CHAPTER 1 DPF50073

CONCEPT OF VALUES, MORAL
AND ETHICAL THEORIES IN

FINANCIAL MARKET

CHAPTER 1
PREPARED BY:
ZARINA BINTI SULAIMAN

PUO

Prepared by : Zarina Bt Sulaiman (PUO)

Objectives

• After studying this chapter, you should be able to:

Identify the concept of ethics, theories, differences between
ethics and law, purpose of business ethics and importance of
business ethics. The best ethics practice and moral
development in ethical perspective.

Prepared by : Zarina Bt Sulaiman (PUO)

Introduction

• Ethics is the integrity measures, which evaluates the values, norms and rules that

constitute the base for individual and social relationships, from a moral perspective.
Professional ethics regulates the relations between individuals within a professional
group and their relations with the community whereas, organizational ethic defines
the code of conduct in an organization.

• Banks play unifying and intermediary roles between fund-supplying and fund-

demanding sides of the society, executing savings and investment functions. Due to
their key role in the economy, while working under the principles of profitability
and productivity, banks are obliged to obey ethical principles of banking profession
and organizational ethic.

Prepared by : Zarina Bt Sulaiman (PUO)

Introduction (Cont.)

• Within the objectives of improving the quality of banking services, making

best use of the available resources, and preventing unfair competition
between banks, the banks are required to regulate their relationship between
other banks, with other institutions, and with their customers and employees
in compliance with certain ethical principles.

Prepared by : Zarina Bt Sulaiman (PUO)

Terms in Ethics:

• Values
 Values can be defined as those things that are important to or valued by someone.

That someone can be an individual or, collectively, an organization. One place
where values are important is in relation to vision. One of the imperatives for
organizational vision is that it must be based on and consistent with the
organization's core values.

 In one example of a vision statement we'll look at later, the organization's core

values - in this case, integrity, professionalism, caring, teamwork, and stewardship-
were deemed important enough to be included with the statement of the
organization's vision

Prepared by : Zarina Bt Sulaiman (PUO)

Cont..terms in ethics:

• Morals
 Morals are the social, cultural and religious beliefs or values of an individual or group which tells

us what is right or wrong. They are the rules and standards made by the society or culture which
is to be followed by us while deciding what is right. Morals refer to the beliefs what is not
objectively right, but what is considered right for any situation, so it can be said that what is
morally correct may not be objectively correct.

• Ethics
 Ethics in general is concerned with human behavior that is acceptable or "right" and that is not

acceptable or "wrong" based on conventional morality. General ethical norms encompass
truthfulness, honesty, integrity, respect for others, fairness, and justice. They relate to all aspects
of life, including business and finance. Financial ethics is, therefore, a subset of general ethics

Prepared by : Zarina Bt Sulaiman (PUO)

Cont..terms in ethics

• Law
 Law is the system of rules of conduct established by the government of a society to

maintain stability and justice.

 Law defines the legal rights and duties of the people and provides the means of

enforcing these rights and duties.

• Justice
 Justice is a concept of moral based on ethics, rationality, law, religion, equity and

fairness.

 Focuses on the distribution of goods. Rawls: Looks for a fair distribution of

benefits and burdens. The questions is which moral principles will ensure that.

Prepared by : Zarina Bt Sulaiman (PUO)

Cont..terms in ethics

• Professionalism
 Professionalism can be defined as the skills, competence and the conduct displayed

by an individual of a certain profession. Professional conduct refers to guiding
values, attributes and expectations of what is wrong or right. This means that there is
a correct way of behaviour.

 A professional need to have specialized knowledge in his particular field. This is one

of the main characteristics of a true professional. If the individual has gaps in his
knowledge, the contribution, that he can make, is minimal. Being competent is also
important.

 Banks explains that “ a code of ethics is usually a written document produced by a

professional association, occupational regulatory body, or other professional whoa
are members, protecting service users and safeguarding the reputation of the
profession”.

Prepared by : Zarina Bt Sulaiman (PUO)

Cont..terms in ethics

• Altruism

 Altruism means acting in the best interest of others rather than in one’s own self-interest. Some people

believe altruism constitutes the essence of morality.

 Although we often act selfishly, we also seem to be wired to cooperate with others. For example,

studies show that when people look for mates, they tend to look for kindness more than any other
quality.

 People’s moral judgments are often driven by emotion. And empathy for others seems to encourage

altruism. Another emotion, called “elevation,” appears to inspire altruistic behavior, too. We feel
elevation when we see another person act virtuously, such as by helping someone in need.

 Altruism also builds social connections. For example, studies show that people who are altruistic tend

to be happier, to be healthier, and to live longer.

 So, while altruism leads us to do what’s best for others, it also makes us feel good in the process

Prepared by : Zarina Bt Sulaiman (PUO)

Definition of concept

• Social ethics
 Social ethics is determined by the set of commonly accepted norms of what is acceptable

and

 what is reprehensible in human behavior in any given historical and social context (such as
 the workplace, friendship circles, the family, and the business community). Social norms can
 thus be underpinned by the rational choices of multiple agents and draw their force from

the

 function they serve in solving problems of cooperation and coordination. They can be the
 product of selfish motives.

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Contin Social ethics

 A well-functioning market economy requires the existence of and

compliance with rules of conduct, and of a series of conditions that must be
met for markets and economic institutions to ensure efficient outcomes
(such as compliance with contractual obligations, no recourse to corruption,
and the non-misuse of information in one’s possession). In such a scenario,
the benefit to the individual, the cost-effectiveness of adhering to social
ethics, stems from the increased collective welfare which this behaviour
ensures if it is adopted and respected by all members of the “group” (one
society, one economy).

Prepared by : Zarina Bt Sulaiman (PUO)

• Virtue ethics
 Virtue ethics claims that it is important to not only do the right thing, but also to

have the correct disposition, motivation, and emotion in being good and doing right.

 Virtue ethics is not only about actions, but having a “moral character” – one which

feels the right thing at the right time, and acts accordingly.

 Practice : Virtues don’t come “built in” – they must be practiced again and again.

Prepared by : Zarina Bt Sulaiman (PUO)

Ethics vs morality

• Moral
 What does morals mean?
 A person’s idea of morals tends to be shaped by their surrounding environment (and

sometimes their belief system). Moral values shape a person’s ideas about right and wrong.

 They often provide the guiding ideas behind ethical systems. That’s where it gets tricky …

morals are the basis for ethics.

 A moral person wants to do the right thing, and a moral impulse usually means best

intentions.
Prepared by : Zarina Bt Sulaiman (PUO)

Ethics vs morality

• Ethics

 What does ethics mean?

 Ethics are distinct from morals in that they’re much more practical.

 An ethical code doesn’t have to be moral. It’s just a set of rules for people to follow.

Several professional organizations (like the American Bar Association and the
American Medical Association) have created specific ethical codes for their
respective fields.

 In other words, an ethical code has nothing to do with cosmic righteousness or a set

of beliefs. It’s a set of rules that are drafted by trade groups to ensure members stay
out of trouble and act in a way that brings credit to the profession.

Prepared by : Zarina Bt Sulaiman (PUO)

Ethics vs morality

• Ethics aren’t always moral … and vice versa
• It’s important to know that what’s ethical isn’t always what’s moral, and vice versa.

Omerta, for example, is a code of silence that developed among members of the
Mafia. It was used to protect criminals from the police. This follows the rules of
ethically-correct behavior for the organization, but it can also be viewed as wrong
from a moral standpoint.

• A moral action can also be unethical. A lawyer who tells the court that his client is

guilty may be acting out of a moral desire to see justice done, but this is deeply
unethical because it violates the attorney-client privilege.

Prepared by : Zarina Bt Sulaiman (PUO)

Differences between ethics and law

ASIS FOR COMPARISON LAW ETHICS

Meaning The law refers to a systematic body of rules that governs the whole society and the actions Ethics is a branch of moral philosophy that guides people about the basic human conduct.
of its individual members.

What is it? Set of rules and regulations Set of guidelines
Governed By Government Individual, Legal and Professional norms
Expression
Violation Expressed and published in writing. They are abstract.

Objective Violation of law is not permissible which may result in punishment like imprisonment or There is no punishment for violation of ethics.
fine or both.
Binding Prepared by : Zarina Bt Sulaiman (PUO)
Law is created with an intent to maintain social order and peace in the society and provide Ethics are made to help people to decide what is right or wrong and how to act.
protection to all the citizens.

Law has a legal binding. Ethics do not have a binding nature.

Differences between ethics and justice

• Ethics concerns what is morally right or wrong. Justice concerns what is legally right or

wrong. Ideally, justice is ethical, and one assumes that doing what is ethical is legal. Justice
cares about people’s rights, and righting wrongs when those rights are violated.

• Justice can be restorative (compensatory), requiring the wrongdoer to restore the innocent

victim, to the extent possible, to the same (or a similar) condition the victim was in before
the wrong was committed (such as paying to repair damaged property, paying hospital bills,
returning stolen goods, etc.). Or, justice can be punitive (penal), punishing the criminals, as a
matter of social morality, for the wrong committed (involving jail time, fines, loss of a
driver’s license, a criminal record, or even capital punishment).

• But sometimes the boundaries of what is morally right (ethical), individually and/or socially,

are controversial. What about cloning, or artificial insemination, or various forms of
contraception? What about informing human subjects that they are being experimented on
for scientific or marketing research purposes? What about the use of deception by
government officials (rationalized as required for national security, or to avoid a riot, or to
promote a “social injustice” policy)

Prepared by : Zarina Bt Sulaiman (PUO)

Differences in accountability and integrity

• Integrity can be defined as, “A virtue consisting of soundness of and adherence to

moral principles and character and standing up in their defense when they are
threatened or under attack. This involves consistent, habitual honesty and a coherent
integration of reasonably stable, justifiable moral values, with consistent judgment
and action over time” (Miller-Keane & O'Toole, 2003). In healthcare settings we can
define integrity as encompassing honesty, keeping one's word, and consistently
adhering to principles of professionalism, even when it is not easy to do so.

• Accountability usually refers to reliability and answering to those who trust us,

including our patients, colleagues, and society in general. Dr. Porter demonstrated
these attributes when he took responsibility for the error, corrected it, and
apologized to the patient.

Prepared by : Zarina Bt Sulaiman (PUO)

Examples of scenario

• A CFO works in a highly regulated corporate environment, subject to constant scrutiny and exacting controls by the SEC. The CFO is

responsible for accurately reporting the company’s financial records and one day receives internal reports with seemingly inflated inventory.
Since this could create an artificially higher net income, the CFO knows that reports including these errors could mislead investors and banks.

• A CEO works at a small global company with just 16 employees. Due to the small size, there is very little oversight which means the CEO

operates apart from any real governance or administration. One day, the CEO stumbles upon a customer’s error that results in a huge
overpayment and due to the transaction details the CEO knows that the customer is unlikely to recognize the error.

• In the first scenario, it is probable that the CFO would request corrected internal reports simply because so many eyes are watching, but would

they make the same decision without this accountability? Maybe. Maybe not. If that same CFO, however, is driven by internal integrity, they
will do the right thing.

• In the second scenario, the CEO's decision relies completely on their moral compass. With no one watching, no real accountability, it would be

the easiest thing in the world to ignore knowledge of the error and keep right on moving. If, though, the CEO acts with integrity, the customer
will no doubt get a call explaining the error and the impending refund.

Prepared by : Zarina Bt Sulaiman (PUO)