We can count, but we are rapidly forgetting to say what is worth counting and why?

Ethics in Finance

Prepared byBiswajit Garg

Umananda Bordoloi

Ethics in Finance

Contemporary financial economist view ethics in the context of objective wealth maximization.

……this view is considered as both illogical and ambiguous.

Illogical..

Because it merely sanction unethical behavior if such behavior can be shown to lead to material gain.

Ambiguous…

Because throughout the 2000-year history of moral philosophy, ethics has generally been viewed as a behavioral motivation, not as a constraint.

If I hear of an employee loosing the company money, I’ll be understanding. However, if I hear of an employee losing Salmon one shred of reputation, I’ll be ruthless.

Diverse range of ethics in Finance

• Ethics in corporate finance• Ethics in accounting• Ethics in stock market• Ethics in transactions• Ethics in financial services• Ethics in financial management………….

• TODAY is my last day at ______________. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

What is Goldman Sachs?

• It is an American multinational bulge bracket investment banking and securities firm.

• Goldman Sachs was founded in 1869 and is headquartered at 200 West Street in the Lower Manhattan area of New York City.

• Chief Executive Officer: Lloyd C. Blankfein

• Total Assets: $ 923 billion

Who is Greg Smith??

• A Goldman Sachs Executive who resigned on March 14, 2012.

• He was responsible for the U.S./Americas equity derivatives business in Europe.

• He joined the firm in 2001.

Ethics in question…

• Behind closed doors, it is a conversation that has been taking place with increasing urgency on Wall Street in recent years:

Making money is good, but is making more money always better, even if it comes at the expense of clients?

Observations

• It could reignite public suspicion that the culture of Wall Street has swung so sharply to the short-term side of the ledger that clients have not been coming in first, or even second, but dead last.

• He warned, “People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.”

Ethical Alternative

• Wall Street, of course, has always sought profits — but if greed were to be countenanced, it should be long-term greed, not short-term greed, in the words of Gus Levy, who led Goldman Sachs in the 1960s and ’70s.

• With long-term greed, money is made with clients, not from them.

OWS

• A protest that begun in Sep 17, 2011.• It was initiated by the Canadian activist

group Adbusters.• The main issues are social and economic

inequality, greed, corruption and the undue influence of corporations on government—particularly from the financial services sector.

• The slogan, We are the 99%, addresses the growing income inequality and wealth distribution in the U.S. between the wealthiest 1% and the rest of the population.

WHAT IS THE SOLUTION?

• Transparency.• Extensive use of technology.• Decentralization of responsibilities.• Strong and unbiased regulators.• Clear objective of the organization.• Most importantly individual integrity.

In Q2, our revenue grew… on the back of a 4-per cent volume growth and rupee depreciation against the US dollar… We believe these factors will also enhance annual margin performance… I would like to emphasise that _________is leaving no stone unturned in our efforts to create a sound foundation for our future.

…………..2008

The balance sheet carries as of September 30, 2008 inflated (non-existent) cash and bank balances… The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years.

………..2009

So what happened in one year?

In a letter to the Board of Directors

The Balance Sheet carries as on September 30, 2008-Inflated cash and bank balances of Rs. 5,040 crore.An accrued interest of Rs. 376 crore, which is non-existent.An understated liability of Rs. 1,230 crore on account of funds arranged.An overstated debtor liability of Rs. 490 crore.

Aftermath

• Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998, compared to a high of 544 rupees in 2008.

• PricewaterhouseCoopers….."inaccurate and unreliable“

• Actual number of employees is only 40,000 and not 53,000, 20 crore every month for paying these 13,000 non-existent employees.

Aftermath……

• On 13 April 2009, a 46% stake in Satyam was purchased by Mahindra & Mahindra owned company Tech Mahindra, as part of its diversification strategy. Effective July 2009, Satyam rebranded its services under the new Mahindra management as "Mahindra Satyam"

As a result of the scandal, under the directions of the new Mahindra management team, Satyam Computer Services restated its financial results for the period 2002 to 2008. These restated results were published in September 2009.

Case Files

• Enron Corporation was an American energy, commodities, and services company based in Houston, Texas.

• At the end of 2001, it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud, known as the "Enron scandal".

Aftermath

• Enron has since become a popular symbol of wilful corporate fraud and corruption.

• The scandal also brought into question the accounting practices and activities of many corporations throughout the United States and was a factor in the creation of the Sarbanes–Oxley Act of 2002.

• The scandal also affected the wider business world by causing the dissolution of the Arthur Andersen accounting firm.

Conclusion