Generally speaking, ethics dwells on the moral duties and obligations of people. Ethical behaviour can or is likely to have positive impacts on society, as public morality itself can be considered as an aggregate of individual ethics. Ethics, morality and values are intricately intertwined and cannot be comprehended in isolation of one another. According to the Encyclopedia Britannica, ethics can be defined as the moral philosophy, which is concerned with what is morally good or bad, right or wrong.
The English word 'ethics' comes from the ancient Greek word 'ethikos' (adjective), which itself came from the Greek word 'ethos' (noun); ethos means habit, custom, character and disposition, which implies that ethics involves both the character of an individual and the culture of a community. Ethics may therefore be defined as 'good behaviour' that upholds the rights and interests of individuals as well as society as a whole. The word 'ethical' has been interpreted in various ways, such as morally correct, honourable, decent, fair, good, honest, just, noble, principled, righteous, upright and virtuous.
As is well-known, the core function of the financial sector in a country is to secure the most efficient allocation of financial resources across the productive economy. Utilitarian approach argues that the functioning of a financial institution has to be based on the provision of greatest good for the greatest number of people. Adam Smith and Milton Friedman amended the argument by applying it to the modern economy: "Free competitive market is based on the argument that maximisation of profit in an ethical society is coterminous with maximum benefit of the people". But in developing countries like Bangladesh, the advocates of free market economy want all their rights, but forget their obligations. This has led to the growth of extractive rights in the name of businesses without the concomitant growth of countervailing forces against unethical behaviour in the financial market. Influential people have also created cronies in the financial institutions who protect their interests through financing political organisations, delaying legal actions and promoting unprofessional acts in the financial sector. Therefore, financial institutions in our country have failed to function on the basis of classical utilitarian theory, as both the visible hand of law and the invisible hand of competitive market have not yielded the greatest good for the common man.
According to Cooper & Frank (1991) and O'Fallon & Butterfield (2012), the following factors influence and determine unethical behaviour: personal values and standards; family and friends providing insight and support in resolving unethical issues; compromise of ethical standards by boss who controls employees and by company culture that controls the employees' ethical values to realise organisational goals; management philosophy of a company that emphasises on ethics or lack of it during operations; application or non-application of professional codes of ethics within the company and society at large; peer influences - the more the peers are observed to be engaging in unethical behaviour, the more likelihood there is of engaging in similar behaviour by a person.
Gellerman (1986) identified four commonly held rationalisations that can result in misconduct or unethical behaviour: a belief that the activity is within reasonable ethical and legal limits; belief that the act is in the individual's or the company's best interests; belief that the act is safe because it will never be discovered or publicised; belief that the company will condone it and protect the person if the action helps the company.
Transactions by financial institutions ideally rely on trust, and consistent cum non-discriminatory relationships strengthen this trust. However, intense competitions in the sector often force employees to focus on the bottom-line instead of business ethics leading to unethical transactions. Besides, evaluating employee performance based on end-results instead of the means of achieving those results also encourage unethical acts. For example, a large number of banks in Bangladesh made big profits from the share market, especially in 2010, by investing beyond their ceiling stipulated by the Bank Company Act 1991. The banks' overexposure came under severe criticism later as the Act had limited a bank's investment in the capital market to 10 per cent of its total liabilities (deposits plus borrowings). Investing the depositors' money in the capital market was quite unfair, as a more appropriate mode of investment was in the productive sector. We should remember that excessive investment in the stock market by the money market players like banks does not solidify the stock market, and a major cause of market crashes all over the world has been the excessive participation of commercial banks in merchant banking activities.
It is also very important to frame human resource policies by reflecting ethical values in financial institutions and execute a reward-cum-incentive programme for ethical acts instead of concentrating merely on legal behaviour, as legality does not always ensure adherence to ethics. One of the most effective means of flourishing ethical principles in financial institutions can be by implementing a professional code of ethics and setting rules and norms that are to be strictly followed.
According to the Spanish banker Eduardo Arbizu, process-oriented regulations for ensuring ethical values should be: easily comprehensible; sufficiently disseminated; effectively applied through remuneration, recognition and sanctioning procedures. If mere statement of values is not enough, then the factors that determine the successful organisational culture should be deepened. Corporate organisational culture is critical for ensuring honesty and integrity in employee behaviour, which depends on the following factors: top management's commitment and living by example; commitment towards integrity values; compliance programme aimed specifically at effective application of values.
As is well-known, the major challenges facing assimilation of ethical practices in the financial market of Bangladesh include lowering the non-performing loans (NPLs) in the banking sector, curbing fraud and forgery in both money and capital markets, increasing investments in productive and social sectors like agriculture, industries, small enterprises, health and education, sustainable financing activities and the achievement of cost efficiency in service delivery.
The following policy options put forward by ABMM Azizul Islam and others (2011) may be pursued for promoting ethical practices in the financial institutions of Bangladesh:
Firstly, financial institutions should comply with all laws, rules and regulations to ensure soundness of operations and enhance the confidence of society; secondly, financial institutions must ensure fair and equitable treatment of all stakeholders including shareholders, depositors and borrowers; thirdly, the institutions should ensure complete, truthful and transparent disclosure of their financial standings; fourthly, the financial market players should enhance investments in green projects for conservation of environment and promotion of financial inclusion; fifthly, they must behave like socially responsible corporate citizens; sixthly, personnel must be trained properly and adequately in the areas of ethics and fair-play; and seventhly, welfare-oriented programmes should be promoted in increased proportions, especially through corporate social responsibility (CSR) activities.
Overall, much remains to be done for improving ethical norms and practices in the financial institutions across the globe. However, as long as relevant business, social and political sectors are unwilling to discourage unethical behaviour and practices, establishment of ethical norms in the financial sector will always remain difficult. However, financial institutions can survive in the long run only if they truly benefit the society and economy, serve the public purposes and promote social good.
Dr. Helal Uddin Ahmed is a former editor of Bangladesh Quarterly. [email protected]
