9/08/2004

lack of ethics in business

In this latest scandal, Invesco, the reputable Denver based mutual fund giant, has agreed to pay 376.5 million to settle allegations of improper trading. Invesco, headed by their former CEO had arranged for a handful of wealthy stockholders to participate in market-timing stock buying and selling (quick in-and-out trades that can skim profits from longer-term shareholders). The settlements will end investigative probing of the company from the attorney generals in Colorado, New York, Georgia, and the SEC.
The generally accepted goal of firms is to maximize wealth over the long term. Do to this generalized goal, many argue that a goal to maximize profit over the life of the firm is a better goal for a firm to subject to. However, as one can see, often times profits and ethics become conflicting interests. In this case, satisfying customers and ethics became conflicting interests.
This illustration of unethical behavior of business is a far cry from the Enron-Anderson disaster, but still criples confidence of american business ethics. When are companies going to understand that the market punishes and rewards ethics??http://www.msnbc.msn.com/id/5941226/

6 comments:

Dr. Tufte said...

I caught a capitilization and a spelling error (no penalties yet, but everyone be warned).

Two pointers for other students are that you should put a blank line between paragraphs (HTML is not very good at indenting), and that you can link to a phrase (instead of having a bare URL) by highlighting some text, and then clicking the link button. (Note that there won't be penalties for stuff like these as long as you show progress).

Here's some food for thought:
1) Did Invesco engage in these acts because they underestimated the probability of getting caught? What does that say about their ethics?
2) Did Invesco engage in these acts because they underestimated the size of the potential penalty? What does that say about their ethics?

John West said...

This article clearly illustrates another example of what makes the American public weary of big business. It is nothing new anymore to turn on the tube or read a headline in a newspaper, that depicts yet another scandal involving an American firm. Those of us attending business school's know that ethics have been taught or at least mentioned in one or more of our classes.
I believe that we will continue to hear of more scandals, but it is up to those of us getting ready to enter the workforce to make a change and do so while remembering what it means to have ethics, character, and morals. There may no hope for current CEO's to change what they are currently doing, but it can be changed in the future. Profits and the bottom line on the balance sheet need to be only as important to a firm as its ethics and the societal impacts that it causes.

Dr. Tufte said...

Hmmm. I can't support this with data, but I wonder whether businesses are currently run in a more unethical way than in the past. I have two reasons for this speculation. First, the media likes to cover scandals. Second, a lot of stuff gets swept under the rug when people are making money, but when asset markets tank a lot of accusations get thrown around about unethical or illegal behavior. Many firms find it easier just to settle those.

Peter Parker said...

I agree with John West's comment about the importance of instilling ethics in rising generations in order to see a change in the business world. Though exposure can be a huge influence, it doesn't mean that everyone will make ethical choices all of the time. As long as the idea that maximizing profit or value is repeated over and over again, I think it will be hard for some to seperate themselves from that thought later on which may lead to unethical choices, whether in the interest of the company or for themselves.

However, I have been impressed by the emphasis already shown by the faculty at SUU, this being my first semester. In no way is this an attempt to "kiss up" but it really has been something new to me and something that stood out.

A thought came to mind while reading the post and comments. Just as innovation is a constant element in the business world, not just in products but in managerial "techniques", won't this result in innovation among cheats and liars? I am referring to shady accounting practices and attempts to beat the market such Invesco and others as well. I think such occurrences will make others think twice about dealing illegally, but on the same note it gives others incentive to find better ways of making a quick buck. Can the cycle be broken? I guess the rising generations may provide the answer.

Maudi said...

Invesco is a classic example of what most companies face everyday, and that is how far into the gray area is a company willing to go. It is only obvious that Invesco decided that they were willing to take a risk and delb a little deeper than they should have.Therefore they got caught and now have to pay restitution for their actions.

C-Dizzle said...

It is so sad when a reputable company gets involved in such filth. People figure that no one will see millions of dollars magically disappearing out of their accounts. It’s shear stupidity.

People in high market positions such as the one’s mentioned here should no that they have a high moral and ethical standard that they are being compared against. They figure just a small cut off the top won’t hurt anyone. That’s why so many people are afraid to invest these days, especially after the whole Enron ordeal!