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The Buck Stops at The Back Office

By Robert Goldberg

While talking to a friend of mine about the state of regulation in the mutual fund industry, he commented that there was too much regulation, and the expense was raising the cost of doing business.

It seemed to me that the emphasis is being placed on the financial statement and not on the health of the business. You get a healthy financial statement by concentrating on how you run your business - not the reverse.

If we feel we have too much regulation now, how did we do when we had less regulation?

What was so confusing about a 4 p.m. trading deadline and market timing that confused industry people? Were the rewards so lucrative that we let our guard down to reach goals that served our purposes and not those of our shareholders?

Who was responsible for ensuring that there was suitable compliance with the regulations? Did those people know their responsibilities? What was their oversight process?

When we hire new employees at all levels, we don't know their ethical values, and if we don't know, how can we funnel them into the company system?

You're Fired!'

We protect our computers against viruses, right? Well, it seems we should protect our companies from those who would do us harm. Certainly not everyone we hire is a future good employee. We know that because we fire some, shelve some and promote others.

It is all about backroom ethics and how you create an ethical culture and workplace. The Trump TV show "The Apprentice" has shown that ethical values are nonexistant for some people no matter the level of education. What you see is that more pressure on employees to meet certain goals that may be beyond their reach may cause them, to abandon ethical values to relieve the pressure. Paying more in salary and bonuses does not create ethical values. Witness, World Com, Enron and Arthur Andersen to name a few examples.

How do we create an ethical workplace?

One way is to out-Trump the Trumps of the world. My suggestion is the continuous training in the form of Ethical Leadership with the same emphasis that we place on Managerial Leadership and Operations training. In fact, all three programs should be intertwined, as they are not inseparable. The problem that may arise is that the immediate rewards of unethical behavior may be large.

In fact, it may be bad thinking to assume that all employees are at the same level in their ethical behavior. Their approach to an ethical issue may surprise you. Some employees are more susceptible to bad peer pressure than others. It would seem that the proper strategy is to ensure that the right people are teaching ethical values in the workplace.

In this present environment, we should be working to instill the right ethical values in our companies and no one should be spared because it is a critical undertaking.

You can give every employee a printed copy of a code of ethics, but it has to come alive by updating and discussing the code, in order for it to be a continuous and effective tool.

Ethics programs do not teach what is ethical but provide a guideline of how ethical an action might be.

Saul Gellerman, in an article for the Sloan Management Review, Winter 1989, [pp. 73-79], offers a guideline to see if a potential action will be considered ethical if it is consistent with one or more of the following standards:

1. The Golden Rule: Act in a way you would expect others to act toward you.

2. The Utilitarian Principle: Act in a way that results in the greatest good for the greatest number of people.

3. Kant's Categorical Imperative: Act in such a way that the action taken under the circumstances could be a universal law, or rule of behavior.

4. The Professional Ethic: Take actions that would be viewed as proper by a disinterested panel of professional peers.

5. The TV Test: Managers should always ask, "Would I feel comfortable explaining to a national TV audience why I took this action?"

6. The Legal Test: Is the proposed action or decision legal? Established laws are generally considered minimum standards for ethics.

7. The Four-Way Test: Managers can feel confident that a decision is ethical if they answer yes to the following questions: "Is the decision truthful? Is it fair to all concerned? Will it build goodwill and better friendships? Will it be beneficial to all concerned?

It is possible that employees with good exposure to ethical values and developing a "Wizard of Oz" philosophy, i.e. giving everyone the courage and the heart to use their brains in the right way, we will achieve an ethical culture.

One last thought. The budget for all this training is certainly available when you look at a cost/benefit analysis. The cost of the fines seems to far outweigh the potential cost of training. Sort of like the Fram commercial, pay me now or pay more later.

Robert Goldberg was vice president and secretary/treasurer of John Hancock Distributors, vice chairman of the Northeastern District of the NASD and president of NISCA.