Ethics (online)

A. Knowledge of Learnt Concepts

1. Ethics provides a "rational and systematic approach to morality". What does this mean?
2. Name at least 3 recent developments in terms of contemporary business ethics?

B. Questions to reflect on Readings

1. What is the Triple font of Morality? Briefly explain the concept.
2. Give at two examples of where you might need to solve an ethical dilemma. In each case briefly define the dilemma and the possible solutions.

Discussion Questions

C. Lehman Brothers on the sub-prime crisis

Drawing on what we have discussed and studied in class in relation to this case, answer the following questions:

1. What causes triggered the "sub-prime crisis"? Can you see any moral aspect?
2. What might have been the motivations of the executives in Lehman and other banks involved in sub-prime mortgage loans?
3. The sub-prime crisis brought a bite notorious damage to the common good, but should the line and executives have been able to foresee this harm?
4. Can you identify a certain shared view of the farm and its purpose in society in those who made the strategic decisions in Lehman Brothers and Bear Sterns?

D. Problem Solving Question

Please read the following case study and answer the questions that follow:

these allegations or at any point to seek formal authority to pursue them'.'i Cox would leave the SEC shortly afterward. Madoff's wife, Ruth, who had a background in finance, had worked in the company since its inception. She also began the Madoff Charitable Foun- dation. His brother Peter joined them in the 1970s. Once grown, Madoff's sons worked in the trading section, along with his nephew, Charles Weiner. Madoff's successful career made him one of the most respected Wall Street businessmen. In 1990, he became chair of the NASDAQ stock exchange. He was also head of the board of directors of the Sy Syms School of Business at Yeshiva University. Bernard and Ruth were prominent philanthropists. They served on boards of non-profit institutions and donated US$6 million to lymphoma research after his son Andrew was diagnosed with the disease in 2003. The couple was active in the Jewish social circuit in New York City and Florida. Madoff capitalized on his personal touch, winning many of his cli- ents from these affluent groups. The Madoff family was closely linked to regulatory organizations. Ber- nard and Peter had been part of the board of directors of the Securities Industry and Financial Markets Association (SIFMA), which was the main industry organization. Peter's daughter Shana was active on its Executive Committee of Compliance and Legal Division. She married Eric Swanson, a compliance official of the Securities and Exchange Commission (SEC), which is the main US markets watchdog.MORALJUDGEMENT IN DECISION-MAKING Key Terms Conicting duties Moral motivation Conicting Evaluation Moral rectitude Conscientious objection Moral sensibility Decisionmaking process Principle of Double Effect Evaluation of alternatives Righteousness (of moral conscience) Lesser evil Solving ethical dilemmas Moral certainty Stakeholder analysis Moral conscience Triple Font of Morality Moral judgement Introductory Case Bernard L. MadoffManaging Other People's Money2 Bernard L. Madoff, after having worked as a lifeguard and sprinkler installer, saved US$5.000 and invested it in founding his own firm, Bernard L. Madoff Investment Securities (BMIS) LLC in 1960. Initially, his business grew with the assistance of his fatherinlaw, who referred a circle of friends and their families. The company became famous for its reliable annual returns of around 1015 per cent. BMIS pioneered electronic trading. All of this helped Madoff become one of the largest market makers of Wall Street. Investing in BMIS had an air of exclusivity. Madoff did not accept every investor who came to him. He used to reject some clients, arguing the quota was already filled up. Being accepted was an honour, a sign of power, wealth and pedigree. That made his fund even more prestigious. His personal touch was part of the marketing strategy. Bernard Madoff explained that he began operating the Ponzi scheme in 1991. Facing stock market and national recession, he felt 'compelled' to give investors high returns. '\\When I began the Ponzi scheme I believed it would end shortly and I would be able to extricate myself and my clients from the scheme'.3 He recognized that he had never made any legitimate investments with the money received from the clients. Instead, he deposited the money into an account in Chase Manhattan Bank. In the context of the subprime crisis, it was hard to satisfy his investors' expectations of high returns. He declared that his intention had always been to resume legitimate activities. However, it proved 'difcult, and ultimately impossible'. Madoff was aware of the fact that his scam would eventually be exposed. It was questioned whether his family was aware of the scam. Some critics contended that their estrangement was actually a Charade. Madoff claimed that his relatives were on the legitimate side of the business. His accountant, David Friehling, had been the only other person for mally charged in the case. The SEC alleged BMIS statements were materially false because Friehling did not make any meaningful audit. He did not per form procedures to confirm that the securities operations purportedly held on behalf of its customers even existed. On the other hand, the SEC was investigating how and why regulators failed to detect the fraud despite many alerts, especially that from Marko polos. It had been heavily criticized for its lack of diligence. SEC Chairman Christopher Cox recognized its responsibility. 'I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate In 1999, Harry Markopolos, a financial analyst, alerted the SEC that it seemed legally and mathematically impossible to achieve the high returns of BMIS's investments. The company's accounting structure was also suspi- cious. The firm's entire activity was carried out by a threeperson company with only one practising accountant. Nevertheless, this complaint did not lead to a serious investigation. On 10 December 2008, after the company's Christmas party, Madoff confessed to his sons that his rm veiled a giant Ponzi scheme. This consists of paying returns to existing investors with the money of new clients rather than from any actual profit earned. It attracted investors based on its high returns in the short term. In order to maintain the scheme, an increasing flow of money was required. However, it was destined to collapse because the earnings, if any, were less than the payments. Madoff declared that he planned to surrender to authorities, but before doing that he wanted to use the approximately US$200300 million that was left to make payments to certain selected employees, family and friends. Shortly after, his sons reported him to the police. The following day, Bernard Madoff was charged with fraud. He pleaded guilty to 11 federal crimes, including securities fraud, wire fraud, mail fraud, money launder ing, perjury, and making false filings with the SEC. He insisred that he was solely responsible for the Ponzi scheme. Madoff's fraud is the biggest known fraud in history; with estimated client losses of around US$65 billion