Doing the right thing when no-one else is watching

ETHICAL behavior is doing the right thing when no one else is watchingeven when doing the wrong thing is legal, so says Michael McMillan, Director for Ethics, Education and Professional Standards at the CFA Institute.

The global association of investment professionals sets the standard for excellence and McMillan, addressing the Institute of Retirement Funds Africa (IRFA) conference, highlighted the need for ethical decision making in corporate governance..

He told the more than 1200 delegates, “At a cognitive and behavioural level, ethical conduct calls for moral awareness, moral intent, moral judgement and moral behaviour.

“It requires awareness of the ethical implications of our decisions and eventually having the courage to act accordingly.”

McMillan defined ethics education, thinking, honesty, integrity, character and stewardship, notably the careful and responsible management of money entrusted to one’s care.

Quoting John Taft, the American financier and writer: “after all, the foundation of financial markets is public trust and confidence.” The key points of ethical behavior: We make most of our decisions instantly and instinctively rather than rationally and using reason.

We tend to believe that we are more ethical than we really are.

We often make unethical decisions not because we are 'bad people', but because psychological biases, social and organisational factors, and situational influences affect our decision making.

We can overcome these if we are aware they exist and always keep ethics in our frame of reference.

Ethical decisions are mostly made emotionally and intuitively which means fast, automatic and parallel as opposed to reasoning which is slow, serial and controlled.

McMillan elaborated, “Some of the factors leading to unethical behaviour are the desire to please authority and the tendency to follow the crowd and conform to their ideas.

“Over confidence is another factor, as in I am more ethical than they are, of course it won’t happen to me.”

Self-serving bias leads people to support decisions already taken or that benefit them at the expense of others.

Although people are skillful at noticing how self-serving biases can affect others’ ethical decision making, they are often blind to their own bias.

When we rationalise it provides the reasons for not doing the right thing.

It neutralises moral intent reducing the negative effect of unethical behavior and can justify behavior inconsistent with our own values. It gives us an excuse for what we have done or are about to do.”

Addressing the fundamental ethical principles in the professional arena McMillan said, “the client’s interest always comes first. You must maintain independence and objectivity and avoid conflicts of interest.

There must be fair and full disclosure and confidentiality preserved. Every deal must be fair with reasonable care and prudent judgement.”

In closing he quoted N. Cooper: “A code of ethics cannot make people or companies ethical.

“But nor can hammers and saws produce furniture. In both cases they are necessary tools, which need intelligent design and use.”

The CFA Institute offers guidelines for ethical corporate governance on www.cfainstitute.org.