coralgables-sh.enschool.org · Web viewSarah and Jose were considered subprime borrowers. Their credit score was low and they had a limited ability to cover their monthly living

AOF Principles of Finance

Lesson 11Ethics in Finance

Student Resources

Resource Description

Student Resource 11.1 Scenarios: Ethical Dilemmas

Student Resource 11.2 Reading: Ethics in Finance

Student Resource 11.3 Defining Format: Ethics Terminology

Student Resource 11.4 Analyzing: Ethics Scenarios

Student Resource 11.5 Planning: Response to an Ethical Scenario

Student Resource 11.6 Reading: Effective Business Email

Student Resource 11.7 Writing: Response to an Ethical Scenario

Copyright © 2009-2015 National Academy Foundation. All rights reserved.

AOF Principles of FinanceLesson 11 Ethics in Finance

Student Resource 11.1

Scenarios: Ethical Dilemmas Directions: With your group discuss your assigned scenario and come to an agreement on how to handle the situation.

Scenario 1: The CoworkerPortia works as a cashier at Farrell’s Department Store. Last week, she witnessed one of her coworkers take some money from one of the registers and put the money in her purse. The coworker is a really nice person, a single mother supporting three small children. She has often spoken to Portia about her financial problems. What should Portia do?

Scenario 2: The TestIt’s time for the algebra midterm. Sanjay has been studying hard, at least one hour each night for the past week. On the morning of the exam, his good friend John asks him if he can sit next to Sanjay in class and copy some of the answers. Sanjay knows John is struggling with algebra and may not pass this class. What should Sanjay do?




Reading: Ethics in FinanceOn March 19, 2006, Sarah and Jose Parker were told that they could borrow up to $350,000 to purchase a home! They had no idea they could or would qualify for that amount and now so many homes—homes that they thought were out of their price range—were suddenly available to them. As first-time homeowners, they qualified for the interest-only, no-down payment, no-documentation loan! Their mortgage broker smiled as he told them the news.

Sarah and Jose were considered subprime borrowers. Their credit score was low and they had a limited ability to cover their monthly living expenses. Their broker was offering an adjustable rate mortgage, which meant their mortgage payment would change. Sarah and Jose knew that, but the initial rate was really low, so it would be easy for them to pay the mortgage. In a couple of years, they’d probably be making more money at their jobs, or they might even be ready to move out of the house. Besides, the bank knew what it was doing, right? It wouldn’t approve them if they couldn’t afford the payments.

That sounds good, but it’s not always that simple. The mortgage broker was probably expected to close a certain number of deals every month, and he knew that if he didn’t give a mortgage to Jose and Sarah, another institution would. Anyway, he thought, Sarah and Jose must know what they’re agreeing to, and they’re the ones who signed the paperwork.

Sarah and Jose got their loan and bought their house. Meanwhile, their mortgage was bundled into a mortgage-backed security. Mortgage-backed securities bundle together thousands of mortgages into a security people can invest in, allowing investors to make money off other people’s mortgages, the same way they make money by investing in stocks. These securities allowed banks to offer more mortgages, and many institutions started to lower their requirements for qualifying for a mortgage. While Sarah and Jose might not have qualified for a loan a few years ago, now they could get a bigger loan than they expected.

Sarah and Jose, like many people in similar situations, soon found themselves with a mortgage they could not afford to pay. They ultimately stopped paying back their loan and lost their house, as did thousands of others. The value of mortgage-backed securities dropped dramatically, which caused problems for the investment banks and other institutions that had relied on those securities. All of this led to one of the largest financial meltdowns in history.

The subprime mortgage crisis is just one of the many events that have shaped society’s perceptions of the finance industry. In fact, it has been described as the result of one of the greediest business practices by financial organizations and their management in history. Predatory lending practices, uneducated consumers, greedy professionals, light regulations, and loose money have all contributed to this financial catastrophe. Stories such as Sarah and Jose’s are common, and each one seems to undermine the public’s confidence in financial institutions and the professionals who are employed in the industry. Considering the level of trust that the public places in these individuals, when you place your money in the hands of a financial planner, insurance agent, mortgage broker, or banker, you have an absolute right to expect them to behave ethically. Keep in mind that the main purpose of a business is to make money. Even if you want your business to change the world, cure cancer, or invent the next great technological breakthrough, it needs to make money to keep going, and―unless it’s a not-for-profit organization―it needs to make enough money to earn a profit. However, sometimes the pursuit of profit leads people into unethical behaviors. Let’s look at some examples.

If the goal of a business is to make a profit, then a bigger profit is better, right? If the main purpose of a business is to make a profit, what happens when the goal (profit maximization) goes against an individual’s sense of right and wrong? An individual’s desire to do the right thing can become clouded by the desire to make a profit. This is the case with Sara and Jose’s mortgage broker. His goal was to lend them the money so his company could earn a profit through their fee, but making



that profit caused him to override any misgivings he felt about encouraging Sara and Jose to buy a house they could not afford.

If it’s legal, then what’s the problem?Some things are not illegal, but they are still unethical. Samir works as a broker. His company offers many securities, including some that are very risky investments. That is not illegal: some people enjoy taking risks with their investments. Now imagine that the company is offering a big bonus to the broker who sells the most of their high-risk security product. Samir knows he is one of the top sellers, but he’s not sure if he’ll get the bonus unless he signs up one more client. His next client is an elderly woman who relies on her investments to pay all her bills. Legally, Samir could sell her the high-risk product, but ethically it is not the right thing to do.

Pressure from other people can affect ethical choices.Have you ever been in a situation where your parents agreed to let you do something fun, as long as your chores were done or your grades were okay? It put pressure on you to accomplish the task, didn’t it? As an adult, you may feel similar pressures from colleagues, bosses, clients, or investors. Pressure can help you do your best, but sometimes people make unethical choices in order to live up to other people’s expectations.

Marta is an accountant preparing taxes for her biggest client. This year, the client is going to have to pay more taxes, and he’s not happy. He tells Marta to make up some fictitious business expenses to reduce his tax liability. Marta hesitates. The client tells her he will take his business elsewhere if she doesn’t do as he asks. Marta is feeling pressured to behave in an unethical way.

Although ethical issues are prevalent in any business, unethical practices from the finance industry seem to make the headlines more frequently. From working in the industry to buying financial products and using financial services, almost everyone is affected by the finance industry. Because of its size and its importance to society, sometimes the media paints a pretty grim picture of the finance industry's ethical lapses. However, most finance industry professionals are honest people who are trying to help their clients reach their financial goals.

Codes of Conduct and RegulationsThere are many different approaches for dealing with ethical problems in the finance industry. They range from individual companies establishing their own ethical codes of conduct to nationwide regulatory agencies such as the SEC (Securities and Exchange Commission), the Federal Reserve System, the FDIC (Federal Deposit Insurance Corporation), and FINRA (Financial Industry Regulatory Authority). Many professional associations have also set up their own rules of good conduct. For example, the American Institute of Certified Public Accountants and the Association for Investment Management and Research are both professional associations that have published codes of ethics. All of these entities help to ensure ethically responsible behavior within the finance industry.

Whether you’re the consumer of a financial product or service or someone who works within the industry, one of the best ways to protect yourself from ethical lapses is to be informed. If you’re an employee, you should be familiar with your company’s code of ethics and abide by it. You should also be aware of the process by which unethical or illegal actions are reported and strive to do what is best for all parties involved. As a consumer, you should always do your research. Know the product that you’re buying or the service that you’re requesting, ask the right questions, and above all, be informed!




Defining Format: Ethics TerminologyStudent Name:_______________________________________________________ Date:___________

Directions: The following table provides you with definitions for the terms ethics, morals, values, and lawfulness. Carefully read each term, its category, and its characteristics.

Term Category Characteristics

Ethics is a set of moral standards that

1. is based on the conventions and rules of the society in which one lives.

2. relates to right and wrong conduct.

3. governs a person, business, and society.

Morals are a system of principles or judgments that

1. guide a person’s or a group’s standards of behavior.

2. are defined by an individual, society, philosophy, and/or religion.

3. are concerned with the goodness or badness of human action.

Values are deeply held beliefs that

1. guide people or groups to make decisions.

2. help people evaluate what is good, right, and appropriate.

3. are accepted and honored by individuals and/or groups.

Lawfulness is a behavior that 1. is determined by societal institutions.

2. requires decision makers to resolve issues by applying legal rules.

3. is enforced for the general good.




Analyzing: Ethics ScenariosDirections: Your teacher will assign you one of the real-world ethical scenarios below. These are actual situations that the three companies in the scenarios recently faced. With your group mates, you will do the following: 1) review the real-world ethical dilemma, 2) discuss the dilemma and identify the parties involved, and 3) consider what the breach of ethics is.

Scenario 1 According to a 2015 lawsuit, M&T Bank, one of the nation's largest banks, is accused of discriminating against black, Latino, and Asian homebuyers. The bank offered less-qualified white buyers higher loan amounts. The bank is also accused of steering homebuyers to certain neighborhoods based on their race or ethnicity, which violates the Fair Housing Act of 1968.

Scenario 2 Apple is one of many companies accused of exploiting US tax loopholes. Between 2009 and 2012, the company had income of approximately $30 billion. Apple did not file income taxes or pay any income tax to the US government between 2008 and 2013. Like many large US companies, it exploited differences between tax policies in different nations. For example, Apple funneled much of its income through an Irish subsidiary (where the income was also not taxed), even though the company ran the subsidiary from its California offices.

Scenario 3 A 2012 factory fire in Bangladesh killed more than 100 garment workers. Bangladesh is the second-largest apparel exporter in the world, exporting $18 billion in clothing per year. The country also has some of the lowest wages in the world. In the aftermath of the large factory fire, working conditions were questioned by people around the world. The Gap is one of many companies to have its clothes made in Bangladesh—both before and after the large fire.




Planning: Response to an Ethical ScenarioStudent Name:_______________________________________________________ Date:___________

Directions: Now you will have the opportunity to analyze the ethical scenario you were assigned from Student Resource 11.4 and develop recommendations for how the CEO should address the issue in the company's ethics handbook. You will begin by taking notes on your ethical situation, then you will search online for articles relevant to your scenario and the company discussed. Use the additional information you find online to improve your notes. Next, you will work with other students to analyze your scenario and come up with recommendations to give to the company and CEO. Do a complete and thorough job with this assignment so that you’re prepared for the email-writing activity to follow.

Individual Work

Scenario Number:

Describe the ethical challenge. What were the circumstances in this situation?

Who are the stakeholders? (Any person or group who was involved.)



Group Work

How should the business respond?

How might the business prevent the problem in the future?

Other factors to consider:

(Make sure to think about whether this is unethical AND illegal, or legal but unethical!)




Reading: Effective Business Email

This presentation covers the following topics:

• Why email is a useful medium for communication

• When not to use email

• The basic rules of email etiquette



Email is one of the most commonly used methods of business communication. Research has shown that most employees spend at least two hours each day on email.

Some of the advantages of email:

• It is quick and easy. Tracking down someone by phone or in person could take you hours; sending an email takes minutes.

• It allows you to communicate with many people simultaneously. Companies can send out marketing emails to thousands of customers at once, and a manager can deliver information to his or her entire team at once.

• It leaves a trail so the history of a conversation can be tracked. Sometimes we need to revisit a discussion. Unless a phone call is recorded, it’s not possible to do this by phone or in person. Email lets you go back to the information hours, days, or even months later.

• It can be used 24 hours a day regardless of where the recipient is. For example, if your customer is in Japan and you are in New York, you can email that person at any time of day without having to worry about what time it is there and whether or not the person is available.

• It is efficient. Unlike phone and face-to-face discussions, small talk is not necessary; in fact, it’s not good etiquette to include unnecessary information, like small talk, in a business email.



There are disadvantages to using email:

• Email is not private. The recipient can easily forward your email to anyone. Not only that, but email may sit in somebody’s inbox, or even trash, for years for anybody to read. For confidential, private discussions, it’s best to use the phone or talk face to face.

• Once you’ve sent an email, it’s out of your control. If you send an angry email, you might regret what you said once you’ve cooled off, but there’s nothing you can do to take it back.

• Email is usually not appropriate for really big news—negative or positive. For example, imagine getting an email that says the president of the company just resigned. Or the company was bought out by a larger company. Or even that you are getting a promotion. Some news is so important that it requires a live person to deliver it so the recipients can interact, ask questions, and so on.

• If a matter is urgent, don’t use email. You can’t expect everyone to check email throughout the day, every day—particularly if that person is traveling, or if the person does not have a full-time job that requires being at a computer most of the day. If the matter is urgent, make a phone call or find the person to discuss the matter.

• Sometimes emails don’t get read. They end up getting caught in a spam filter or accidentally deleted, and your information never reaches the recipient.

• Just like big news, sensitive matters need a personal touch. If an issue with a customer or an employee requires prompt, sensitive action, use the phone or find the person for a face-to-face discussion.



It is said that the French King Louis XIV’s gardener put up signs, or étiquets, to keep members of the nobility from walking on the grass. Nowadays, the word etiquette means the set of manners that are appropriate for a certain situation. There’s etiquette for dining, socializing, letter writing, email writing, and much more.

Etiquette is based on the situation you are in; business etiquette is different from appropriate behavior in your personal life. Think about it this way: you wouldn’t dress or talk or behave on a first date the way you would dress, talk, or behave when you’re just hanging out at home with your family. In the same way, how you write an email to your friends or family is not how you would write an email to your boss.



If you are using an email address for your job, your employer has a right to monitor how you use that email address and what kinds of emails you send.

Would you want your boss to see emails calling him an idiot? Probably not, unless you want to start looking for another job. Also, most companies frown on forwarded emails that include jokes or pictures, especially if the jokes or pictures can be interpreted as sexist, racist, homophobic, or biased. Employees who demonstrate sexist, racist, or homophobic behaviors are frequently disciplined and may even be fired.

In the same way, it’s important to think about what your email address says about you. Avoid things like [email protected] or [email protected], which will not create a good impression. Many businesses have standard email address conventions that require you to use a combination of your first and last name or your job title, specifically to avoid having embarrassing email addresses.

Since your emails represent your company, it’s important to pay attention to any and all policies your company has about using email. Some companies have a response-time policy that requires employees to respond to requests from customers within a specific timeframe, such as “Respond within 24 hours during regular business hours.” Businesses also often have rules about using work emails to send and receive personal information, like family pictures or orders from online shopping.



The subject line is the first thing the recipient reads. A lot of people decide whether to open an email based on the subject line. So it’s very important to make it good! It should tell the reader what the email is about and set the tone—positive, negative, or neutral. A one-word subject line is usually too short; a good subject line is less than 50 characters long, which is about five or six words.



Your greeting tells the recipient how formal your email is and creates rapport. Remember, an email can’t convey nonverbal cues. So the words you choose are even more important. A greeting is one of the few ways you can convey tone through your email. It’s not okay to skip a greeting in most business emails. An exception to this rule is this: when you are emailing back and forth in an ongoing conversation with somebody you know well, then it’s okay to skip a greeting after your first reply.



Acronyms and emoticons are informal ways to express feeling and emotion through email. They can be very useful. However, they are informal and should not be used in most business communication. And when you do use them in informal emails, be sure you only use ones that are most commonly used and understood. Here are some examples:

FYI = for your information

FAQ = frequently asked question

BTW = by the way

IMO (or IMHO) = in my (humble) opinion

AKA = also known as

:-) is a smile

J is also a smile

:-( is a frown



Don’t use all capitals in emails. It is bad nonverbal email communication. Even doing this for one word can be offensive. Instead, choose language that highlights or emphasizes a point, such as “very,” “especially,” and “particularly.”



Write clear and concise sentences and paragraphs. You should avoid run-on sentences, repeating yourself, as well as lengthy paragraphs. People tend to skim or gloss over sections that seem overly long or complicated. If everything is kept short and clear, your message is more likely to get across to the reader.



Research has shown that many people don’t read past the first paragraph, so make it a good one! This is where you tell the reader why you are writing. Start with an introductory sentence that sets a pleasant tone and provides context.



Be friendly and nice without being too informal and casual.



And, of course, it is always important to use proper grammar, spelling, and punctuation. You want readers to focus on the point you are making, not any misspellings or grammatical errors. It’s usually a good idea to proofread your email before hitting the send button.



End your email on the same note you started it. This will leave the reader in a positive frame of mind. In very informal emails, it’s okay to skip a closing and just write your name. However, this should not be done in most business communications.



Consider the rules of business etiquette you just learned. How does this email follow, or not follow, those rules? Here’s an abbreviated list of rules:

• Write a clear subject line

• Use an appropriate greeting

• Avoid acronyms and emoticons

• Don’t use all capital letters

• Write clear, concise sentences and paragraphs

• Use the opening to provide context

• Be friendly and cordial, and don’t joke

• Use proper grammar, spelling, and punctuation

• Use an appropriate closing




Writing: Response to an Ethical ScenarioStudent Name:_______________________________________________________ Date:___________

Directions: Companies face ethical dilemmas on a daily basis. It is your job to present and analyze the ethical dilemma, provide the company with an appropriate response to the dilemma, and develop recommendations for how the CEO should address the issue in the company's ethics handbook. Carefully read through the entire resource before beginning your email, and remember to use the notes you took on the presentation as well as Student Resource 11.5 for guidance. Review the assessment criteria so you know how your work will be assessed

What Your Email Should ContainA well-written business email contains these five elements:

To:

From:

Subject:

Date:

The content

Remember that a business email needs to use an appropriate style and tone as well. Refer back to your notes and reading on business emails for additional guidance.

Make sure your email meets or exceeds the following assessment criteria: The email presents a brief summary of the situation and the circumstances.

The email explains why the behavior involved is a breach of ethics and whether the behavior is also illegal.

The email provides an explanation of how the business should respond to the unethical behavior and how the business could prevent the problem in the future.

The email follows appropriate business email format and style.

The email is neat and legible, and uses proper spelling and grammar.


Documents

coralgables-sh.enschool.org · Web viewSarah and Jose were considered subprime borrowers. Their credit score was low and they had a limited ability to cover their monthly living