The Impact of Business Ethic on Organisational Performance Essay

ETHICS AND PERFORMANCE: AN ASSESSMENT OF THE IMPACT OF BUSINESS ETHICS ON ORGANISATIONAL PERFORMANCE WITHIN THE FINANCIAL SERVICES INDUSTRY. HSBC HOLDING PLC AS THE CASE STUDY. CONTENTS List of figures and tables ———————————————————————————-4 Executive summary —————————————————————————————-5 Acknowledgement ——————————————————————————————6 PART 1: PROBLEMATISATION

CHAPTER 1: THE INTRODUCTION 7 1. Nature of the problem to be investigated ———————————————————- 7 2. Research Objectives ———————————————————————————-10 3. Research Questions ———————————————————————————11 4. Research Approach ———————————————————————————11 1. Summary ——————————————————————————————– 15 CHAPTER 2: THE BUSINESS MODEL – HSBC HOLDING PLC 16 2. 1 Background information about HSBC Holding Plc ——————————————- 16 2. 2 The HSBC Strategy —————————————————————————– 20 2. 3 HSBC Business Models – General overview ——————————————————22 2. 4 Analysis of the usiness model ———————————————————————-23 2. 5 Summary ———————————————————————————————26 CHAPTER 3: PERFORMANCE GAP ANALYSIS 28 3. 1 Introduction and chapter overview ——————————————————————28 3. 2 Critical evaluation of HSBC Holding Plc ———————————————————-28 3. 2. HSBC: Role in the Economy —————————————————————————–30 3. 2. 2 Engaging Stakeholders ———————————————————————————–31 3. 3 Limitations ———————————————————————————————33 PART 2: THEORISATION CHAPTER 4: LITERATURE REVIEW 34 4. 1 Introduction ——————————————————————————————34 4. Ethical Theories —————————————————————————————-35 4. 2. 1 Teleological theory —————————————————————————————36 4. 2. 2 Stakeholder theory —————————————————————————————-37 4. 2. 3 Agency theory VS stewardship theory———————————————————————38 4. 2. 4 VROOM’s Expectancy theory —————————————————————————-40 4. Other Measuring Parameters ————————————————————————-41 4. 3. 1 General codes of conduct ———————————————————————————42 4. 3. 2 Compliance with Legal and Financial regulations———————————————————-43 4. 3. 3 Business Ethics and Corporate Governance —————————————————————44 4. 3. 4 Business Ethics and Corporate Social Responsibility —————————————————–46

We will write a custom essay sample on
The Impact of Business Ethic on Organisational Performance Essay
or any similar topic only for you
Order now

CHAPTER 5: IMPLICATIONS, RECOMMENDATIONS AND CONCLUSION 50 5. 1 Introduction ——————————————————————————————–50 5. 2. 1 Presentation of primary data ——————————————————————————50 5. 2. 2 Variables likely to cause weak or non-adherence to ethical practices—————————————53 5. 3 Practical implications———————————————————————————-65 5. 3. Barings Bank ———————————————————————————————65 5. 3. 2 HSBC Holding Plc —————————————————————————————68 5. 4 Recommendations ————————————————————————————-71 5. 5 Conclusion ———————————————————————————————-73 CHAPTER 6: REFELCTIVE SUMMARY 74 6. Introduction ——————————————————————————————–74 6. 2 New Skills Acquired ———————————————————————————-75 REFERENCES —————————————————————————————–79 APPENDIX ———————————————————————————————–81 LIST OF FIGURES AND TABLES FIGURES

Fig 1: Obligation of HSBC Senior Financial Officer———————————————- 9 Fig 2: HSBC Strategic Trend ————————————————————————20 Fig 3: HSBC Business Model ————————————————————————22 Fig 4: HSBC Updated Strategy- personal Financial Services ———————————–25 Fig 5: Stakeholders Theory ————————————————————————–36 Fig 6: Illustration of agency theory ——————————————————————38 Fig 7: VROOM’s Expectancy theory ————————————————————– 40 TABLES

Table 1: Tier 1 Capital Ratios ————————————————————————16 Table 2: Geographical contribution of HSBC operating centres———————————17 Table3: Customer group contribution of operating centres ————————————–17 Table 4: HSBC Credit Rating ————————————————————————18-19 Table 5: HSBC Distribution of Economic Benefit————————————————-30 Table 6: Primary data analysis ———————————————————————–50-64 Table 7: Losses from concealed transactions & total losses————————————–67 Table 8: Summary consolidated Income statement ———————————————–70 EXECUTIVE SUMMARY Organisational performance and business ethics have a positive strong correlation; in the sense that while the former serves as the fulcrum for measuring the attainment of the undamental progression of an organisation’s objectives, the latter significantly influences it’s functioning. The financial services sector is characterized by complexities and thriving in such an environment, requires the ability to constantly align the firm’s organisational performance to new opportunities and business imperatives. The following five principles would be used as the framework upon which HSBC Holding Plc ethical business practices will be assessed: These five principles are as follows: General conducts, Compliance with legal and financial regulations, Responsible trading practices, Good employment practices and Concern for the environment.

This research paper will attempt to establish the positive correlation that exists between business ethics and organisational performances in the financial services industry. A scholastic analysis of the influence of business ethics on the performance of organisations within the financial services industry will also be explored; while identifying and enumerating the ethical characteristics of businesses with consistent positive organisational performance within the financial services industry. The report will, in conclusion, stress the need for financial services organisation to adhere to ethical codes of conducts; as none or weak adherence could have fatal consequences both in the short and long run.

The report will also demonstrate, using HSBC Holding Plc, how adherence to business ethical standards and code of conducts significantly influence the trend of the performances of the organisations in the financial services industry. CHAPTER ONE: INTRODUCTION 1. 1 NATURE OF THE PROBLEM TO BE INVESTIGATED The 21st century market-places are increasingly becoming more conscience- based; thereby ascribing more importance to the relevance of ethical business processes and codes of conducts coupled with its attendant effects on organisational performance. Ethics used to be a rare word in the world of core business; However, the emergence of its increasing importance, have in the recent years, raised a great deal of concern about the standards in both of the public and business worlds. In the past, the personal integrity of business leaders ere sufficient to guaranteeing ethically justifiable decisions; but recent events have highlighted the importance of an organisation setting out concrete steps towards integrating ethical codes of conducts into its operations, processes and policies. Whenever and wherever the subject of ethics is discussed, questions are raised to challenge the true validity of its influence on the performance of an organisation. Do business ethics truly have a positively correlative relationship with organisational performance? Is business ethics impact on organisational performance strong enough to influence its trend? Why should financial services organisations try to be ethical? There have been numerous arguments for and against this topic. To some school of thought, the intrinsic values accruable are sufficient in their own right as doing right needs no justification.

However, we all know that in the business world, further argument would be needed by those whose daily mantra are – Shareholders Value, profit maximization etc. Empirical evidences have been secured on how ethical behaviours improves relationships with customers, shareholders, employees, as well as suppliers; thereby positively impacting the bottom line. Historical records have it that the cost of serious breach of ethical procedures can be very pronounced. These costs range from shareholders’ opposition to executive pay to environmental catastrophic disaster. Gone are the days when an organisation is judged by its economic performance alone, nowadays, they are simultaneously judged by the contents of their corporate character and ethical practices.

Although ethical process may not guarantee correct behaviour, but it can certainly improve the odd. The argument is that business ethics certainly have a pronounced influence on the profitability and the performance of an organisation; the complacent handling of this fact, has always, and will continue to spell doom for such business. Businesses which are deemed unethical by the public will lose customers, deter potential employees as well as encourage the government to make life difficult for them. Accountability for performance has become increasingly important due to the current economic global instabilities; the effects of which have been more pronounced in the financial services sector.

This in turn, has led to a renewed effort by the financial services organisations to ensuring that their employees not only understand their roles and responsibilities but that there is a continuous dialogue among employees and leaders within the organisation; with the aim of establishing an organisational culture that successfully measures and accounts for performance while ensuring that essential action plans are taken that ensures that the organisational systems and processes are well aligned with it ethical dispositions and ethos. Below is the ‘Obligations of Senior Financial Officers’ excerpted from the banking group’s codes of conducts: “HSBC Group Business Principles and Values is applicable to all HSBC employees and sets out the fundamental standards to be followed by | |them in their everyday actions on behalf of the Company. In addition to the Group Business Principles and Values, the Group Chairman, | |Group Chief Executive, Group Finance Director and Group Chief Accounting Officer or persons performing similar functions (the “Senior | |Financial Officers”) shall be subject to and comply with the following principles: | |Each Senior Financial Officer shall engage in honest and ethical conduct, including the ethical handling of actual or apparent conflicts | |of interest between personal and professional relationships. |Each Senior Financial Officer shall avoid conflicts of interest and shall disclose to the Chairman of the Group Audit Committee any | |material transaction or relationship of which he or she is aware that reasonably could be expected to give rise to such conflict. | |Each Senior Financial Officer shall take such measures as appropriate to assure that HSBC complies with all applicable governmental laws,| |rules and regulations and provides full, fair, accurate, timely and understandable disclosure in reports and documents that it files | |with, or submits to, any securities regulatory authority including the UK Listing Authority and the Securities and Exchange Commission | |and in other public communications it makes. |Each Senior Financial Officer shall report promptly to the Chairman of the Group Audit Committee any violations of the Group Business | |Principles and Values of which he or she is aware. ” | Fig 1: Obligations of Senior Financial Officer. (Excerpted from the corporate governance report) The HSBC Holding Plc maintains across board, an organisational culture that promotes increased accountability while building a consciousness of high ethical standard in its business frameworks and models. The engagement of this culture of accountability, by the banking group’s employees coupled with the its leadership’s commitment to ensuring effective performance has, in turn, led to feelings of empowerment and continuity among the staff.

S K Green , Group Chairman of HSBC Holding Plc, observed that profit maximization was not the group’s target but it is the residual. He further stressed that “profit is the end result of doing the right things in the right ways”. He claimed that chasing phoney financial targets is the wrong thing and that invariably,inevitabily, a system will be built that will hinder the very profit in the long run. This implies that adherence to ethical practices would in the long run engender positive performance in the trend of an organisation and its violation, could also, in the long run, hinder effective and positive performance. 1. 2 RESEARCH OBJECTIVES

This research paper aims to achieve the following objectives: • To establish the positive correlation that exists between business ethics and organisational performances in the financial services industry. • To achieve scholastic analysis of the influence of business ethics on the performance of organisations within the financial services industry. • To ascertain whose duty it is, be it fiduciary, corporate or statutory ; to ensuring the compliance, control and management of ethical codes of conducts in an organisation within the financial services industry • Identify while enumerating the ethical characteristics of businesses with consistent, ositive organisational performance within the financial services industry. 1. 3 RESEARCH QUESTIONS The research project aim to answer the following questions: • Is there a positive correlation between business ethics and organisational performance? • Does business ethics impact on organisational performance strong enough to influence its trend? • Why should financial services organisations try to be ethical? • Given the importance of adherence to business ethics, who should be responsible for its compliance and control in the organisation? • What are the ethical characteristics of businesses that maintains sound and consistent organisational performance? 1. 4 RESEARCH APPROACH

The scope of this research was limited to how business ethics issues influence the trend of an organisational performance. This report also demonstrated that business ethics, amongst other parameters, serves as an initial condition that triggers the patterning of the performance of an organisation. The report also used ethics-related issues such as corporate governance, compliance, codes of conduct, corporate social responsibility etc, especially as applied to HSBC Holding plc; as the fulcrum upon which the research questions would be addressed. The research data for this report was carried out using the following methods: • Literature Review • Questionnaire • Interviews • Observations • Literature review

Published material relating to Theories such as Stakeholder, Transparency and Accountability, Stewardship, Expectancy, Virtue ethics, Deontological ethics, Teleological ethics as well as Ethical learning and growth were reviewed. In addition, a number of published and electronic article on how business ethics have affected organisational performance in the financial services environment was reviewed. The relationships between the published data and the work on this research were identified. Gaps were exploited and recommendations duly made. I consulted prominent academic works on the subject matter, these include: Business ethics: the new bottom line by Sheena Carmichael (1995), The Act Guide to Ethical Conflicts in Finance, released by the Association of Corporate treasurers (1994); Current issues in Business ethics edited by Peter W. F.

Davies (1994); Business Ethics and Values by Colin Fisher and Alan Lovell. Of great importance, was the journal titled: BCCI & Barings: Bank Resolutions Complicated by Fraud and Global Corporate Structure written by Richard J. Herring and edited by Jacob Safra, Professor of International Banking and Co-Director of the Wharton Financial Institutions Centre, The Wharton School, University of Pennsylvania. The journal gave a very good expose, among other things, of the consequences of circumventing ethical business practices. I also obtained vital information from the press coverage of BCCI and Barring bank saga, (Refer to the Inner City Press release on the 23rd of December 2002).

I also visited the websites of the following specialists’ organizations: • The Institute of Business ethics, Nijenrode University • Demos Research Associates • Centre for professional Ethics, University of Lancashire • The Association of Corporate treasurers • The British Institute of Business ethics • The Society of Business Ethics • Questionnaire A simple, easy to fill questionnaire was designed and sent to 35 Lower- management cadres, 25 middle-management cadres and 5 senior-management cadres at the HSBC Holding Plc. It was easy to send the questionnaire to all the middle and senior managers at the bank by using hand delivery and e-mail. This was done to ensure that the entire population was covered.

Follow up visitations was made and e-mails were sent to ensure that a good number of responses were obtained. In the end, 30 responses were obtained out of the 35 Lower- management cadres. 24 responses were obtained out of the 25 enquiries made at the middle- management cadres while 1 response was obtained from the senior-management cadres. The combination of these responses was adjudged to be a sufficient representation. A sample of the questionnaire is included in the appendix. (Refer to appendix 7) • Interviews A well structured and organised interviews with the key personnel responsible for the management, control of, and compliance with the ethical codes of conducts with the various epartments of the HSBC Holding Plc, especially in the United Kingdom. Arrangement was made to obtain expert opinions on the topic under discussion. The personnel involved were very cooperative and provided a valuable inputs and insights into this research. • Observation Some of the data used in this research were collected through observation of the documented systems, processes and procedures. For example the processing of loan request by companies and the factors primed when carrying out feasibility studies for new branch location. The findings of this report were premised on the review of existing literatures and data collected from relevant contact personnel within the banking group.

Theories such as Stakeholder, Transparency and Accountability, Stewardship, Expectancy, Virtue ethics, Deontological ethics, Teleological ethics as well as Ethical learning and growth were used for the analysis of the correlation that exists between adherence and /or non-adherence to the principles of business ethics and the performance trend of HSBC Holding Plc, an organisation within the Financial Services Industry. 5. SUMMARY The analysis of HSBC Holding plc’s ethical codes of conducts, policies as well as programmes was conducted. References were also made to the defunct Barings Bank Plc, in respect of the consequential effects of non-adherence to ethical business practices and principles.

Also, useful information was collected from websites of relevant organisations and groups. The analysis of my findings reflected both the dependent and independent variables while significantly using the variables that best portrays the core essence of my research investigation; in the most meaningful way as the need arises CHAPTER TWO: THE BUSINESS MODEL 2. 1 BACKGROUND INFORMATION OF HSBC HOLDING PLC HSBC Holding Plc, popularly known as”The World’s Local Bank. ” was incorporated in the United Kingdom in 1990 with its headquarter moved to London in 1993. HSBC Holding Plc has an international pedigree that is unique with 8,500 offices in 86 countries, 330 staff, 10,000 shareholders as well as 128 millions customers worldwide; while maintaining strong trading presence in the Asia-Pacific region, the Americas, Europe, Africa and the Middle East. The HSBC Holding Plc is coined after its founding members, The Hong Kong and Shanghai Banking Corporation Limited, which was founded in 1865 to provide finance for the growing trading activities between China and Europe. [pic] Table 1: Tier 1 Capital Ratios Source: HSBC Global estimates As at 2009, HSBC Holding Plc is the world largest banking group, in terms of market value ($180. 18 billion) and the sixth largest company in the world. The banking group paid a whopping sum of ? 4. billion as dividend in 1998, this represents the second highest dividend paid by any bank in the world and the third highest payment by any FTSE 100 company. The group is known as a significant authority in investment, lending and insurance activities around the world. Below is the contributions made by the banking group’s operating centres around the world in 2008. This contribution is classified in terms of geography and customer group: Geographical Contribution*: |Europe |116. 7% | |Hong Kong |58. % | |Rest of Asia Pacific |69. 5% | |Latin America |21. 9% | |North America |(166. 8)% | Table 2: Geographical contribution of operating centres world wide (HSBC G. S /Investor relation)) (* Pre-tax profit for the full year ended 31 December 2008) Customer Group Contribution*: |Commercial Banking |77. % | |Global Banking and Markets |37. 4% | |Personal Financial Services |(117. 9)% | |Private Banking |15. 6% | |Other |87. 6% | Table 3: Customer group contribution of operating centres world wide (HSBC G. S /Investor relation)). *Pre-tax profit for the full year ended 31 December 2008) The two tables above attests to the huge global market reach and the viable operational structures enjoyed by the banking group. The group are known as a significant authority in investment, lending and insurance activities around the world. The banking group has a global reach and financial pedigree matched by few other banking groups in the world. The banking group provides an exhaustive range of financial services such as commercial banking, corporate banking services, investment banking and markets, private banking, personal financial services as well as other financial trading activities. HSBC CREDIT RATING   |  |Moody’s |S&P* |Fitch |DBRS | |  | |HSBC Holdings plc | |The Hongkong |HK$ issues | |and Shanghai | | |Banking Corporation Ltd | | | |Long Term/Senior | | | |HSBC USA Inc. Long Term/Senior |A1 | |College |10 |18 | |University degree |25 |46 | |2nd degree and above |5 |8 | |Professional trade |7 |13 | |Other |8 |15 | |Total |55 |100 | Table 6 From the questionnaire 46% of the respondents are first degree holders, second degree and above holders 8% and those with college qualification are 18% while 14% and 10% represents those in professional trade and others respectively. 2) ACADEMIC DISCIPLINE Responses |Respondents |Percentage (%) | |Pure & Applied Science |16 |29 | |Environmental science |11 |20 | |Business/social science |19 |35 | |Other |9 |16 | |total |55 |100 | Table 7 29% of the respondents are science inclined, 20% did environmental science, 35% studied business and social science while 16 % did none of the above. 3) DIRECTORATE Responses |Respondents |Percentage (%) | |Commercial & Retail |32 |58 | |Investment |0 |0 | |Personal Financial Services |13 |24 | |Private Banking |10 |18 | |Total |55 |100 | Table 8 From those questioned, 58% works in the Commercial & Retail directorate, 24% works in the Personal Financial services, 18% works in the Private Banking directorate while 0% responded from the Global investment directorate. 4) LEVEL OF MANAGEMENT Responses |Respondents |Percentage (%) | |Top Management |1 |2 | |Middle Management |24 |43 | |Supervisory |30 |55 | |Total |55 |100 | Table 9 2% of the respondents are top managers, 43% are in middle management while the remaining 40% belongs to the lower level cadre. 5) WORKING EXPERIENCE Response |Respondent |Percentage (%) | |Below 5 years |12 |22 | |5-10 years |23 |42 | |10-20 years |18 |33 | |Above 20 years |2 |3 | |total |55 |100 | Table 10 22% of the respondents have working experience of less than 5 years, 42% has experience of 5 to 10 years, and 33% has working experience of 10 to 20 years while 3 % of the respondents have working experience of over 20 years. 5. 2. 2 VARIABLES THAT ARE LIKELY TO CAUSE LOW OR NON- ADHERENCE TO ETHICAL PRACTICES. A five point relevance levels has been provided for each variable as follows: “Completely relevant” (5), “Relevant” (4), “Just relevant” (3), “Irrelevant” (2) and “Completely irrelevant” (1). Please tick appropriately. MANAGEMENT 6) How relevant is unqualified ethics- compliant Managers to non-compliance? Response |Respondent |Percentage (%) | |Completely relevant |52 |94 | |Relevant |3 |6 | |Just relevant |0 |0 | |Irrelevant |0 |0 | |Completely irrelevant |0 |0 | |Total |55 |100 | Table 11 52 people who represent 94% of the respondents believe that unqualified ethics managers are completely relevant to non-adherence to ethical practices while 6% of the respondents believe unqualified managers are relevant to non-adherence to ethical practices. 7) How relevant is lack of Team leadership to non-compliance? Response |Respondent |Percentage (%) | |Completely relevant |45 |82 | |Relevant |5 |9 | |Just relevant |3 |5 | |Irrelevant |1 |2 | |Completely irrelevant |1 |2 | |Total |55 |100 | Table 12 82% of the respondents believe lack of leadership is completely relevant to non-adherence to ethical codes of conduct, 9% of the people is relevant, 5% of the respondents believe is just relevant. One erson apiece, representing 2% believe that it is irrelevant and completely irrelevant. 9) How relevant is lack of understanding of the codes of conduct to non-adherence? |Response |Respondent |Percentage (%) | |Completely relevant |53 |96 | |Relevant |2 |4 | |Just relevant |0 |0 | |Irrelevant 0 |0 | |Completely irrelevant |0 |0 | |Total |55 |100 | Table 13 53 people who represent 96% of the respondents believe that lack of understanding of the codes of conduct is completely relevant to non-compliance with ethical practices while 4% of the respondents believe that lack of understanding of the codes of conduct is relevant to non-compliance. 10) How relevant is inadequate induction period to non-compliance? Response |Respondent |Percentage (%) | |Completely relevant |55 |100 | |Relevant |0 |0 | |Just relevant |0 |0 | |Irrelevant |0 |0 | |Completely irrelevant |0 |0 | |Total |55 |100 | Table 14 The entire 55 respondents, which is 100% of the respondent sample believes that inadequate induction period is relevant to non-compliance with ethical codes of conduct. 11) How relevant is lack of adherence culture to non-compliance with ethical practices? Response |Respondent |Percentage (%) | |Completely relevant |54 |98 | |Relevant |1 |2 | |Just relevant |0 |0 | |Irrelevant |0 |0 | |Completely irrelevant |0 |0 | |Total |55 |100 | Table 15 54 respondents, which is 98% of the respondent sample believes that lack of adherence culture is completely relevant to non-compliance with ethical practices; while 2% believe that it is relevant. 12) How relevant is lack of compliant control and review measures to non-compliance with ethical practices? Response |Respondent |Percentage (%) | |Completely relevant |50 |91 | |Relevant |5 |9 | |Just relevant |0 |0 | |Irrelevant |0 |0 | |Completely irrelevant |0 |0 | |Total |55 |100 | Table 16 91% of the respondent sample believes that lack of compliant control and review measures is completely relevant to non-compliance with ethical practices; while 9% believe that it is relevant. 13) How relevant is poor staff’s briefing to non-compliance with ethical practices? Response |Respondent |Percentage (%) | |Completely relevant |40 |72 | |Relevant |10 |18 | |Just relevant |2 |4 | |Irrelevant |3 |6 | |Completely irrelevant |0 |0 | |Total |55 |100 | Table 17 72% of the respondent sample believes that lack of compliant control and review measures is completely relevant to non-compliance with ethical practices, 18% believe that it is relevant, 4% believe that it is just relevant while 6% reckon that it is irrelevant to it. 14) How relevant is lack of knowledge of technical, legal and Contractual frame work associated with codes of conduct and standards? Response |Respondent |Percentage (%) | |Completely relevant |0 |0 | |Relevant |5 |9 | |Just relevant |10 |18 | |Irrelevant |15 |27 | |Completely irrelevant |25 |46 | |Total |55 |100 | Table 18 46% of the respondent sampled believes that lack of knowledge of technical, legal and Contractual frame work associated with codes of conduct and standards is completely irrelevant to non-compliance with ethical practices, 27% believe that it is irrelevant, 18% believe that it is just relevant while 9% reckon that it is relevant to it. 15) How relevant is inadequate established procedure for the implementation of ethical codes to non-compliance with ethical practices? Response |Respondent |Percentage (%) | |Completely relevant |30 |55 | |Relevant |10 |18 | |Just relevant |10 |18 | |Irrelevant |5 |9 | |Completely irrelevant |0 |0 | |Total |55 |100 | Table 19 55% of the respondent sampled believes that lack of compliant control and review measures is completely relevant to non-compliance with ethical practices, 18% believe that it is relevant, 18% believe that it is just relevant while 9% believe that it is irrelevant. 16) How relevant is lack of systematic cost control measures for the established ethical codes to non-compliance with ethical practices? Response |Respondent |Percentage (%) | |Completely relevant |0 |0 | |Relevant |0 |0 | |Just relevant |0 |0 | |Irrelevant |5 |9 | |Completely irrelevant |50 |91 | |Total |55 |100 | Table 20 91% of the respondent sampled believes that lack of systematic cost control measures for the established ethical codes is completely irrelevant to non-compliance with ethical practices while 9% believe that it is irrelevant. 17) How relevant is lack of transparency in the affairs of the company to non-compliance with ethical codes? Response |Respondent |Percentage (%) | |Completely relevant |45 |82 | |Relevant |9 |16 | |Just relevant |1 |2 | |Irrelevant |0 |0 | |Completely irrelevant |0 |0 | |Total |55 |100 | Table 21 82% of the respondent sampled believes that lack of transparency in the affairs of the company of compliant control and review measures is completely relevant to non-compliance with ethical practices, 16% believe that it is relevant, 2% believe that it is just relevant while 6% reckon that it is irrelevant to it. 18) How relevant is Culture of corruption to non-compliance with ethical practices? Response |Respondent |Percentage (%) | |Completely relevant |55 |100 | |Relevant |0 |0 | |Just relevant |0 |0 | |Irrelevant |0 |0 | |Completely irrelevant |0 |0 | |Total |55 |100 | Table 22 100% of the respondent sampled believes that a culture of corruption is relevant to non-compliance with ethical practices. 19) How relevant is incomplete compliant testing to non-compliance with ethical practices? |Response |Respondent |Percentage (%) | |Completely relevant |41 |75 | |Relevant |12 |22 |Just relevant |2 |3 | |Irrelevant |0 |0 | |Completely irrelevant |0 |0 | |Total |55 |100 | Table 23 75% of the respondents say that incomplete compliant testing is completely relevant to non- compliance with ethical values, 22% says it is relevant while 3% says that it is just relevant. 20) How relevant is initial standard codes and practices auditing errors to non-compliance with ethical codes? Response |Respondent |Percentage (%) | |Completely relevant |10 |19 | |Relevant |20 |36 | |Just relevant |5 |9 | |Irrelevant |20 |36 | |Completely irrelevant |0 |0 | |Total |55 |100 | Table 24 19% of the respondent opined that initial standard codes and practices auditing errors is completely relevant to non-compliance with ethical codes, 36% believes that it is relevant, 9% stated that it is just relevant while 36% says that it is irrelevant. 21) How relevant is collusion with in-house professionals to misrepresent ethical practices information to non-compliance? Response |Respondent |Percentage (%) | |Completely relevant |41 |76 | |Relevant |7 |12 | |Just relevant |7 |12 | |Irrelevant |0 |0 | |Completely irrelevant |0 |0 | |Total |55 |100 | table 25 76% of the respondents believe that collusion with in-house professionals to misrepresent ethical practices information is completely relevant to non-compliance with ethical standards. 12% believe that it is relevant while 12% believe that it is just relevant. 22) How relevant is poor supervision in ensuring that established practices conform to approved codes? |Response |Respondent |Percentage (%) | |Completely relevant |10 19 | |Relevant |20 |36 | |Just relevant |5 |9 | |Irrelevant |20 |36 | |Completely irrelevant |0 |0 | |Total |55 |100 | Table 26 19% of the respondent believed that poor supervision in ensuring that established practices conform to approved codes completely relevant to non-compliance with ethical codes, 36% believes that it is relevant, 9% stated that it is just relevant while 36% says that it is irrelevant. 24) How relevant is incompetent in-house professionals to non-compliance with ethical standards? Response |Respondent |Percentage (%) | |Completely relevant |50 |91 | |Relevant |1 |2 | |Just relevant |4 |7 | |Irrelevant |0 |0 | |Completely irrelevant |0 |0 | |Total |55 |100 | Table 27 91% of those that responded to the survey acknowledged that incompetent in-house professionals is completely relevant to non-compliance with ethical standards. 25) How relevant is collusion with in-house professionals to misrepresent ethical practices information to non-compliance? Response |Respondent |Percentage (%) | |Completely relevant |41 |75 | |Relevant |12 |22 | |Just relevant |2 |3 | |Irrelevant |0 |0 | |Completely irrelevant |0 |0 | |Total |55 |100 | Table 28 75% of the respondents believe that collusion with in-house professionals to misrepresent ethical practices information is completely relevant to non-compliance with ethical standards. 22% believe that it is relevant while 3% believe that it is just relevant. 26) How relevant is arbitrary standard practices guidelines to non-compliance with ethical standards? |Response Respondent |Percentage (%) | |Completely relevant |41 |76 | |Relevant |7 |12 | |Just relevant |7 |12 | |Irrelevant |0 |0 | |Completely irrelevant |0 |0 | |Total |55 |100 | Table 29 76% of the respondents believe that arbitrary standard practices guidelines practices information is completely relevant to non-compliance with ethical standards. 12% believe that it is relevant while 12% believe that it is just relevant. 27) How relevant is lack of Executive capacity to monitor the implementation of the codes of conduct? Response |Respondent |Percentage (%) | |Completely relevant |35 |63 | |Relevant |12 |22 | |Just relevant |8 |4 | |Irrelevant |0 |0 | |Completely irrelevant |0 |0 | |Total |55 |100 | Table 30 This table shows that 63% of the respondent believes that lack of executive capacity to monitor the implementations of the codes of conducts. 22% also believe that it is relevant while 8% says that it is just relevant. 33) How relevant is envisaged competitor’s nuisance giving rise to slack adherence to standard practices. Response |Respondent |Percentage (%) | |Completely relevant |47 |94 | |Relevant |3 |6 | |Just relevant |0 |0 | |Irrelevant |0 |0 | |Completely irrelevant |0 |0 | |Total |50 |100 | Table 31 4% of the respondent says that envisaged competitor’s nuisance giving rise to slack adherence is completely relevant to non-compliance with ethical practices while 6% says it is relevant. 5. 3 PRACTICAL IMPLICATIONS The analysis of HSBC Holdings Plc and the defunct Barings Bank shows that the responsible officer for the development, maintenance of ethical processes in the financial services sector should be in the top management position so as to ensure that the procedures are enforceable across board. Lack of leadership was also responsible for the failure of Barings Bank, as there was no one who could really raise ethical concerns at the top level. 1. BARINGS BANK

Empirical research reveals that Barings bank provides an interesting example of a financial service organisation that fails as a result of not having an efficient resolution to combating the tendency to undermine the relevance of business ethics to the operations and workings of financial services companies. It is no news that Baring bank failed as a result of fraud and a massive network of international operations. Although Baring bank fell to the massive fraud of individual – in the person of Nick lesson, despite the fact that it has a transparent international structure. The loss at Barings bank was sudden, that is, it occurs over a short space of time, as a result of nchecked and un-internally verified highly leverage bets in futures markets. It provides a perfect example of what could be if proper ethical standards are not maintained within an organisation. The appointments of Nick Lesson in April 1992 by the Barings Futures Singapore Ltd (BSL) to head the floor of Singapore International Monetary Exchange (SIMEX), despite the refusal by the Securities and Futures Authority (SFA) in London to issue dealers’ licence to him, earlier on in 1992, due to the fact that he made a false statement regarding an unsatisfied judgement against him. On the part of Barings bank, this was a case of professional indulgence, in that, proper procedural due diligence were verlooked during the recruitment process and the false statement made by the employee was not challenged by BSL and/or SIMEX, as well as the error of separating the trading function from the clearing and settlement function, in a small branch that is far away from the headquarter which is based in London; breaching of the most fundamental principles of risk management. With time, his mandates and responsibilities grew. Richard J. Herrings observed that his mandate as a proprietary trader was to arbitrage the difference between the prices quoted similar contracts between the SIMEX and the TOKYO Stock Exchange cum the Osaka Securities Exchange. The differences in he market structure as well as the time lag between the two exchanges created room for an assumed opportunity for profitable arbitrage. Going by the notes in the Reserve bank of Australia (1995, p3), because of the huge propensity for significant profit, Leeson was permitted to have limited intra-day unhedged position despite the fact that he was not authorized to maintain an unhedged position overnight. The Reserve Bank of Australia (1995, p. 5) observed that this kind of authorized activity “provided camouflage for unauthorized activities. The authorized activities involved exceptionally large (though theoretically riskless) positions spanning exchanges in two countries, four subsidiaries (viewed as lients on some occasions and ‘in house’ counterparties at other times) and involved margining requirements…. ” This unfettered access enabled Nick Leeson to create a secret account designated as 88888 to record his unauthorised transactions that were unhedged and almost, always reflected losses. Konert (2003, p. 198) gave a vivid account of the periodic breakdown of the losses in the secret account. The fraud continued unchecked for three years. By the June 1994, the Barings Banking Group has recorded a loss of almost ? 350 million and an accumulated loss of ? 116 million. The table below shows the losses from the concealed transactions and the total losses. |1992 II&IV |1993 |1994 I&II |1994 III&IV |1995 to | | | | | | |February 27 | |Loss from previous |- |2 |23 |116 |208 | |period | | | | | | |Period Loss |2 |21 |93 |92 |619 | |Total loss |2 |23 |116 |208 |827 | |+ Additional losses | | | | |42 | |resulting from market | | | | | | |movements after | | | | | | |February 27th, 1992 | | | | | | |+Losses resulting from | | | | |55 | |foreign exchange | | | | | | |(? against ? | | | | | | |+SIMEX costs | | | | |3 | |= Total loss after | | | | |927 | |liquidation | | | | | | Table 32: Losses from Concealed Transactions & Total Losses (Losses in millions of ? s) *Source: Kornert (2003, p. 198) The above loss positions of Baring Banking group not only prove that lack of adherence to the ethical odes of conducts by financial services organisations could lead to severe consequences such as loos of goodwill, termination of business life countless lawsuits etc led to the insolvency of the bank, it also shows that without strict adherence to, and proper monitoring of the company’s codes of conducts, unethical procedures and practices could be sustained while the financial company is heading to extinction. In the case of Baring bank, Lesson’s undue control of the back office operations reveals how fraud , internal and external oversights could lead to fatal financial consequences. Of equal importance, was the role of the Financial Control Department. It looks absurd that the account designated 88888 could not be discovered.

The Department’s roles could have been more than reporting daily to the profits and losses without investigating whether the report reflected the true nature of the profitability of

×

Hi there, would you like to get such a paper? How about receiving a customized one? Check it out