Question

Analyse the following case using the AAA decision making model. What are the ethical theories and principles. Apply codes of ethics for finance professionals.

You have graduated as a financial adviser and working for a company with many famous clients. The CEO takes time to mentor you personally. The CEO invites you to dinner at his place often and you help him out as a family friend. You are the only person who knows the CEO’s wife from the firm, she is a real estate agent. You later learn, the wife has a job as a real estate consultant for the firm. Both the CEO and his wife separate personal life for their job.

The wife uses her experience to satisfy clients. After 6 months of probation she is up for a promotion. The CEO (her husband) was part of the committee for promotion. Due to the firms great performance, the CEO was able to receive a bonus for his leadership. There have been no behavioural issues due to the relationship between the CEO and his wife.

The CEO and his wife become distant at work as no one knows about their relationship. While you believe they have worked professionally, their hidden relationship still troubles you. There is so much secrecy. While the firm has succeeded in many areas, some issues have gotten worse. The firm was subject to a joint investigation by two top media outlets, which uncovered a story that the firm had a number of elderly clients who had since faced financial difficulty due to being recommended riskier investment products by the firm. Many clients at retirement age have made complaints with their losses.

Executive remuneration had increased significantly in the last several years. The CEO was entitled to bonuses due to the successes of his wife. The CEO and other executives don’t feel concerned about media reports. You have a talk with another graduate regarding the relationship between the CEO and the wife and how that may be causing the issues. Your colleague felt like you should have spoke up and lodged an internal complaint.

You approach the CEO. The CEO feels the relationship is no ones business and to not bring his personal life into the business. If you filed an internal complaint you may risk the CEO losing reputation and credibility as a financial advisor.

Answer 1

The American Accounting Association Model (AAA Model) :-

The American Accounting Association (AAA) published a casebook, these cases reflect ethical issues that professionals may encounter.

In the context of their professional activities. Each case is analysed using a seven step model.

The use of the AAA Model is advocated as a way of dealing with

ethical dilemmas.

AAA Model – Seven steps :-

1. Determine the Facts - What? Who? Where? When? How?

What do we know or need to know if possible, that will help define the problem?

2. Define the Ethical Issue - List the significant stakeholders.

Define the ethical issues. Make sure what precisely the ethical issue is (e.g. conflict

involving rights question over limits of an obligation, etc.)

3. Identify the Major Principles, Rules and Values

(e.g. integrity, quality, respect for persons, profit)

4. Specify the Alternatives - List the major alternative courses of action, including those that represent some form of compromise or point between simply doing or not doing something.

5. Compare Values and Alternatives - See if Clear Decision

Determine if there is one principle or value, or combination which is so compelling that

the proper alternative is clear (e.g. correcting a defect that is almost certain to cause

loss of life).

6. Assess the Consequences - Identify the short and long, positive and negative consequences for the major alternatives. The common short-run focus on gain or loss needs to be measured against the long-run considerations.This step will often reveal an unanticipated result of major importance.

7. Make your Decision

Balance the consequences against your primary principles or values and select the

alternative that best fits.

Case Study Using the AAA Model :-

1. Determine the Facts

• You have graduated as a financial adviser and working for a company with many famous clients.
• The CEO takes time to mentor you personally.
• The CEO invites you to dinner at his place often and you help him out as a family friend.
• You are the only person who knows the CEO’s wife from the firm, she is a real estate agent.
• You later learn, the wife has a job as a real estate consultant for the firm. Both the CEO and his wife separate personal life for their job.

• The wife uses her experience to satisfy clients. After 6 months of probation she is up for a promotion.

• The CEO (her husband) was part of the committee for promotion. Due to the firms great performance, the CEO was able to receive a bonus for his leadership.

• There have been no behavioural issues due to the relationship between the CEO and his wife.

• The CEO and his wife become distant at work as no one knows about their relationship.

• While you believe they have worked professionally, their hidden relationship still troubles you.

• There is so much secrecy. While the firm has succeeded in many areas, some issues have gotten worse.

• The firm was subject to a joint investigation by two top media outlets, which uncovered a story that the firm had a number of elderly clients who had since faced financial difficulty due to being recommended riskier investment products by the firm. Many clients at retirement age have made complaints with their losses.

• Executive remuneration had increased significantly in the last several years.

• The CEO was entitled to bonuses due to the successes of his wife.

2. Define the Ethical Issue :-

Stakeholers - 1.Financial adviser (me),my integrity,obligations and personal self interest.

2.The company & its employees(particularly top or middle level)

3.The CEO

4.Potential Investers

5.The Institute from where the Financial Advisor graduated.

6.CEO's Wife

7.Firm where CEO's wife employed

8.Other executives

9.Firm's client - elderly clients

10.Committee design for promotion

3. Identify the Major Principles, Rules and Values

• Objectivity : Financial Advisor must not alow the judgement of his own performance to impact the decision of lodged an internal complaint.
• Integrity : Financial Avisor has a responsibility to shareholder ,employees and future investors to provide them with honest information concerning the performance of the company.
• Technical Stanards /Competence : Presentation must be complete in accoradce with technical and professional stanards because advise of financial advisor influence the decision making of stakeholders.

4. The majaor alternatives are as follows:

a) Financial Advisor can report the figure as they are.

b) Financial Avisor can book the provisions .

c) Financial Advisor look for alternative means of disclosure.

5.    By reporting the figure as they are , Finacial advisor will maintain his integrity and objectivity .this course of action may however resut in a personal cost.

Financial Advisor can book the provisions which may impair his integrity, objectivity and result in a possible breah of technical standards competence .booking the provisions also raises moral and ethical consideration in relation to the payments of bonuses.

By the use of alternative disclosure ,e.g Notes to the accounts ,Financial Advisor may be able to report the true result thus maintaining his integrity ,objectivity and technical standards , fulfill his moral obligations with respect to the payment of bonuses and not detract from his own performance in the future.

6.Assess the Consequences - Identify the short and long, positive and negative consequences for the major alternatives. The common short-run focus on gain or loss needs to be measured against the long-run considerations.This step will often reveal an unanticipated result of major importance.

7. Make your Decision

Balance the consequences against your primary principles or values and select the

alternative that best fits.

Codes of ethics for finance professionals :-

The purpose of this Code of Ethics for Financial Professionals (“Code”) is to deter wrongdoing and to promote:

(1) honest and ethical conduct;

(2) full, fair, accurate, timely and understandable disclosure of financial information;

(3) compliance with applicable laws, rules and regulations;

(4) the prompt internal reporting of violations of this Code; and

(5) accountability for adherence to this Code. The term “Financial Professionals” refers to the Bank’s Chief Executive Officer (principal executive officer), Chief Financial Officer (principal financial and accounting officer), Controller, Director of Financial Reporting, Director of Investments and Derivatives Accounting, and Director of Corporate Accounting.

Roles and Responsibilities

It is the responsibility of each Financial Professional to be familiar with this Code and the Code of Conduct and Ethics for Employees, and for providing an annual certification of review and compliance with this Code and the Code of Conduct and Ethics for Employees.

Financial Professionals should avoid actual or apparent conflicts of interest. In any case in which a Financial Professional finds himself or herself with an actual or apparent conflict of interest, the Financial Professional must promptly disclose such conflict of interest.

Financial Professionals must promptly report any conduct that they believe to be a violation of this Code to the Bank’s General Counsel and cooperate fully in any internal or external investigations of possible violations. Failure to report any conduct that is believed to be a violation of this Code is a violation of this Code. If a Financial Professional wishes to do so, he or she may contact directly the Chairman of the Audit Committee or call the Bank’s Whistleblower Hotline rather than, or in addition to, contacting the Bank’s General Counsel. The Bank’s General Counsel shall investigate any reported violations (or possible violations) of this Code and shall provide a written summary of his or her findings to the Audit Committee with all supporting documentation. The Audit Committee shall review and determine how any reported violation of this Code should be resolved.

In all cases, if a Financial Professional is unsure about the appropriateness of an event or action, he or she should seek assistance in interpreting the requirements of this Code by contacting the Bank’s General Counsel.

The Director of Human Resources is responsible for obtaining from each Financial Professional an annual certification that he or she has reviewed the most recent version of this Code and the Code of Conduct and Ethics for Employees, agrees to be bound by the terms of this Code and the Code of Conduct and Ethics for Employees, and during the preceding year, or since the date of employment for a newly hired Financial Professional, has at all times been in compliance with the requirements of this Code and the Code of Conduct and Ethics for Employees.

Related Policies

Code of Conduct and Ethics for Employees

Corrective Action

Discharge for Cause

Financial Disclosure

Rules of Conduct

Treatment of Confidential and Proprietary Information.