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| Corporate Guidelines for Business Conduct |
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Corporate leaders shape the ethical practices of their organizations by establishing the pervasive governing attitude of their firms which is the corporate culture that promotes and rewards certain ways of thinking and acting and punished others, according to the values of the leadership. This governing attitude or corporate culture must be in all respects consistent with the firm's stated principles of ethical conduct.
The integrity of a corporation is dependent upon the consistency of its stated ethical principles with the behavior it promotes in practice. In some organizations, the governing attitude changes dramatically depending upon the financial health of the organization, the firm's competitiveness in the marketplace, and the duties and status of different segments of the corporation. When the current governing attitude contradicts a firm's long-standing ethical standards and traditions, professional conduct becomes erratic and divisive and can pose unpredictable risks to employees, customers and the corporation as a whole; and in many case can lead to unforeseen and unintended consequences.
A healthy corporate culture promotes, among all members of the firm, an ongoing conversation in which questions of professional ethics and challenges to dubious or outdated policies and practices are welcomed and carefully considered. Responsibility for the integrity of the corporation starts with the firm's leaders, whose job it is to establish exemplary standards of professional conduct and industry-best practices to assure that the organization's governing attitude reflects those standards. In addition, each member of an organization is responsible for his or her own actions and for contributing to the continual renewal of the firm's corporate ethic and professional practice.
Characteristics of a Profession
Every profession, whether traditional (e.g., medicine, law, education or the ministry) or evolving (e.g., engineering or financial services) is marked by certain inherent characteristics;
a) The profession provides a vital service to society.
b) Professional practitioners must master and competently use specialized knowledge and complex skills.
c) Members of a profession must accept the standards of practice and purposes for which the profession is recognized by society.
d) Professional practitioners serve in a fiduciary capacity with their customers, which involve an added degree of ethical responsibility.
e) A profession exercises substantial autonomy and self-regulation, as evidenced by programs such as professional associate membership and competency testing of its members.
The financial services industry fits this profile since:
a) The activities of this industry's practitioners affect the economic well being of a large number of people.
b) Customers depend upon the competency and integrity of industry practitioners to provide informed counsel and skilled service.
c) The conduct of industry participants is defined and monitored by industry self-regulation and compliance standards.
Professional Ethics
The law and regulations applicable to the options markets necessarily do not always provide clear-cut guidelines for professional conduct. Legal requirements in this industry are subject to interpretation by administrative and federal courts, and new legislation and government regulations further assure that law and regulation are constantly evolving, interpretational and sometimes ambiguous. In addition, the law can never replace an individual's responsibility for personal ethical choices and industry-best professional conduct. As a result, it is important that each industry professional evaluate his or her conduct from an ethical as well as legal prospective.
Professional ethics is a way of thinking about and judging certain specific types of choices and behavior. Every day we make choices, and many of them have nothing to do with ethics, e.g., "soup or salad?" Alternatively, some actions are so clearly good or bad that we intuitively sense right from wrong, e.g., responsible good citizenship versus armed robbery. If someone were to ask us directly, most of us could give a reasoned explanation for our ethical intuition beyond a simple "It is right" or "It is wrong." But rarely does someone ask.
Occasionally, however, we face tougher choices. Good and bad, right and wrong refuse to stand out because the situation is unclear and a set of trade-offs. We see the issues as murky; our ethical intuition cannot spontaneously guide our conduct. Legitimate and important values compete with each other for priority. In such cases, we must examine the details of the situation, evaluate the conflict of values, and make a sound and reasoned ethical choice.
In childhood, most of us learned appropriate moral values and codes of conduct from a number of sources -- parents, teachers, service agencies, religious organizations, etc. Just as each of us learned to speak our native language correctly, we acquired our standards of personal morality and value system by trial and error and at times with difficulty. But once learned, a moral code becomes second nature: intuitive, dependable and spontaneous.
Practical ethics, of which professional ethics is a part, seeks solutions to specific ethical problems presented in particular contexts, in contrast to abstract theoretical ethics that searches for irrefutable answers to timeless questions. Professional ethics also is a "living" tradition. It introduces new industry participants to its just principles and equitable standards of conduct, and it adapts those standards in response to new issues and circumstances as they arise. Informed, rational conversation drives the evolution of professional ethics and fosters self-government and self-regulation.
Five qualities help form the foundation for professional ethics in the financial services industry. These "virtues" go well beyond the financial industry's contemporary legal and regulatory framework as well as its codified ethical requirements and standards.
a) Practical judgment grasps complexity and is alert to those elements that make every situation new. Practical judgment is the ability to exercise sound professional judgment based, ordinarily, on established principles and authority, while always appreciating the uniqueness of a particular context.
b) Ethical imagination is the ability to see and appreciate a number of perspectives and layers of meaning stemming from one's actions. It takes into account the concerns of customers, colleagues, the firm and the industry, as well as society in general.
c) Sense of Justice is the capacity to discern critically and to give everyone affected by one's professional actions due consideration. Justice addresses the rights and duties of industry professionals, customers, colleagues, firms and society at large. Within this context, justice seeks to preserve the integrity of the market itself.
d) Professional Courage is the strength to remain faithful to the trust and standards of conduct intrinsic to one's profession when pressured or intimidated by the risk of alienation, embarrassment or the loss of income or position.
e) Professional Temperance is the commitment to pursue the best interests of customers and then community, and the integrity of the profession, undeflected by potential gains. Temperance seeks what is owed in justice and requires nothing more.
A major reason these professional virtues have endured is that respected organizations, including many within the financial services industry, have incorporated them in their corporate policies and practices. As previously discussed, every individual is influenced by the corporate culture and ethical environment in which he or she works, and that relationship inevitably is reciprocal, since each employee also contributes to the organization's evolving culture by his or her professional conduct.
The Ethical Decision
While it is not possible to detail the complex and highly individualized process of ethical decision making, it useful to mention briefly four steps implicit in most reasoned ethical courses of action.
a) Explore Fully. A moral decision begins when an individual is confronted with a choice of possible actions that raises one or more questions involving issues such as justice, integrity or duty. In such cases, an ethical decision requires a thoughtful examination and response to questions such as:
b) Who might be unfairly harmed or benefited - directly or indirectly - by each possible choice?
c) What ought to be my primary motivation and goal given current circumstances?
d) What appears to be the best action among the practical alternatives that could be selected? What makes that choice best?
These basic questions are inescapable for members of the financial industry since the role of the financial professional demands decision and action. Similarly, a professional cannot be oblivious to those aspects of the situation that are difficult or inconvenient to consider; rather, the professional must explore the situation completely to discover his or her full responsibility. For instance, to notice only the benefit accruing to the customer who receives a favorable trade allocation, without imagining the harmful consequences to other customers and, potentially, the firm, precludes a professional from making a rationally or ethically informed choice.
a) Understand Intelligently. In an ethical dilemma, various legitimate but competing interests may suggest different courses of action. Objective, competent analysis is necessary before a reasoned choice is possible. As in all commercial organizations there are there general groups for management to consider: shareholders, employees and customers. Since all of these considerations are legitimate, the professional must acknowledge and "disarm" personal motives that might distort professional judgment and then establish priorities among the competing interests and values that remain. Industry tradition, the spirit and letter of related laws and regulations, corporate codes of conduct, and analogous examples from other professions can offer insight and promote intelligent understanding of a conflicted situation.
b) Decide Deliberately. Once the extent of the dilemma is appreciated and its alternatives understood, a professional makes a choice based on a reasoned analysis of what ought to be done in a particular situation. Ordinarily, despite one's best efforts, a complex dilemma will not resolve into a simple question, with a clear-cut correct choice standing-out from obviously wrong ones. Rather, a preferable direction will begin to emerge.
c) Act Reflectively. Finally and most importantly, the financial services professional must act in accord with his or her informed decision. Such actions should reflect accurately and consistently the professional's best efforts to recognize understand and select the preferable alternative. It is only through constructing a dependable pattern of deliberate ethical actions that practical judgment, ethical imagination, justice, temperance and courage are realized as professional virtues.
Once taken, the professional's action remains open to examination and reconsideration as new information becomes available or circumstances change. In this manner, the professional renews and invigorates his or her commitment to ethical conduct.
This summary of a four-stage model of ethical decision-making indicates a process by which financial services professionals can practice the professional virtues of practical judgment, ethical imagination, justice, temperance and courage in their day-to-day business. While the intelligent practice of the professional virtues employs law, regulation, industry tradition and best practices and corporate policy as resources in recognizing ethical issues and guiding decision-making, often such external guidelines are either narrowly constructed or too abstract to address every issue and circumstance adequately. In addition, rules can be ambiguous and open to multiple interpretations. The professional virtues focus on the character and integrity of the individual who practices his or her profession in a complex and changing environment. The professional practitioner is trusted to act intelligently and creatively when challenged by the conflicts and difficulty of "real world" issues.
Individuals are not the only active participants in the financial services industry who have professional ethical responsibilities; equally accountable for their integrity and conduct are the financial service firms and the financial services industry as a whole. Since the firms' and industry's spheres of influence and action are more far reaching than those of any individual, their fiduciary responsibilities and ethical obligations, likewise, are more extensive. The same virtues, character and deliberative decision-making process expected of the individual also are required of professional management, firms and the industry as a whole.
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