Professional Practicum & Graduate Seminar
The
Guiding Light
Angie Hoi-Chu Chan (Student ID#
48760)
Date: 4th June, 2005
Business Ethics Case Analysis: The Guiding Light
In the contemporary international environment,
there are always numerous rules and
regulations applied in order to monitor and maintain fairness in different
industries. Various global standards applied in the same field are not unusual.
Just like the US’s and Hong Kong’s regulatory frameworks for the securities and
futures markets, they have different pars with prevailing international listing
standards aiming to achieve a fair, transparent and efficient market place.
The Securities and Futures Commission (SFC), being one of the Hong Kong
regulatory frameworks, is the statutory regulator overseeing the securities and
futures market. Some of its major
objectives are: to maintain and promote the fairness, efficiency,
competitiveness, transparency and orderliness of its industry and; to minimize
crime and misconduct in the industry.[1]
No matter getting in a business deal or in our daily life, ethics is
an inquiry into right and wrong through a critical examination of the reasons
underlying practices and beliefs. As
ethics is one of the components of a person’s worldview, each person has a
dissimilar worldview indeed.
The
basic ethical instinct enables everyone to do the right thing, not the thing
right. Nevertheless, people are perplexed as to the meaning of ethics.
The
case, which involved three listed companies in Hong Kong, is apparently an
ethical case since all of them were taking inappropriate steps to announce
their companies’ annual forecast or disclose price-sensitive information.
Despite the fact that it is legal in some way, it is also obviously an unfair
action towards the public investors.
What kind of
statutory listing requirements or standards are required in Hong Kong? Why are
so many loopholes that allowed the listed companies to exploit the public
investors? Can we seek for higher degree of transparency?
Ethical Frameworks For Reasoning
To appraise the
ethical decision-making on this case, some of the ethical frameworks can be
applied.
Utilitarianism is a moral principle that holds
that the morally right course of action in any situation is the one that
produces the greatest balance of benefits over harms for everyone affected. As
Jeremy Bentham and John Stuart Mill pointed out in the 19th century:
Utilitarianism is the ethical actions that provide the greatest
balance of good over evil.[2]
By using the
utilitarian approach to analyse this issue, the public investors’ interest were
affected by the action as their benefits or harms would be derived from all the
three listed companies’ actions.
As Mr. X
inadvertently divulged to outside parties about his company’s annual
anticipatory earning, of course, he had breached the statutory listing
requirements of the SFC. On the other hand, Mr. X might be intentionally
announcing such forecast in order to affect the stock price and resulting in
the rise of the stock price of his listed company. The public investors might
also be affected by his prediction. As a prediction of 10% increase in the net
profit is a positive effect for the company, investors will normally buy in the
stocks for investment. However, once the listed company cannot fulfil the
prediction, the unit price usually drops, may be below the previous unit price
before announcement. Thus, the greatest number of investors will suffer.
The same approach also applied in Mr. Y’s case. His
action appeared law-abiding and received praise for his deed. Conversely, he
just made use of the loophole
of the statutory listing requirements that a three-year prediction of annual
profit prediction is allowed in Hong Kong. In the view of the fact that, under
this clause, failing to fulfil the compliance is not subject to be questioned
by the regulators. Alternatively, isn’t it fair in the point of view of the
public investors? Isn’t it ridiculous if the listed company is not responsible
for any legal action of whatever they say? However, if the
company failed to fulfil the forecast figures, he would not be reprobated. It
was only the public investors to suffer.
According to utilitarianism, the
ethical action is the one that provides the greatest good for the greatest
number. Those three listed companies did not have moral responsibility for the
public and act unfairly as well.
Upon showing that such actions are in the public
interest or for the protection of investors, I think the motion for those
actions of the three listed companies are out of favor.
Nonetheless,
the greatest difficulty with utilitarianism is that it fails to take into
account the considerations of justice. Thus another ethical theory may be
applied.
As Deontological theory
states that what makes a decision or an action morally worthwhile or right is
not the effect it has or the consequences it produces but rather the fact that
it was the right decision to make, the right thing to do.
Immanuel Kant's theory is based on
what he calls the categorical imperative - Always act so as to treat others as
an end and never ONLY as a means. Always respect the autonomy of others.[3]
Therefore if there is high degree of transparency of the securities and futures
market, none of the listed companies will try to utilize the loopholes of the
listing requirements to gain benefits from the public. The listed companies
should NEVER treat the investors as a means!
Kant’s Rights Approach Theory also
focused on the individual's right to choose for herself or himself. What makes human beings different from mere
things is that people have dignity based on their ability to choose freely what
they will do with their lives, and they have a fundamental moral right to have
these choices respected.[4]
Public investors have the right to
receive information freely, especially from the issuers, i.e. the listed
companies. However, the transparency
of the securities and futures market is blocked by such listing rules set in
Hong Kong that releasing some forms of information is illegal whilst in the USA
is encouraged. What sort of transparency standard is that?
Thus I would agree that maintaining a higher degree of transparency in
the securities and futures market should be encouraged in Hong Kong since it is
the duty for the issuers to disclose related information to the public and the
publics also have the right to receive related information.
By all means, ethical actions are
always based on human acts which are from learning and experience. Thus another
ethical framework can be applied to analysis the case.
Virtues are attitudes or character traits
that enable us to be and to act in ways that develop our highest potential.
They enable us to pursue the ideals we have adopted. Honesty, courage,
compassion, generosity, fidelity, integrity, fairness, self-control, and
prudence are all examples of virtues. As the ancient philosopher Aristotle
suggested, a person could improve his or her character by practicing
self-discipline, while a good character could be corrupted by repeated
self-indulgence.[5] Moreover, a
person who has developed virtues will be naturally disposed to act in ways
consistent with moral principles.
For listed
Company Z that invited some of the analysts to attend their informal meeting
and gave out some forms of profit guidance, whereby it was supposed to be
illegal. According to the listing rules in Hong Kong, any relevant information
disseminated to the market had to be treated as a whole. However, for sure,
none of the analysts were willing to be witness once they were called for
questioning by the SFC. They admitted virtues are as habits; once they are acquired, they become
characteristic of a person. Do they know a personal virtue is the action contemplated
honest, open and truthful?
Stephen Covey mentioned in his Seven Habits: Think
Win/Win. [6]
Based on this theory, launching the new listing requirements like the US
securities and futures market, public investors can benefit from the high
degree of transparency. The issuers would not be so easy to be prosecuted when
ethically releasing price-sensitive information; whereas the investors could
freely gain all the related information without any hidden data.
Based on
the analysis from the above ethical frameworks, in my points of view, none of
the listed companies are encouraged for their previous decision-making since they
have utilized the loopholes of the statutory listing requirements and that is
unethical. By all means, the virtuous person is the ethical person, who should
encounter the ethical principles like honesty, integrity and trust,
In order to enhance the ethical
climate, new regulatory regime should
be addressed, such as greater effectiveness in combating market misconduct and
greater market transparency, like the USA.
The HKSAR Government should take the lead in drawing up measures to
improve the regulation of listing to enhance market quality and work closely
with SFC and HKEx in preparing the necessary legislative amendments; taking
sanctions against the violator so as to enable a fairer market; holding educational seminars for moral courage to
demonstrate strong and praiseworthy character and to promote good corporate governance practice.
On the other hand, listed companies are encouraged to communicate with
investors through its annual report, at the annual general meeting or via their
own websites. They should also act according to the Code of Ethics so that the
“Think Win/Win” will become “Trust Win/Win”!
http://www.lockheedmartin.com/wms/findPage.do?dsp=fnec&ti=100
http://www.quickmba.com/mgmt/7hab/
http://www.scu.edu/ethics/practicing/decision/thinking.html