Research Paper: Business Ethics & Morality

Tuesday, 29 September 2015

ANALYTICAL REPORT DETERMINING THE BOUNDARIES OF ETHICAL MORALITY IN A BUSINESS RELATED INVESTMENT

1.    Abstract
This paper introduces the basic rules for business ethics and morality, what it really means and how it should be upheld. It also reviews how the mindsets of both parties differ though the motivation is similar. Coupled with information on investment frauds and the utilization of gray areas, this paper aims to better prepare readers in an event of a business or investment venture. It goes into detail the different things that need to be considered and certain signs to look out for that could very well spell danger.

2.    Introduction
Background
Investment fraud has always been a prevalent problem throughout the entire world, and it is still rampant in this modern day and age. Unlike any other crime, namely stealing, robbery, or embezzlement, investment fraud is something that cannot be classified as an illegal deed. Due to the fact that the ones behind these frauds are covered by certain gray areas between the law and morality, they are able to get away with the money on the basis that the investment has failed. Business ethics are a set of moral code of conduct that businesses use to regulate its decisions. Investment firms without proper ethics tend to look toward cheating or taking advantage of others. Since ethics cannot be defined into clear cut rules and regulations, nor are they bound by law, it is up to the business to decide whether they will uphold it or not. In fact, some investment firms actually start out with the goal of cheating people in the long run.

Purpose
There are many famous investment frauds that people usually fall into, usually lured into them by their high return rates. As my dad and I have had experience in this before, the purpose of this report is to redefine this important issue called business ethics, identify its boundaries and not only make it easy to understand, but easily accessible to people who are looking to earn quick money without knowing the consequences that might come along should they fall into this trap. Through knowing the business ethics that investment firms should uphold, people can then evaluate their decisions before fully committing to an investment.

Scope
This analytical research paper is only limited to frauds with regards to investments as it is the easiest form of earning money without actual labor. This is the main reason why almost everyone in the world who has savings would be tempted into investing for the sake of letting their money do the work. However, many people who go into these investments do not know much nor have any prior knowledge of such frauds. In this report, I will go into the different aspects of frauds, what kind of morality an investment firm should have, and what signs investors have to look out for before committing to an investment. These would then shape into the boundary that business ethics should have.

Limitations
As a student, even with an experience in investment fraud, I am only able to do a research based on my experience and the findings of others. These information provided may or may not be applicable to every investment deal available, however it could prove to be a good rough gauge to people starting out in the investment field.

3.    Collected Data
Criteria for Evaluation
The articles mentioned and used for this research are mainly with regards to ethics used within business, the certain rules that businesses should follow, and how gray areas are sometimes misused for the benefit of companies and firms. Apart from that, research was also done on the certain types of investment frauds and scams that are popularized and widely used. Information being used in this report is mainly centered on how these gray areas are able to protect the people orchestrating these frauds whilst the investors are left with nothing but an unhelpful explanation.

Business Ethics and Morality

a.     The Rules of Ethics
The 23 rules of ethics as stated in Rules or Principles of Business Ethics as defined by Gaurav Akrani simply put, are the few rules that companies should at least try to uphold whilst doing business, however not everyone goes into business looking to make steady income throughout the years. Every single person has ever had the dream of striking it big and becoming a wealthy businessman. Out of these 23 rules in Appendix A, 21 of them concerns customers and consumers and this therefore leads us to the assumption that since all these have to be mentioned, there are many gray areas in a business transaction that isn’t regulated by the law.

The main gist in all these rules is pointing the business to work for the benefit of everyone around and not just for the sake of self-interest. Although it is not how the world works, it is a good reminder for readers that these are the rules that should be upheld in any type of business setting, and if anything seems different or suspicious, further progress in the investment should not take place.

It is true that sometimes the law is unable to tackle these unscrupulous fraud tactics and therefore it is up to the investor to judge and evaluate the situation before making a move. The 23 rules stated above in Appendix A can act as a guideline for what business owners should be advocating and it will help evaluate if values and morals are maintained. Of course, it is not totally fool-proof, as per anything in this world, and would require certain risk taking.

b.     Different Mindsets
The main difference in why firms tend to look toward cheats and frauds is solely due to the fact that corporate success and corporate responsibility do not coincide at all. To put words into simpler meanings: Ethics does not always pay. Having to align success with responsibility is one of the main challenges that many corporate firms face and even use it as a key process indicator for good management. (Business Ethics and the Golden Rule, Andreas Suchanek, 3/2008). The way investors think and the way business owners think are totally different. As an investor, you are viewing your contribution as a loan, whereby you will receive what you have loaned out with a certain rate of interest back after the term is over. As an immoral business owner, however, they look at how they are able to go to a point where the amount of money will get transferred into owner’s equity whereby it is untouchable in an event of a lawsuit.

One of the main factors in which law cannot play a role in this is because morality is subjective. What may be wrong to a person may be right to another. Although that is true, there are some social rules that one has to follow, even if it is morally different. The issue behind different ethical mentality is in how people perceive this thing called self-interest. When a party goes into business, no matter which side, rather than going for a win-win, they push toward a method that might bring about a win for their side, regardless of whether the other party wins or loses.

Many see applying ethics as a form of a sacrifice where they are making a loss rather than a profit. A moral is a set of rules that you live by, whereas self-interest is something you would automatically work toward since it benefits you. The myth that profit garnering equals disadvantages for third parties and the environment ought to be abolished and in its place, the truth that morality and profit are neutral to each other should be propagandized. (Suchanek, 3/2008)

It is true that firms and corporations are forced to work towards profit-maximization due to the fact that they are in competition with many others, however the difference between a moral business owner who focuses not only on his profits, but the benefits of his investors as well, and an immoral one, is in what he chooses to hide. Like magicians and their beautiful assistants, businessmen tend to use gimmicks and colorful words to mask what isn’t told to their investors, and as such, many get hooked on to the trap the moment they hear about the high return rate, or the fact that the firm is backed by the government.

c.      The Gray Areas
A gray area, as defined by John G. Bruhn, is “the border between two or more things that are undefined, hard to define, impossible to define or where the border changes”. It is said that ethical dilemmas have little to no chance of a win-win situational outcome. The emergence of unethical behavior more often than not comes about when there are transition periods, where vulnerability is exposed the most. (Bruhn, 2009) You might wonder how a certain company is able to align its values and even its employees to unethical methods of running the business. Unethical behavior can be rationalized, inculcated and instilled by bringing new members into such culture, therefore leading them to leaving that this behavior has always been acceptable and normal. (Ashforth, 2001; Jackall, 1988).

Gray area education is seen as an ethical issue because there are no laws or policies binding them. As such, they can be used to exploit people with no consequences attached. We have seen time and time again through history that human beings cannot be trusted with power beyond repercussions. Gray area investment frauds tend to lure people in through high return rates through witnesses who have experienced the full returns, and after which, run off scot free.

Although gray areas are mostly deemed as unscrupulous, deceitful and in some cases, illegal, gray areas tend to help identify limits or boundaries of people’s behaviors. Gray areas, as per the definition above, actually represents a blurred line between what people should do and not do. It is an example that even laws have flaws, and not everything can be set clearly into the dos and the don’ts. It is practically impossible for people to devise policies or laws to cover all gray areas. People deal with things differently, as all people are different. It is through communication, transparency and a little bit of trust that both parties work through gray area issues together.

Evaluating the Unknown
            Gray areas usually have two major components: The organization’s ethical culture, and the individual’s ethical choices. (Bruhn, 2009) It is mentioned that such problems tend to be more prominent and frequent in organizations and companies where ethical policies are not defined, let alone enforced. For example, in a country where laws are few and punishments are not severe, the citizens have a wider range of perspective on what is right and what is wrong, which leads them to test the boundaries before they know where they should stop.

            On the other hand, an individual’s ethical choices cannot actually be evaluated much, because the decisions and conversations are made between the employee and the consumer. Thus many things are caught between the confidentiality of the two persons and no evidence can be brought out pertaining to what was promised and what was in black and white. Many people get caught up because investment agents tend to possess the gift of the gab, rendering them able to say things that deter you from the main subject and right into their trap. Their loyalty and morality ends the moment you sign the dotted line and hand over the cash. From there on, it’s just buying time, luring you deeper and deeper till they catch their big fish.

            Gray areas are common everywhere, from businesses to investments, right to our everyday lives. People do not usually want to solve these issues until certain problems arise. Ultimately, since as customers, we have to be wary, it is up to we to anticipate what procedures can be drawn up to better protect us from these issues. Of course, not all investments are frauds and some are genuinely out to serve a win-win situation where they look toward helping others as well as themselves. However, at the same time, let’s not fool ourselves into seeing the good in everyone because we all know how most human beings are.
  
Top Investment Frauds

a.     Pyramid Schemes
The pyramid scheme is one of the most popular, simple and widely used technique in the world, especially since it is advertised as a simple sales technique. Investors are promised a high return rate for just handing the money over and allowing their money to do the work for them and at the same time, they will earn more for every person they are able to rope in with them. As more and more people get entrapped, the money used from the new investors will be used to pay back the early investors as their “returns”.. At some point in time, the scheme actually gets too big and they are unable to raise enough money to finish paying all the early investors and many people end up losing money.
Essentially, this scheme is the easiest way of scamming people who do not work for a living; i.e. homemakers, housewives and the elderly. These people would want their money to work for them, and would trust easily in the high return rate with the chance to earn more by just bringing more of their friends into the scheme as well. Though it is true that the earlier you invest, the chances of getting back your money is higher, at the end of the day these schemes do not last and people end up losing money to people who have no plans whatsoever to grow the money they get.
  
b.     Ponzi Schemes
The Ponzi scheme, named for Charles Ponzi, was a type of pyramid scheme used to cheat thousands of British people into investments. It follows the same principle as any pyramid scheme where they take money from the new investors to pay off the earlier investors. The difference between the Ponzi scheme and the usual pyramid scheme is that usually in pyramid schemes, they have certain services or products available that is used to rope people into the business. However, the Ponzi scheme is strictly just pure investments that are used with no purpose of providing any benefit for the investors, but just out to cheat their money.

Of course, even with the figures fluctuating throughout the years, pyramid schemes are still one of the biggest frauds around that are still capable of exploiting people and yet not liable to be sued due to gray areas.

c.      Internet Investment Frauds
Fraudsters spread tampered information through a series of means including the internet, information boards, online newsletters or even chat rooms. An invention such as the internet may be a positive development in essence, but trust people to turn it into a way to make certain off-shore scams simple to execute yet difficult to track as they are usually located in a different location altogether. There have even been instances where intricate web pages were made just to feign genuineness. An internet investment fraud can also take place through e-mail or even over the phone.

This scheme targets peoples’ weakness for quick earnings with little or no effort at all. As the internet is usually known as the place where people get their answers, many believe that everything on the internet is true, especially if it is made to look extremely legitimate. More often than not, people forget the usefulness of physical human contact in a money-related transaction. Anything on the internet can be falsified and even edited sometimes with the use of high-end editing software in the market.

d.     Affinity Frauds
An affinity fraud is an investment scam where the fraudster takes time to blend into a community of people, be it religious, ethnic, elderly or even professional groups. These are the worst kind of people because they pretend to be members within that group, gain your trust and thereafter promote the schemes. Sometimes they go through the leaders of that group as well so as to heighten credibility and these leaders are sometimes victims of the schemes as well.

The affinity fraud has evolved through time where some people don’t even target groups, but even individual people. Many stories have happened where younger ladies tend to gain the trust of older men by luring them into a trap of a relationship, thereafter saying that they require money for one of their family’s medical surgeries or emergencies. After the money is lent, the victim is left without an answer and the perpetrator runs away scot-free.

e.     Promissory Notes
A promissory note is given as a form of IOU after a debt or loan is received from an investor by a company. In an occasion where the company honors its word and pays back, promissory notes can be indicated as an investment, since there is usually annual interest paid as well. However, many of these promissory notes are promoted to unsuspecting individuals who end up receiving a piece of paper that holds no power, even in a court of law. Things to take note while dealing with investments like these would be that established companies usually would have certain relationships with financial institutions such as banks to allow them simpler modes of borrowing and payment.

Many people tend to think that as long as it is in black and white, it is legitimate and can hold value. Although that may be true in most cases, there are chances where you might be outnumbered and sometimes to the extent of having the facts turned just because the other party might claim to have witnesses, whereas all you have is your own memory and a written piece of paper that could be claimed as forged.

Discussion and Evaluation
These are the different aspects of business ethics and morality that I have researched in respect to investments. Each section aims to explain the different processes undergone, from recognizing certain investment frauds, understanding the mindsets and gray area utilization, to knowing the basic rules of ethics and morality that should be upheld by a business. At the end of the day, the decision of commitment lies on you, and it will require your judgment call on whether the venture will be a strategic move or not, whether it will end in success or failure.

The points discussed in this paper paint an adequate, if not bright picture of the basic requirements necessary for humanity to regain its conscience in this world, where people will be able to head back to the time where even the thought of cheating wouldn’t even enter a person’s mind, let alone be carried out at the expense of others. These are certain things that shouldn’t even be warned about since there shouldn’t be such a system in place since we are all human beings on this earth together fighting to live.

4.    Conclusion and Recommendation
Results
The information provided in this paper seek to provide basic understanding, if not enlightenment on the proceedings leading to an investments, for people who want to know more than just the dos and don’ts when it comes to investments. Rather than just being told what to do and what not to do, understanding actually leads people to make more rational decisions in the long run. Having been in the same situation before, receiving the end of a “business failure”, where the owner of the company is still living in luxury, I fully understand what it is like getting cheated, or even having family or relatives who are in the same situation. Therefore, I hope the repercussions of this paper will be one of education and purpose, where people will be able to make better informed decisions during investment ventures.

Recommendations
This paper should be used as a guideline when making deductions about a company, checking for certain loopholes in the value system or whether an individual can be trusted. On top of that, understanding the mindsets of the opposite party will help in certain psychological skills when faced with a situation where interests are at a conflict. More often than not, rather than looking for a win-win situation, everyone heads into the business looking for a win-lose because it is basic instinct that for one to gain, another must lose.

Apart from that, always remember to re-evaluate the decisions made by taking some time to think it over. Usually, the temptation of quick money tends to blind us into making a decision fast for fear of it going to someone else. However, that is one of the tricks that are usually played on us in order to make sure that the fraud takes place in the end.

Investments, big or small, can be a heavy price to pay especially since the hard-earned money is so easily received on their end, yet the feeling of a loss on your part coupled with betrayal can do more than just financial damage, but it can also injure your emotional being. Investments can be a turning point for our lives, good or bad, and all it takes is a misjudgment to make the mistake that could affect a lifetime.

5.    Reference
Gaurav Akrani (2011/08). Principles of Business Ethics. Retrieved from
http://kalyan-city.blogspot.com/2011/09/rules-or-principles-of-business-ethics.html
John G. Bruhn (2009). The Functionality of Gray Area Ethics in Organizations. DOI 10.1007. Retrieved from http://link.springer.com/article/10.1007%2Fs10551-008-9994-7
Jackall R. (1988). Moral Mazes: The World of Corporate Managers. Oxford University Press, New York. Retrieved from book.
Ashforth B. E. (2001). Role Transitions in Organizational Life: An Identity-Based Perspective. Erlbaum, Mahwah, NJ. Retrieved from book.
Author unknown (Date unknown). Common Types of Investment Fraud. Retrieved from http://www.myretirementpaycheck.org/fraud/common-types-of-fraud.aspx

6.    Appendices
Appendix A
1
Avoid exploitation of customers
Cheating or exploiting customers through bad business practices
2
Avoid profiteering
Indulging in unscrupulous activities for the sake of greed to earn exorbitant profits
3
Encourage healthy competition
Making attempts to malign and spoil the images of competitors by unfair means
4
Ensure accuracy
Checking and verifying the accuracy in supplying products to customers
5
Pay taxes regularly
Paying taxes and other charges or duties to the government honestly and regularly
6
Get accounts audited
Maintaining accurate business records, accounts and have them available to authorities
7
Fair treatment to employees
Paying fair wages or salaries, providing facilities and incentives to employees
8
Keep investors informed
Supplying reliable information to shareholders and investors
9
Avoid injustice and discrimination
Avoiding injustice and partiality to certain people or race
10
No bribe or corruption
Not giving expensive gifts, secret commissions or payoffs as a bribe to anyone
11
Discourage secret agreement
Not making any secret agreement or arrangement with anyone else for controlling production
12
Keep service before profit
Accepting the principle of “service first and profit next.”
13
Practice fair business
Making your business fair, humane, efficient and dynamic
14
Avoid monopoly
Avoiding forming private monopolies and concentration of economic power
15
Fulfill customers’ expectations
Adjusting your business activities per the demands, needs and expectations of customers
16
Respect consumer rights
Giving full respect and honor to the basic rights of the consumers
17
Accept social responsibilities
Honoring the responsibilities towards the different social groups
18
Satisfy consumers’ wants
Finding out and satisfying the wants of consumers and making it the main objective of the business
19
Service motive
Giving more importance to service and consumer’s satisfaction and less to profit-maximization
20
Protect group interests
Protecting the interests of the group; which includes employees to stakeholders
21
Optimum utilization of resources
Ensuring better and optimum utilization of resources to increase the standard of living
22
Intentions of business
Using pure, legal and sacred means to do business without illegal, unscrupulous or evil methods
23
Follow Woodrow Wilson’s rules
Four important principles of business ethics
1.     Rule of publicity: Businesses will tell people what they are going to do without misunderstanding or doubt
2.     Rule of equivalent price: Customer must be given proper value for their money
3.     Rule of conscience in business: Businessmen must have a moral sense of judging what is right or wrong
4.     Rule of spirit of service: Business must give priority to render service to human beings over profit



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