Advertisement

Ethical Issues in Financial Markets: The American Experience

  • Patricia H. Werhane
Part of the Studies in Economic Ethics and Philosophy book series (SEEP)

Abstract

Most people, most institutions, and even most politicians and governmental officials are decent, well-meaning people. Ethical issues sometimes occur not because people are evil or even greedy, but because the way in which their view a situation belies its ethical import. The model of financial markets one adopts, that is, the way one thinks markets operate or should operate, affects one’s perception of those markets and whether and how one focuses on its ethical issues. Part of this model or perception is derived from the political, ideological, and economic context, (in the cases I shall discuss, the United States), and part from individual mores, corporate culture, or more global perspectives. Often ethical dilemmas arise because of a narrow perception of what is at issue, or because one has failed to see clearly how one’s model or point of view concerning financial markets may be incomplete, narrow, or even erroneous. Often, too, that perspective does not include a moral point of view. Managers, traders, CEOs, financial analysts, and bankers do not always think clearly about the normative implications of their decisions and actions-how they will affect (positively or negatively) the well-being other people and other institutions, nor how their actions may or may not treat people fairly, respect them and their rights as human beings. This “moral muteness“ in turn can have dilatory economic as well as moral effects. By illuminating these models one can sometimes begin to clear up these problems.

Keywords

Business Ethic Ethical Issue Financial Market Stock Price Mutual Fund 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. 1.
    See Adam Smith: Lectures on Jurisprudence, ed. R. L. Meek, D. D. Raphael, and P. G. Stein (Oxford: Oxford University Press, 1978), especially A (i.ii. 12–14); and Bernard Gert: Morality (New York: Oxford University Press, 1988), especially Chapters 1–5. See also, Jeffrey Doering and Patricia Werhane: “Conflicts of Interest”, in: Ethical issues in Scientific Research, forthcoming.Google Scholar
  2. 2.
    See Bernard Gert: Morality (New York: Oxford University Press, 1988), especially Chapters 1 and 4. Gert would not formulate the framework in the way I do, but his work has influenced my analysis as has the work of Ronald Green, particularly his essay, “The First Formulation of the Categorical Imperative as Literally a, Legislative’ Metaphor”, History of Philosophy Quarterly, 3 (1991).Google Scholar
  3. 3.
    Sylvia Nasar: “The American Economy, Back on Top”, New York Times, Section Three, pp. 1–6, March 17, 1994.Google Scholar
  4. 4.
    Carpenter, et al. (Felix and Winans) v. United States: “Slip Opinion”, no. 86–422 decided Nov. 16, 1987. The scheme was eventually uncovered, and the men were charged with misappropriation of information under sections 10(b) and 10b-5 of the SEC Act, mail and wire fraud, and lesser violations.Google Scholar
  5. 5.
    Manne: Insider Trading and the Stock Market (New York: The Free Press, 1966), especially Chapters X and XI, and Deryl Martin and Jeffrey H. Peterson: “Insider Trading Revisited”, Journal of Business Ethics, 10 (1991), pp. 57–61.Google Scholar
  6. 6.
    See Jennifer Moore: “What is Really Unethical About Insidèr Trading?”, Journal of Business Ethics, 9 (1990), pp. 171–182, and Patricia H. WerHANE: “The Ethics of Insider Trading”, Journal of Business Ethics, 8 (1989), pp. 841–846.CrossRefGoogle Scholar
  7. 6.
    Patricia H. WerHANE: “The Ethics of Insider Trading”, Journal of Business Ethics, 8 (1989), pp. 841–846.CrossRefGoogle Scholar
  8. 7.
    See Patricia H. Werhane: “The Indefensibility of Insider Trading”, Journal of Business Ethics, 9 (1990).Google Scholar
  9. 8.
    See Robert G. Kennedy: “Case Study, Dayton Hudson Corporation”‘ (Washington D. C. Council on Foundations, 1990).Google Scholar
  10. 9.
    See, for example, Henry Manne: “Mergers and the Market for Corporate Control”, Journal of Political Economy, 73 (1965), pp. 110–120CrossRefGoogle Scholar
  11. 9.
    Michael Jensen and W. H. Meckling: “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure”, Journal of Financial Economics, 3 (1976), pp. 305–360.CrossRefGoogle Scholar
  12. 10.
    O. Manne, “Mergers…”, p. 112.Google Scholar
  13. 11.
    Michael Jensen: “The Takeover Controversy”, in: , Louis Lo-wenstein, and S. Rose-Ackerman (Eds.): Knights, Raiders, and Targets (New York: Oxford University Press, 1988), pp. 314–354.Google Scholar
  14. 12.
    This emphasis that probably derives originally from a misreading of the so-called “father of modem free enterprise”, the 18 th century economist and philosopher, Adam Smith. Specifically a misreading of Smith’s notion of the Invisible Hand. See Adam Smith: The Wealth of Nations, ed. R. H. Campbell, A. S. Skinner, and W. B. Todd (Indianapolis: Liberty Classics 1776; 1981) IV.ii.9.Google Scholar
  15. 13.
    See Patricia H. Werhane: “Mergers, Acquisitions, and the Market for Corporate Control”, Public Affairs Quarterly, 4 (1990), pp. 81–96.Google Scholar
  16. 14.
    Jensen, “Takeover Controversy”, p. 320.Google Scholar
  17. 15.
    Jensen and Meckling, p. 310–311.Google Scholar
  18. 16.
    Michael Jensen and W. H. Meckling: “Rights and Production Functions: An Application to Labor-Managed Firms and Codetermination“, Journal of Business, 52 (1979), p. 494.Google Scholar
  19. 17.
    Edward S. Herman and Louis Lowenstein: “The Efficiency Effects of Hostile Takeovers“, in: Coffee, Lowenstein, and Rose-Ackerman, pp. 211–224.Google Scholar
  20. 18.
    E. B. Magnheim and D. C. Mueller: “Are Acquiring-Firm Shareholders Better Off After an Acquisition?“, in: Coffee, Lowenstein, and Rose-AckerMan, p. 171–193.Google Scholar
  21. 19.
    Price Pritchett: After the Merger: Managing the Shockwaves (Homewood, IL: Dow Jones-Irwin, 1985)Google Scholar
  22. 19.
    Patricia H. Werhane: “Two Ethical Issues in Mergers and Acquisitions“, Journal of Business Ethics, 7 (1988), pp. 39–43.Google Scholar
  23. 20.
    R. Edward Freeman and Daniel Gilbert, Jr.: Corporate Strategy and the Search for Ethics (Englewood Cliffs, N.J.: Prentice-Hall Inc., 1988)Google Scholar
  24. 20.
    Thomas Peters and R. Waterman: In Search for Excellence (New York: Harper & Row, 1982), and The Business Roundtable: Corporate Ethics: A Prime Business Asset (New York: The Business Roundtable, 1988).Google Scholar
  25. 22.
    Robert C. Pozen: “Institutional Investors: The Reluctant Activists“, Harvard Business Review, January-February 1994, pp 142–3.Google Scholar
  26. 23.
    Pozen, op. cit. Google Scholar
  27. 24.
    Sara Calian and Suzanne McGee: “Kaweske Gained from Stock Pick long before his Funds“, Wall Street Journal, January 17, 1994, pp. C1-C10.Google Scholar
  28. 25.
    See, for example, G. Christian Hill: “A Never Ending Story“, Stanford Law and Policy, 2 (1990), pp. 21–36.Google Scholar
  29. 26.
    See Patricia H. Werhane: “The Savings and Loan Crisis“, Stanford Law and Policy, 2 (1990).Google Scholar
  30. 27.
    See Susan E. Kuhn: “Munis: the Last of the Tax Havens“, Fortune: 1991 Investor’s Guide, pp. 189–192.Google Scholar
  31. 28.
    Leah Nathans Spiro, Larry Light, Chuck Hawkins, and Geoffrey Smith: “Back-Scratching on the Street“, Business Week, May 24, 1993, pp. 122.Google Scholar
  32. 29.
    Ibid, p. 122.Google Scholar
  33. 30.
  34. 31.
    See Jonathan Furebringer:, Bond Firms Disclose Guides for Banning Political Gifts“, New York Times, December 9, 1993, pp. D1, D18, and Mercedes M. Cardona: “Political Gifts Ban Considered“, Pensions and Investments, November 1, 1993, pp. 2, 58.Google Scholar
  35. 31.
    Mercedes M. Cardona: “Political Gifts Ban Considered“, Pensions and Investments, November 1, 1993, pp. 2, 58.Google Scholar
  36. 32.
    See Richard Taub: Community Capitalism (Boston: Harvard Business School Press, 1988) for a detailed analysis of the South Shore Bank and its development.Google Scholar

Copyright information

© Springer-Verlag Berlin · Heidelberg 1995

Authors and Affiliations

  • Patricia H. Werhane

There are no affiliations available

Personalised recommendations