Should we install ethics and morality into the financial system?

By Debating Guru | 23 Feb 2015
Economy | 9 Participant(s) | 13 Response(s) | 3195 Views

The introduction of Sarbanes-Oxley Act in 2002 in the United States is an attempt to further regulate the financial industry. One of the key issues is the classical dilemma of the Board of Directors (or executive officers) and the company's interest. On the one hand, BoD does not necessarily act in accordance with the company's interest, by engaging into an activity that benefits him/herself at the cost of the shareholders. One of the examples is BoD using shareholders' money in a form of loan or service rendered for the executive's personal business, family, or crony. On the other hand, the notion of company's interest has expanded in terms of the definition. Since companies do not only operate for the shareholders' or the internal executive officers' interest, but also for the market where they operate, it is only logical that the company's interest includes the environment where it is located, the people involved in the company's business (production chain from top to bottom), the country where it operates, and etc. The logic can be stated as: since companies receive benefits, i.e. sales from the buyers and raw materials (or resources like labors, human capital, etc) from a place where it operates, the company's interest is rooted in the place where it operates. Therefore, companies should both exercise responsibility  where it operates and enjoy profits from the same place.

The discussion of ethics and morality is specifically underpinned by the cost-benefit calculation, particularly in the Sarbanes-Oxley Act ("SoX") 2012. The infographics displays the summary of SoX, among many, the penalty and respondent survey. Some argue that SoX is a form of government intervention to bring ethics into the market (including the financial system) as a way to correct market flaws. Some argue that market in itself would offer a mechanism to correct this flaw by aligning the incentives for financial players to 'not cheat'. 

 

What is your view on installing ethics & morality into the market?