“Integrity, Honesty, and Ethics”
Ethics 2010




I am Andy Gustafson
I teach Business Ethics at Creighton
Son of a Farmer from Nebraska










Summary:
Ethics Quotes
Business, Ethics, and the Law
Examples involving rationalization, self-deception
Moral Decision Making
Case studies principles
Professional Standards/Industry Paradigms of CPCU
Case Studies applying guidelines
Conclude


Which of these quotes is your favorite, and why?

Which of these quotes seem especially relevant in the insurance business?


















ETHICS QUOTES
1. When I do good, I feel good; when I do bad, I feel bad. That’s my religion. (
Abraham Lincoln)
2. A man does what he must.. in spite of personal consequences, in spite of obstacles and dangers, and pressures.. and that is the basis of all human morality. (JFK)
3. If you don't have integrity, you have nothing. You can't buy it. You can have all the money in the world, but if you are not a moral and ethical person, you really have nothing. (Henry Kravis)
4
. Always do right – this will gratify some and astonish the rest. ( Mark Twain )

5. Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws. ( Plato)
6. Associate with men of good quality, if you esteem your own reputation; for it is better to be alone than in bad company.
( George Washington)
7. To educate a person in mind and not in morals is to educate a menace to society. ( Theodore Roosevelt)
8. A good name is more desirable than great riches; to be esteemed is better than silver or gold. ( Pr 22:1)
9. Two wrongs don’t make a right. (old english proverb)
10. Its not enough to be busy– so are the ants! The question is– what are we busy about? (thoreau)
11. What does it profit a man to gain the whole world, yet forfeit his soul?
12. It takes less time to do a thing right than to explain why you did it wrong. (longfellow)
13. “Live so that when your children think of fairness and integrity, they think of you.” (H.J. Brown)
14. “The most important persuasion tool you have in your entire arsenal is integrity” (Zig Zigler)
15. “A man without ethics is a wild beast loosed upon this world.” (Albert Camus)
16. Ethics or simple honesty is the building blocks upon which our whole society is based, and business is a part of our society, and it's integral to the practice of being able to conduct business, that you have a set of honest standards. And it's much easier to do business with someone when you look them in the eye and say, "This is what we're going to do," and you understand what you each mean, and you can go away and get it done. (Kerry Stokes)
17. If you can’t find time to do it right, when will you do it over? (Jeffrey Mayer)


"As officers and Enron Corp, its subsidiaries, and its affiliated companies, we are responsible for conducting the business affairs of the companies in accordance with all applicable laws and in a moral and honest manner...We want to be proud of Enron and to know that it enjoys a reputation for fairness and honesty and that it is respected."


"Compliance with the law and ethical standards are conditions of employment and violations will result in disciplinary action, which may include termination...in addition to responding to the Act, we are adopting this Policy Statement to avoid even the appearance of improper conduct on the part of anyone employed by or associated with the Company...We have all worked hard over the years to establish our reputation for integrity and ethical conduct. We cannot afford to have it damaged."


“Men lose their high aspirations as they lose their intellectual tastes, because they have not time or opportunity for indulging them; and they addict themselves to inferior pleasures, not because they deliberately prefer them, but because they are either the only ones to which they have access, or the only ones which they are any longer capable of enjoying.” – J.S. Mill



Madoff explaining why market is secure http://www.youtube.com/watch?v=ab1NTIlO-FM

Madoff Critic http://www.youtube.com/watch?v=nlxb5LGX_KI


Spitzer up: http://www.youtube.com/watch?v=BuLtYwT4ZGA&feature=PlayList&p=3265D66A49051026&playnext_fro m=PL&playnext=1&index=1
Spitzer down: http://www.youtube.com/watch?v=2jEQKnU87Cg&feature=PlayList&p=3265D66A49051026&playnext_fro m=PL&playnext=2&index=2


“Capacity for the nobler feeling is in most natures a very tender plant, easily killed, not only by hostile influences, but by mere want of sustenance; and in the majority of young persons it speedily dies away if the occupations to which their position in life has devoted them, and the society into which it has thrown them, are not favourable to keeping that higher capacity in exercise.”
--J.S. Mill


Being ethical is like staying in shape, you have to be diligent about it and practice to keep it up. If you don’t use it, you will loose it…



1. Which of the following has been found to be a true statement regarding ethics and the insurance industry?
 a.) On average, insurance practitioners are more likely to act unethically in business practices than in purely personal


 situations.
b.) More than 50 percent of people in business indicate having observed one or more unethical or illegal acts in the past twelve months. c.) Insurance practitioners believe that management’s emphasis on the bottom line is one of the main factors leading to unethical decision-making. d.) All of the above are true statements.

2. A strong organizational culture is one in which there is a high expectation of conformity with the organization’s beliefs, values, and purpose. All of the following are true statements regarding organizational culture EXCEPT:

 a.) In general, members of organizations having strong cultures are more likely act ethically. b.) In general, members in organizations with weak cultures are more likely to base their ethical decisions on the norms and

 values of small groups within the organization. c.) In general, members of large organizations feel less responsibility for their actions than those in small organizations.
d.) In general, higher level employees have less ethical beliefs and their ethical decision-making is less than lower level employees.

3. All of the following are true statements EXCEPT:
 a.) Individuals see themselves as more ethical than

 their coworkers or supervisors.
b.) The ethical behavior of supervisors strongly influences the ethical behavior of their subordinates.
c.) In general, supervisors’ and management’s actions have little influence over individuals’ ethical behavior because individuals form their ethical values outside of the work environment.
 d.) Supervisors who are successful performers have greater influence over their subordinates’ ethical behavior.

4. Which one of the following is a true statement?
 a.) Most employees report that a company’s ethical

 position is stated in their training courses.
b.) The existence of a formal code of ethics is a strong deterrent to unethical behavior. c.) The awareness of a formal code of ethics is a
 strong deterrent to unethical conduct rather than just the mere existence of one.
d.) The most successful ethical training programs are ones that emphasize how to make ethical decisions rather than setting clear, uncompromising rules.






Money Making Opportunity
Social/Cultural Power

“Ethics” isn’t “legal”
Difference between the Law and Ethics:


Some legal issues are neither ethical or unethical.
Some ethical issues have no laws to support them.



The Insurance Industry is Highly
Regulated
Law often tries to encourage ethical behavior:

Federal Sentencing Guidelines


Sarbanes-Oxley Act (SOX)
Better to have self-regulation than more gov’t regulations








1. Having Standards
2. Assigned Responsibility - Adequate
Resources
3. Due diligence in Hiring
4. Communications and Training
5. Monitoring, Auditing, Reporting
6. Promotion and Enforcement of Ethical
Conduct
7. Reasonable Steps to Prevent Misconduct



Company Policy often has some basis in the compliance regulations and legal statutes and fine schedules set up by government.
But Personal ethics requires personal decision-making, rooted in values.


External Sanctions:

Positive: (evaluation criteria, bonuses)

Negative: Regulations, Rules & Enforcement

Internal Sanctions:

Establishing a corporate culture or office Culture through vision and leadership




Business has its own culture

Paypal, Google, your office
Business Transforms Culture

Financially, community outreach
Business is about relationships

Insurance business is about relationships



Company Policy often has some basis in the compliance regulations and legal statutes and fine schedules set up by government.
But Personal ethics requires personal decision-making, rooted in values.

Many think Ethics is just about what to NOT do: “Don’t do __!!”




Minimal: What we shouldn’t do

Don’t steal, don’t kill, don’t lie
Better: What we should do (justice)

Be fair, Be honest, Fulfill duties, work hard
Best: What we could do to make things excellent for all of us…

Mutual of Omaha Project, Real Estate




61% of taxpayers say it's okay to cheat on your taxes
Every person spends $250 more per year due to Auto Insurance Fraud.
Our Nation spent $1.7 TRILLION dollars on health care in 2003. Some estimate that 20-35% of that was fraudulent.




Can making a healthy profit and being ethical go together?
MUST they go together??
Do we need Ethical Constraints? Or can free market do it automatically?

Argument: Firms ought will keep them honest to maximize their profits and consumer pressure/market


Because “profit really represents the net contribution that the firm makes to the social good and the profits should therefore be made as large as possible.”
Natural constraints of the market will help keep companies in check. I.E., if a company is known to be dishonest or terrible to their employees, then consumers will not buy from that company!

Why Ethics Won’t Take care of itself (criticisms of hands off approach:)




1. “Free Market alone” response assumes that forces of competition are sufficiently vigorous—but they aren’t.
2. Maximizing profits is socially inefficient when costs are not paid for
(externalized) a. ie, time vs pollution b. ie, traffic congestions


3. Maximizing profits is socially inefficient when seller has great knowledge advantage over buyer

4. Distribution of income that results from unrestrained profit maximization is very unequal.







1.
2.
3.
4.
5.
6.







Stage 1: Obedience and Punishment
Stage 2: For self-benefit
Stage 3: For sake of reputation (good boy)
Stage 4: Maintain Social order
Stage 5: Contractual-Legalistic orientation
Stage 6: Conscience/Principle Orientation

Each of us and each person under us might have different motivations for doing the right thing. Its helpful to realize that and encourage right behavior, however it is motivated.

Question: Why do Soccer mom’s sometimes drive like jerks?

Question: Why do people forge signatures and documents?





Why did the soccer mom drive like a jerk?
Why did my student cheat on the exam?
Why did people at Enron do unethical things?
Why do insurance professionals cut corners?

Some reasons people do wrong










Ignorant
In a hurry
Thoughtless
Didn’t plan ahead
Financial difficulties
Pressure from organization
Not clear communication from management
Lazy
Want a quick buck
They are a Bad evil wicked person

Anonymity

“Any environmental or societal conditions that contribute to making some members of society feel that they are anonymous– that no one knows or cares who they are, that no one recognizes their individuality and thus their humanity– makes them potential assassins and vandals, a danger to my person and my property—and to yours. (Zimbardo,
2004, p33)

Cognitive Dissonance: Conflicts between action and knowledge


“I am an ethical person, but I am doing something unethical”
Solutions:


A. stop doing it
B. psychological tricks:

Disengage from your behavior

Ways to disengage from your behavior




1. Change perception of unethical behavior: its not so bad
2. Change perception of damaging consequences: no one harmed
3. Diffuse responsibility– no one in particular is responsible: not my fault
4. Change perspective on victims– dehumanize vicitim: number, whore

Brief explanation of the 5 classic ethical theories:





Egoism: Do it to benefit YOU
Social Contract: We all covenant…
Utilitarianism: Greater Good
Deontologial: Duty-Based (universalizable?)
Virtue Ethics: Golden Mean/Excellence


People should always do what is in their own self-interest.
(ex: do what it takes to get repeat business)


Make concessions to others– you want them to do it, so you should too.

Obey the law, respect others because you want to be respected, etc


Rake your yard
When driving, slow down near other schools, not just your own kid’s school


Do what benefits the greatest number the most

Jump on the grenade if it benefits the most.


Do what is right if it will make for a better society in the long run, even if you could have short term maximization right now
I can save my client on this insurance premium by under-reporting risks, but in the long run this will cause the insurance company and other clients to be at considerable risk.


Duty #1: Only act in a way that you could make your act a universal law


I cheat on my taxes? Would I want everyone to do that? No. Then don’t!
Should I lie? Would I make lying a universal law? No. Then don’t lie!


Treat others always as an end, not as a means to an end.

Don’t treat checkout person as humanoid ATM


Don’t treat other drivers as obstacles in your path
Don’t treat customer as a just a means to $$

What is the GOOD life, and how do we achieve that?
-- Vice
(Too little)
Coward

Aim for excellence
Moderation/Balance
Virtue
(just right)
Courage
++Vice
(too much)
Foolhardy





Does depend on the situation

When to be witty
Does depend on the individual

Child ‘Maestro’
Is something we must constantly strive to upkeep, work at

We can lose our touch!
It helps to have roll models: WWJD?






Honesty
Integrity
Responsibility
Respect/Caring
Truthfulness







Banker Friend: “look in the mirror rule”
Showgirl from Las Vegas: Grandma rule
Golden Rule: do unto others…
Silver Rule: do no harm…
What rules do you use?....





Questions to help decide if the situation or decision has ethical dimensions
Is it legal but unethical?
Is it necessary?
Does it involve a core ethical principle such as honesty, integrity, truthfulness, etc.?


Information gathering questions



Who are the stakeholders and what are their rights?
Consider the source, reliability, and accuracy of all relevant information.
Who should be involved in this decision?

Do I have enough information to make a sound ethical decision? If not, how do I get it?


Questions to help identify and evaluate alternatives

Am I rationalizing to justify what I want to do?



Am I using anyone for my own personal gain?
(Who will be injured and how)
Are there conflicting loyalties to stakeholders?
What would result in the long run if everyone did this?


Questions that help in reaching a decision

Could I defend my position before the Board of
Directors, the CEO, or the media?



What would ______________________ do? (Fill in the name of the best role model you know.)
Will this seem to be the right decision a year from now? Five years from mow?
Do I have the moral courage to take the more ethical course of action? (Am I willing to pay the price for my convictions?)

Ways that Brokers can act unethically
(From Eight Ethics Guidelines For Brokers Brian Bloch)

1. The half-truth (or quarter-truth or three-quarter truth) - One of the most insidious temptations of bad brokering is to mix truth with untruth.

 Some brokers simply do not take the trouble to explain things, and they prefer clients not to know too much. An offshoot of this is
"blinding with science". It is possible to mesmerize and impress clients by talking above their heads about internal rates of return , long gilt futures options and currency derivatives and countless other financial terms.


It can be very tempting for a broker selling a structured fund , for example, to praise the built-in protection and guaranteed returns that it offers. Especially these days, investors love security plus (reasonably) good returns.
But if this comes at the price of all the dividends, the investor really must be told this. There is no way it can be taken for granted, or assumed that they know.

 From both an ethical and legal standpoint, inexperienced clients in particular are not equipped to make meaningful decisions unless they are aware of other options. If a broker offers a novice investor one particular fund, or even a combination of funds, with the attitude "this is right for you", he or she is not providing an optimal service.


If it even occurs to you that an investor may need or want to know something, tell them. Never succumb to the urge to keep quiet, even when you know this may cost you the deal.

1.
Put yourself in the position of the investor.
If you would prefer not to be handled in a certain way, don't do it to someone else.
Above all, avoid self-deception. The best test is to ask yourself whether you would want your mother , brother, best friend or indeed yourself to have these investments.


Everyone has different needs, preferences and circumstances. They therefore need a portfolio that truly caters to them. The correspondence you send out should also be tailored to each client

Rule #4: Ask the client don’t expect them to ask you!

A client won't ask for clarification if he or she doesn't realize it's needed in the first place.
Make absolutely sure that the client knows what he or she is getting. They do not need to know every intricate detail, but they certainly need to know, at minimum, how risky the product is in relation to the probable returns. There should be no surprises in store for the unwary and trusting investor.

1.
You should discuss the market with your client in general and with respect to the specific asset classes. This does not mean attempting to time the market, but the investor ought to know whether the market has been booming for years and is regarded as possibly overpriced, or whether the converse prevails.


A client should know how often you will monitor the investments and what this really means. For instance, will you call the client if there is news in the media that things may go be going sour for a particular asset? If all you plan to do is take a look at the asset allocation once a year, that may be OK, but the client needs to know that he or she cannot expect more from you.

1.
The classic multi-color pie chart with asset class combinations for high, low and medium risk is a great way to demonstrate the very essence of the investment process. Likewise, " pyramids of risk " which show how one moves from a low-risk basis of cash, upward through bonds to equity funds and so on, should always be the starting point of the advisory process. (To learn more about using the risk pyramid, see Determining Risk And The
Risk Pyramid .)

1.
Simply handing your client a pamphlet is not enough. There is a good chance they will not be understood and they may not even get read. The man in the street does not know the meaning of such phrases as
"optimizing portfolio risk", "sector allocation", "overweighting mid caps" and dozens of others. (For more, see
Personalizing Risk Tolerance .)




Usually, doing the right thing is clear, even if its not easy
We tend to cut corners for short-term apparently inconsequential issues, but this can come back to haunt us
Having Ethical Habits takes practice, and some thoughtfulness.





What is Business Ethics?
Some moral theories
Moral Development
Moral Decision Making