ETHICAL DECISION MAKING

CFA SOCIETY OF WESTERN MICHIGAN

14 NOVEMBER 2012

Michael G. McMillan, Ph.D., CPA, CFA

Director, Ethics and Professional Standards
Twitter: @M_G_McMillan
http://blogs.cfainstitute.org/investor/author/michaelmcmillan/
 MISSION STATEMENT:

To lead the investment profession

globally by setting the highest
standards of ethics, education, and
professional excellence for the
ultimate benefit of society.

Ethical Decision Making

CFA INSTITUTE INTEGRITY LIST
1. Commit to a gold standard code of ethics and professional
conduct [See CFA Institute Code of Ethics and Standards of
Professional Conduct].
2. Require training on ethical decision-making for yourself and
your firm.
3. Place the clients interests before your own.
4. Name and shame unethical behavior.
5. Recommend products with transparent payoffs, costs, and
risks.
6. Help clients focus on risk as much as they do on performance.
7. Disclose your educational achievements and how you improve
professional competence.
8. Strive for a conflict-free business model.
9. Advocate for stronger regulations that protect investors.
10. Act with integrity 24/7 not just at the office.

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ETHICAL DECISION MAKING
Resolving Dilemmas: Issue Spotting & Analysis

- Effective

- Thinking about:

- Honesty

- Integrity

- Character

- Suitability

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THE GOAL OF ETHICS TRAINING

To encourage you to become more conscious about your

thoughts and behaviors so that you are more likely to
notice, and act upon, ethical issues before they become a
problem.

To recognize that ethical dilemmas are a normal and

predictable part of most jobs.

To discuss approaches for dealing with ethical issues.

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THE SITUATIONAL VS. DISPOSITIONAL

- Situational influences have more to do with

unethical behavior than a persons character.

- Under the right conditions good people can be

induced, seduced, and initiated to act
unethically.

Philip Zimbardo, Professor Emeritus, Stanford University

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ETHICS VS. COMPLIANCE

Compliance: ensures that You must

employees conform to a set of
required behaviors.

Ethics: encourages employees

to behave in way that is You should
consistent with the
organizations values and
mission.

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FUNDAMENTAL ETHICAL PRINCIPLES

- Client interests come first

- Maintain independence and objectivity
- Avoid/manage conflicts of interest
- Full and fair disclosure
- Preservation of confidentiality
- Fair dealing
- Reasonable care & prudent judgment

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RATIONALIZING UNETHICAL BEHAVIOR
- Everybody else does it, so it must be okay.
- That is the way they do it at Firm X.
- If we do not do it, someone else will.
- This is the way it has always been done.
- It doesnt really hurt anyone.
- Its not a big deal.
- Its not my responsibility.
- I want to be a team player; l want to be loyal.
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ETHICS & INVESTING?

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RESOLVING ETHICAL DILEMMAS

1. Acknowledge that there is an ethical issue.

2. Determine who is faced with and owns the problem.
3. Gather the relevant data.
4. Test the wrong vs. right parameters.
5. Test for right vs. right paradigm.
6. Apply the resolution principles.
7. Investigate 3rd way options compromise.
8. Make a decision.
9. Reflect on what you learn from the decision.

Ethical Decision Making

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I want employees to ask themselves whether
they are willing to have any contemplated act
appear the next day on the front page of their
local paper to be read by their spouses,
children and friends-with the reporting done
by an informed and critical reporter.

Warren Buffett, Interim Chairman of the Board, Salomon Brothers

Ethical Decision Making CFA Society of Cleveland

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 Peterson
You are the director of research at a large bank. You hire Peterson to be an
equity analyst. Peterson and your friend Thompson, a senior equity analyst
at the bank, attended university together and were roommates. During lunch
one day, Peterson tells you that there is an error in the banks marketing
brochure and website because Thompson, only studied accounting while at
university and not accounting and finance. Back in your office, you check
Thompsons biographical information online and find references to an
accounting and finance degree. What should you do?

A. Say nothing.
B. Contact the Thompson and tell him what
you learned.
C. Contact the marketing department and
tell them about the error.
D. Contact the Thompsons supervisor and
tell him/her what you have learned.
0% 0% 0% 0%
A. B. C. D.

Ethical Decision Making