BONUS CASE 4-2
Is It Time for a NYSE Code of Ethics?
Doctors have the Hippocratic Oath. Pharmacist, mathematicians, advertisers, even
football coaches all have codes of ethics. Not investment bankers.
Investment banking would be a complicated area to police. Bankers dole out loans,
hammer out contracts, counsel companies on the sensitive topics of mergers and acquisitions.
However, it is in these areas that ethical lapses can occur. Investment bankers and stock
brokerages have been known to down play the drawbacks of a particular investment to score a big
commission. There have been many examples in recent years of brokers shading the truth or
engaging in outright unethical behavior.
A group of investment professionals, including investment banker Felix Rohatyn,
mergers lawyer Marty Lipton, and New York Stock Exchange Chairman John Reed, has
proposed that bankers, brokers, and analysts adopt an industry-wide code of ethics. Instead of
trying to create a rule for every ethical decision, the suggested code would contain basic
principles about whom the investment community is accountable to and what priorities should
exist between banker, client, and regulator.
A professional ethics code would be different from a company ethics code. Many
analysts are skeptical about individual corporate codes, pointing to the carefully crafted code of
ethics established (and ignored) at Enron. In contrast, a professional code could be used as
justification for bankers and brokers who want to do the right thing when their company demands
otherwise.
The group advocating a professional code is trying to distill universal statements or
principles. A code could include principles for handling conflicts of interest, behavioral
guidelines for dealing with clients and competitors, and some recognition of a broker’s duty to
society at large.i
DISCUSSION QUESTIONS FOR BONUS CASE 4-2
1.
Many in the investment company were implicated in the accounting/underwriting
scandals involving Enron, WorldCom, and Arthur Andersen. Would a code of ethics have
discouraged or prevented these unethical situations?
2.
Suppose you were a stockbroker and recognized a profitable, but ethically questionable
investment opportunity. The investment would significantly benefit the major corporate
directors and generate commission income for you and your brokerage. What is your
obligation to other stockholders, regulators, and society in general?
3.
Does a broker have a duty to make as much money for his or her clients as possible?
Does the wide separation in wealth between rich and poor create a situation where
brokers should stop making as much money as possible for rich people?
ANSWERS TO DISCUSSION QUESTIONS FOR BONUS CASE 4-2
1.
Many in the investment company were implicated in the accounting/underwriting
scandals involving Enron, WorldCom, and Arthur Andersen. Would a code of ethics have
discouraged or prevented these unethical situations?
It may have discouraged such behavior, but not stopped it entirely. People are always
searching for ways to get around rules, and ethical rules are no exception. On the other hand, we
should do everything possible to have them comply.
2.
Suppose you were a stockbroker and recognized a profitable, but ethically questionable
investment opportunity. The investment would significantly benefit the major corporate
directors and generate commission income for you and your brokerage. What is your
obligation to other stockholders, regulators, and society in general?
It depends entirely on what is meant by “ethically questionable.” Does that mean legally
questionable as well? In that case, there is no debate. It is wrong to do. Period. If it means that
people might have some question as to why you did something, you have to judge each case by
its merits. Things may “look” unethical, but be clearly ethical to others. One has to use one’s own
conscience as a guide. Such a question may create lively class discussion as students bring up
practices for examples.
3.
Does a broker have a duty to make as much money for his or her clients as possible?
Does the wide separation in wealth between rich and poor create a situation where
brokers should stop making as much money as possible for rich people?
Brokers should not be deciding who deserves to become richer and who does not. Their
job is to help people of all classes become richer. The way that poor people become rich is by
investing, and brokers are there to help.
Source: Dennis K. Berman, “Does Wall Street Finally Need an Ethics Code?” The Wall Street Journal,
March 10, 2005
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