Unit 1: Ethics

Question 1

Morality vs Virtuosity

Answer 1

“Morality is the application of ethical principles, and virtues are the characteristics of morality of an individual”

>> This is why virtual ethics is focused on the individual and not so much on actions or outcome.

One can be moral but not virtuous.

Question 2

4 Overarching principles

(HORF)

Answer 2

(HORF)

Honesty

Objectivity

Responsibility

Fairness

Question 3

4 specific standards

(CCIC)

Answer 3

Competence

> Maintain an appropriate level of professional leadership and expertise

> Perform duties in accordance with laws, standards and regulations

> Provide reasonable decision support information and recommendations.

Confidentiality
> Keep confidentiality

> Promote and monitor.

> Don’t take advantage of it.

Integrity

> Mitigate actual conflicts of interest and communicate with parties

> Refrain from any conduct that would prejudice carrying out duties ethically

> Refrain from any activity that discredits the profession

> Contribute to a positive ethical culture and place the integrity of the profession above personal interest

Credibility

> Communicate information fair and objectively

> Provide all relevant information that could reasonably be expected to influece understanding of reports, anylayses and recommendations.

> Report any delays or deficiencies in information, timeliness, processing or internal controls.

> Communicate professional limitations or constraints.

Question 4

How to control

Answer 4

> Some methods to control conflicts of interest:
1. Establish code of conduct provision

2. Require full financial disclosure by all managers
3. Prohibit ties to any supplier, customer or distributor
4. Require prior notification of a transaction that may raise a question about conflicts of interest

Question 5

How to?

Answer 5

> Always seek resolution of encountered issues. Use anonymous reporting if available.

> If there are no established policies:

1. Discuss with immediate supervisor (or next level if this one is involved)

2. IMA anonymous line
3. Consider consulting your own attorney
4. Last case, disassociate from the organization

Question 6

Accounting Provisions

(Scope and Application)

Answer 6

Covers all the securities listed in the US according to Exchange act of 1934.

**Accounting provisions:

> Books and records.**

Note: external auditor must still attest to the accuracy of financial statements.

> System of internal control

Question 7

Antibribery provisions

(Scope)

Answer 7

1. Domestic concern - citizen, natural or resident of the US (whether or not doing business overseas).
2. Issuers (US and Foreign) that have a class of securities traded at US stock exchange or required to file reports to SEC according to Exchange act of 1934.
3. Any person including foreign nationals and foreign non-issuing companies while acting corruptly while in the US.

Question 8

FCPA (77 - US): Antibribery

(Application)

Answer 8

None of the subjects may offer or authorize corrupt payments to any foreign official, foreign political party or candidate for political office in a foreign country.

This includes also a mere offer or promise of a bribe

Payments are also not authorized if person should have known that some or all of them could be used to improperly influence governmental decision.

Individuals are subject to both fines and imprisonment (fines imposed in individuals cannot be paid by employee). Companies to fines only

Question 9

Definition and Rules of Facilitation Payments

Answer 9

> FCPA contains a provision that ALLOWS for facilitation payments

> When person is paid to receive a product, service or license that the person was entitled but did not receive without the extra payment. Payments to expedite routine governmental action.

> Facilitation payments should be accounted in books.

> Payment should not be absurdly high

Question 10

UKBA (2010) - Scope

Answer 10

> UK companies doing business overseas

> Foreign companies with operations in the UK. Agent or representative office in the UK is enough to be in the scope.

Question 11

Application (4 offenses)

Answer 11

1. Paying bribes (ACTIVE)
2. Receiving bribes (PASSIVE)
3. Failing to prevent
4. Bribery of foreign nationals
   Conclusion, much more strict and broadly applied then FCPA since it covers passive bribery, commercial bribery and failure to prevent.

Question 12

SOX (2002)

Answer 12

> SOX applies to all publicly traded companies in the United States

> Requires a code of ethics for senior financial officers (not to all employees) to principal financial officer and comptroller including full, fair, accurate and understandable disclosure in the period reports required to be filled.

Question 13

Factors contributing to Ethical Behavior

Answer 13

• (+) Code of conduct (company takes responsibility for the ethical behaviors of its employees)
• (-) Group thinking - corporativism >>> can go against most ethical outcome
• (+) Diversity
• Leadership example or tone at the top
• Employee training regarding ethics should be an ongoing concern
• Two methods for monitoring ethical compliance:
  
  • Human performance feedback loop (performance review)
  • Survey tools (ask people to evaluate company according to code of ethics).
• Whistleblowing framework (SOX requires US registered companies to have one)

Question 14

Tools to identify process controls related to ethical issues

Answer 14

1. BPR: business process engineer (overview of processes, stakeholders, inputs and outputs
2. Quality management (focus on zero mistakes project focusing on behavioral deviation from an anticipated form)
3. CIP: continual process improvement (monitoring and improving as a learning and dynamic organization).

Question 15

CSR (Corporate Social Responsibility)

and

Sustainability

Answer 15

CSR: Can be achieved through the core values of organization or through philantropic programs.
Sustainability: focuses on the position the business has to take within society and its environment to continue to operate. E.g. social licenses, building trust with local communities, and showing dedication to mitigating environmental issues.

Question 16

4 levels of CSR

Answer 16

• Economic responsibilities: economic viable and profitable. Base of the pyramid.
• Legal responsibilities: operate according to the law.
• Ethical responsibilities: not only fulfill legal obligations but go beyond and do the right thing not to harm the society. “acting ethically is not necessary the most profitable”.
• Philanthropic responsibilities: require organizations to give back to society in form of money , goods or services/social deeds.

Question 17

Plus Card: Code of Conduct and Ethics

Answer 17

Best to the effective deployment of code of ethics by managers and supervisors:

>> FIRST AND FOREMOST, ESTABLISHING A CODE OF CONDUCT.