Ethics and the conduct of business 8th by john boatright and smith 2017 chapter 11

Ethics and the Conduct of Business Eighth edition Chapter 11 Ethics in Finance Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved Modules • Introduction: Ethics in Finance • 11.1: Financial Services • 11.2: Financial Markets • 11.3: Insider Trading • 11.4: Hostile Takeovers • Conclusion: Ethics in Finance Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved Learning Objectives (1 of 2) • 11.1: Explain the three basic forms of ethical misconduct when selling financial products and services, and the responsibilities brokers have to their clients • 11.2: Assess the significance of the three main elements of fairness in financial markets and the ethical issues introduced by new financial instruments and practices • 11.3: Summarize the two main arguments against insider trading and the challenges in applying these theories to its prevention and prosecution Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved Learning Objectives (2 of 2) • 11.4: Analyze the ethical issues raised by various hostile takeover tactics and what they suggest about the rights and fiduciary duties of officers and directors Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved Introduction: Ethics in Finance • Case: Goldman Sachs • Creating the deal • Expert analysis • Collapse of the deal Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved Figure 11.1: Objectionable Sales Practices for Financial Products Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved 11.1: Financial Services (1 of 2) Objective: Explain the three basic forms of ethical misconduct when selling financial products and services, and the responsibilities brokers have to their clients 11.1.1: Deception Overview Information that should be disclosed 11.1.2: Churning Overview Legal definition of churning Issues in defining excessive trading Best practices to avoid churning Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved 11.1: Financial Services (2 of 2) Objective: Explain the three basic forms of ethical misconduct when selling financial products and services, and the responsibilities brokers have to their clients 11.1.3: Suitability Meaning Common causes of unsuitability Ethical principles Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved Figure 11.2: The Equity/Efficiency Trade-Off Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved 11.2: Financial Markets (1 of 2) Objective: Assess the significance of the three main elements of fairness in financial markets and the ethical issues introduced by new financial instruments and practices 11.2.1: Fairness in Markets Overview Regulation of financial market protects everyone Fraud and manipulation Unequal information Unequal bargaining power Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved Table 11.1: Fraud and Manipulation in Financial Markets What is fraud? Willful misrepresentation of a material fact that causes harm to a person who reasonably relies on the misrepresentation Who is a fraud? Anyone involved in the buying or selling of securities who makes a false or misleading statement or engages in any practice or scheme designed to defraud Who is vulnerable? Investors (buyers and sellers) are particularly vulnerable because the value of financial instruments often depends on information that is difficult to obtain or verify How is manipulation different? Manipulation involves buying or selling securities to create a false or misleading impression about future prices, rather than just misrepresenting facts How can both be prevented? Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved Fraud and manipulation can be prevented by providing investors with easy access to reliable information 11.2: Financial Markets (2 of 2) Objective: Assess the significance of the three main elements of fairness in financial markets and the ethical issues introduced by new financial instruments and practices 11.2.2: Derivatives and HFT Derivatives High-frequency trading Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved 11.3 Insider Trading (1 of 2) Objective: Summarize the two main arguments against insider trading and the challenges in applying these theories to its prevention and prosecution 11.3.1: Theories of Insider Trading Fairness theory Property rights theory 11.3.2: Evaluation of the Two Theories Fairness theory Property rights theory Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved 11.3 Insider Trading (2 of 2) Objective: Summarize the two main arguments against insider trading and the challenges in applying these theories to its prevention and prosecution 11.3.3: Recent Insider Trading Cases The O’Hagan decision Galleon and the mosaic theory Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved Figure 11.3: Causes of Unequal Bargaining Power Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved 11.4 Hostile Takeovers (1 of 2) Objective: Analyze the ethical issues raised by various hostile takeover tactics and what they suggest about the rights and fiduciary duties of officers and directors 11.4.1: Market for Corporate Control Advantages Challenges Review 11.4.2: Takeover Tactics Takeover process Defensive measures Ethical issues Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved 11.4 Hostile Takeovers (2 of 2) Objective: Analyze the ethical issues raised by various hostile takeover tactics and what they suggest about the rights and fiduciary duties of officers and directors 11.4.3: Role of Directors Board members’ role Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved Conclusion: Ethics in Finance • They bear on our financial well-being • Misconduct has the potential to rob people of their life savings • Should emphasize integrity of financial professionals and ethical leadership • Principles are duty of fiduciary and fairness Copyright © 2017, 2012, 2009 Pearson Education, Inc All Rights Reserved ... Objectives (1 of 2) • 11. 1: Explain the three basic forms of ethical misconduct when selling financial products and services, and the responsibilities brokers have to their clients • 11. 2: Assess the significance... Reserved 11. 4 Hostile Takeovers (1 of 2) Objective: Analyze the ethical issues raised by various hostile takeover tactics and what they suggest about the rights and fiduciary duties of officers and. .. Reserved 11. 4 Hostile Takeovers (2 of 2) Objective: Analyze the ethical issues raised by various hostile takeover tactics and what they suggest about the rights and fiduciary duties of officers and