach ethics to employees.
Baker, T. and Dellaert, B. G., 2017. Regulating Robo Advice Across the Financial Services Industry. Draft for BU FinTech Program, pp. 1-35.
Boatright, J. R., 2013. Ethics in finance. John Wiley & Sons, Chic ester, UK.
Cohn, A., Fehr, E. and Marechal, M. A., 2014. Business culture and dishonesty in the banking industry. Nature, vol. 516, no 7529, pp. 86- 89.
Huddart, S. J. and Qu, H., 2014. Rotten apples and sterling examples: Moral reasoning and peer influences on honesty in managerial reporting. PENN State, pp. 1- 52.
Martinez-Ferrero, J., Garcial-Snachez, I. M. and Cuadrado-Ballesteros, B., 2015. Effect of financial reporting quality on sustainability information disclosure. Corporate Social Responsibility and Environmental Management, vol. 22, no. 1, pp. 45- 64.
Richardson, B.J., 2009. Keeping ethical investment ethical: Regulatory issues for investing for sustainability. Journal of Business Ethics, vol.87, no.4, pp.555-572.