Reading 69: ethics and trust in investment profession

Question 1

Professional standards of practice:
are a personal view of acceptable behavior.
encompass current “best practices.”
specify a minimum level of acceptable conduct.

Answer 1

Professional standards of practice specify a minimum level of acceptable conduct for a group or organization, whereas “best practices” are suggested behavior, not a minimum acceptable level. (LOS 69.b)

Question 2

A professional code of conduct:
can increase public trust in the profession.
guarantees that members will adhere to a minimum level of ethical conduct.
includes standards that provide guidance for specific behaviors.

Answer 2

A professional code of conduct communicates to the public that members have promised to uphold a minimum level of ethical conduct when acting for clients. This is no guarantee that all members will follow the code at all times. A code of conduct may include specific standards of behavior or only state principles of conduct without specific standards or guidance. (LOS 69.b)

Question 3

Situational factors that influence ethical behavior are least likely to include:
social pressure.
large financial rewards.
a lack of ethical principles.

Answer 3

Situational factors are those external to the decision makers, such as financial rewards and desire to please coworkers or others. Researchers have found that external factors are often more likely than a lack of personal ethics to lead to poor ethical decisions. (LOS 69.f)

Question 4

Compared to complying with laws and regulations, complying with a code of ethics:
is considered a lower standard.
often involves more judgment.
includes compliance with all laws and regulations.

Answer 4

A code of ethics is considered a higher standard of behavior as it goes beyond simply legality of behavior. Compliance with the ethical principles of a code of ethics often requires judgment in balancing the interests of various stakeholders and consideration of short-term effects with longer-term effects of decisions. Some behavior that is illegal, such as civil disobedience or “whistle-blowing,” is considered to be ethical behavior by many. (LOS 69.g)

Question 5

Employing a framework for decision-making that includes the ethical aspects of the decision is most likely to:
lead to higher profits.
avoid any unintended ethical consequences of decisions.
balance the interests of various stakeholders.

Answer 5

A decision-making framework that includes the ethical aspects of the decision should consider the conflicts among the interests of various stakeholders so that decision makers can use the company’s stated ethical principles and their judgment to balance these interests in an ethical manner. Profit maximization, at least in the short term, does not necessarily follow from sound ethical judgment. While integrating ethics into the decision-making process can consider and reduce unintended ethical consequences of a decision, avoiding them altogether can never be assured. (LOS 69.h)