ETHICS IN THE FINANCIAL

SERVICE INDUSTRY
 It is very common that we hear about business scandals, and unethical behaviours

against their competition or consumers such as WestJet airlines admitting to “spying” on

confidential Air Canada information (Jang, 2006). All around the world today, we witness acts of

unethical and ethical behaviour as these acts are performed by individuals and groups like

businesses and other organization. Ethical conduct is defined as the behaviour that is socially

recognized as right against wrong. Most often, decisions on what is morally correct is made

based on ones’ personality and circumstances and leads to a gratifying life. Furthermore, ethics

in the financial service industry not only affects the businesses but their consumers as well. The

practice and enforcement of strong ethical conduct in the financial service industry is crucial as

they benefit the overall society through corporate social responsibility, promote and maintain

the trust and relationships within a company and avoid legal and financial risks while

maintaining the success of capital markets and through ethic codes and enforcement.

From childhood, we are taught about good ethical behaviour that makes us good

citizens as we contribute to our society. Similarly, it is important for businesses and other

organizations to continue these ethical behaviours and contribute to society as well. The

concern businesses have for the welfare of society and not just their owners is known as

corporate social responsibility (CSR) and is practiced worldwide emphasizes the organizations’

integrity, fairness and respect (Nickels, 2016 p.190). The adoption of a CSR policy aims to

demonstrate ethical values while respecting the overall society and can be beneficial to an

organization through profitability and better customer relationships and increase employee

loyalty. On the other hand, critics of CSR argue that the purpose of managers are to compete

and win in the marketplace while only making money for shareholders by (Nickels, 2016 p.
191). However, a study researching the relationship between CSR and investment efficiency

have proven that companies with good ethical reputation and corporate social responsibility

have significantly improved rates of investment efficiency, therefore identifies the advantages

for shareholders and investors in the long run (Benlemlih, 2018 p. 1). Furthermore, additional

studies have found that corporate social responsibility of an organization increases the value of

the firm and lowers its idiosyncratic risk (Gregory et al., 2014, Mishra & Modi, 2013). On the

whole, there are multiple perspectives on the involvement of corporate social responsibility in a

firm but conclusively has been proven to increase the value of a firm, attract and retain

employees and customers, while also increasing investment efficiency which benefits the

organization and its stakeholders entirely.

The term financial services refer to the facilities provided by the finance market to

describe organizations that assists with the management of money to commercial and retail

customers (Kenton, 2019). Furthermore, this industry consists of many organizations including

banks, investment companies, insurance companies, and real estate firm that associates with

the general public and other companies on a daily basis. Therefore, most often, unethical

practices of a business in the financial services industry not only affects the management of the

business but also clients, employees and other stakeholders. Businesses in the financial services

should follow two ethical principles when interacting with their clients: beneficence and non-

maleficence. Enforcing ethical principles of beneficence and non-maleficence within an

organization ensures the actions of professionals should be of benefit and not cause any harm

to their clients (Slevin, 2009). In addition, an improvement in ethical behaviour with clients may

increase clientele and promote satisfaction to both the client and the employees providing
service to them. On the other hand, providing client satisfaction may also include the need to

disobey guidelines established by the business but can be controlled by creating awareness of

the guidelines and code of conduct to the clients. Moreover, in cases where management

demands lower-level employees to participate in unethical behaviour, these employees have to

ability to report this issue with laws to protect them from losing their job or getting mistreated.

The employees who “come forward” with their knowledge of any unlawful actions occurring in

their occupation are known as whistleblowers (Nickels, 2016 p. 187). On the whole, an

organization with positive ethical practices will promote trust of the company to its employees

and clients, providing a more gratifying and enjoyable work experience.

Most often, the act of unethical behaviour is correlated to some form of illegal activity.

A company’s participation in illegal activity can ultimately result in an expensive lawsuit and the

permanent closure of the business which affects the lives of many employees and the public

(Hubbard, 2002). In the financial service industry, unethical decisions made by an employee

habitually leads to a financial loss for the clients of a business (Mortenson, 1989). For instance,

a broker who makes poor ethical decisions may cause a financial loss to their client and will not

be held liable for the losses, which may result in deep emotional pain and loss of their entire

savings for their clients. To prevent these circumstances, organizations are responsible for

establishing a detailed code of ethics and ensuring the enforcement of these codes to their

staff. Typically, there are two types of ethic codes; compliance-based standards that prevent

unlawful behaviour by increasing control and penalizing wrongdoers, and integrity-based

standards that emphasizes an organizations’ values and a shared accountability among

employees (Nickels, 2016 p. 185-186). Both compliance-based and integrity-based ethic codes
emphasizes the core values of an organization while also take into consideration the law and

use penalties as enforcement. Moreover, organizational ethics begin with top-level

management and with strong leadership will be infused throughout the company (The

importance of ethics at work, 1996 p. 4). The most significant practice in improving the ethics of

an organization is to ensure the ethic codes are constantly being enforced by taking “timely

action” when rules are broken and consistently communicating with all employees to

emphasize the importance of these codes (Nickels, 2016 p. 185). Overall, unethical behaviour in

an organization can considerably impact the financial position of the company through lawsuits

that could have been avoided with the appropriate execution and enforcement of ethic codes

within an organization.

In summary, the financial service industry consists of many financial management

services for the public, businesses and other organization. The decisions of the business have

the potential to impact not only the management and employees but also clients of these

services which is why having good ethical standards is significant for the success of this

industry. Moreover, businesses have begun to implement corporate social responsibility

policies that provides their contribution to the welfare of the society, as well as identified and

enforced ethical guidelines that emphasizes the values of the company to its employees and

consumers. Finally, the practice of good ethical behaviour ensures the success of the business

as a result of stronger relationships with clients, employees and shareholders, reduce possible

legal problems and financial errors consequentially losing money for the business.
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