Natural Law and the Fiduciary Duties of Business Managers, Essay Example

Abstract

There has been several large scandals within the United States which has highlighted not only the disregard of the shareholders, but also the lack of legal guidelines that have been placed on organizations. Many organizations that share a large piece of operations within the economy, have headline the news, in which they chose to maximize their profit, by making unethical and illegal decisions in which they have defrauded, lied, or took part in felonious activities. The companies have been found to lack any business ethics in which would help them in the case of ethical dilemmas. While faced with making the right and moral decision to serve the interest of shareholders, those that didn’t value business ethics have been largely scrutinized and prosecuted for their behavior. It is the duty of the organization to serve both the interest of the stakeholders, but also the shareholders. In doing so they must practice good business ethics, as well as methods in which help in valuing shareholders, and solving ethical dilemmas.

HSBC and Business Ethics

It has become and overwhelmingly great challenge for an organization that transforms into a multi-million dollar organization, which are becoming too powerful to control. Since the beginning of the 2000s, that has been numerous banking institutions that have come under public scrutiny, as they have been involved in illegal or unethical scandals. Not only has impacted the economy, but also has deterred the public’s trust in these institutions. Those that take the majority losses are the shareholders and the employees, in which take the brunt of the banking institution scheming and lying within the organization. It has become the norm for the criminal prosecutions to play out in the media as they highlight the negative impact it has across not on the national economy, but also internationally. The major underlying factor is the aspects of business ethics, and the ethical dilemma in which falls on the roles of the leaders and how the reflective behaviors of the shareholders.

According to Forbes, Most Powerful List, one of the world’s most powerful banking establishments, coming in at number six. (Forbes, 2013) HSBC, the British multinational banking and financial services company, has been in the news in the past years for their part in a global scandal that involves the laundering of drug money to Mexican Carters, and other unethical scandals in which they provided services to companies in Libya and Malaysia for unethical means. Looking at the ArunaViswanatha and Brett Wolf’s (2013) article, “HSBC to pay $1.9 billion U.S. fine in money-laundering case” published in Reuters, HSBC, was fined $1.9 billion dollars for their involvement in laundering $881 million to Mexican cartels. Not only was the company forced to pay a fine, they were also publically and criminally scrutinized for their involvement, in which the ethical dilemma casted a dark shadow of their business operations.

Hong Kong and Shanghai Banking Corporation (HSBC) is a British multinational company, formed in 1865, however formerly formed as a holding company for the banks in Hong Kong and Shanghai. The second largest bank in the world, it is headquartered in the UK and operates in over 80 countries with over 6000 international offices that service over 125 million customers. According to HSBC financial statements, at the end of 2013, they had a total of $2.67 trillion in assets and had $68.18 billion in revenue. (Google Finance, 2014) In the latter parts of the 2000s the corporation begins a series of cutbacks in which they cut over 25,000 jobs, and sold off close to 200 branches in the United States. In 2012, HSBC was brought before the U.S Senate for charges of participating in anti-money laundering practices.

HSBC one of the most powerful financial institutions in the world was part of a serious legal and ethical dilemma, in which they were forced to pay serious consequences. Not only did HSBC lack the proper management for deterring anti-money lavation and compliance, but the organization overall lack any business ethics. The U.S Senate committee presented their findings, in which revealed that it participated in felonious activities by transferring money to terrorist’s criminals and other groups. The money laundering help many of the criminals purchased secrets accounts in cash throughout New Jersey. (Davies, 2012) The highlighted deficiencies, showed the degree of negligent controls of the HSBC organization. The scandal also highlighted the ethical dilemma of the organizations’ inability to monitor properly $15 billion in monetary transactions from 2006 to 2009. It showed the organization’s high turnovers and poor staffing within the compliance units of the organization. The problems were largely instigated by the lack of business ethics that the executive members held, in which spread throughout the organization. The chief bank offers were left with gradation of independence, and less management and authority to implement controls for ethical behavior and decisions.

HSBC in 2012 was fined the record penalty of $1.92 billion for violating the designed laws against concealing the illegal money activities. During the time in which the corporation was under the suspicion from the US government, they were supposed to operating under the official document to correct the operational practices deficiencies. However, they failed to comply with their anti-money laundering program or being compliance with the Bank Secrecy Act. According to Viswanatha and Wolf, “the bank acknowledged it failed to maintain an effective program against money laundering and failed to conduct basic due diligence on some of its account holders” (Viswanatha, Wolf 2012) Not only did it fail in its ethical dilemma to bring to light the activities of HSBC United Mexican States, but also neglected laws and tried to cover up the illegal activities. The corporation chose to pursue profits, and overlook the illegal activities of supplying money to terrorist groups in Mexico. While the blame is initially placed with the executives, it also flows throughout the members of the entire organization. The U.S government chose not to prosecute the company, in order to protect the financial system.

While the government decided in levying a very substantial penalty towards the multinational corporation, it seems the underlying problem in the organization is the lack of business ethics. The executives and leaders of the corporation were left with an ethical dilemma to make the right choice in reporting the issues and the problems with their Mexican unit, as well as other problems in their compliance units. However, they chose to turn a blind eye and focus on obtaining profits. Who is impacted the most are the stakeholders of HSBC. They range from the employees, the shareholders, customers, families of employees, financiers, and communities in which HSBC serves. An ethical dilemma is where the organization has a moral obligation to abide by two decisions. In the decision-making process, the organization has a social, legal, and corporate responsibility is to adhere to the best interests of the stakeholders. In identifying the stakeholders, it serves as a fundamental aspect for ethical conduct, and disappointment to recognize stakeholders has headed numerous to settle on unethical choices while never acknowledging they had an ethical dilemma in any case. For quite a long time, organizations stuck to the reason for making benefit, lawfully. While this sounds sensible and moral; in any case, it has likewise prompted numerous corporate scandals where organizations toed lawful limits. Despite the fact that they never crossed statutory constraints, their poor choice making damage numerous a huge number of stakeholders.

Looking to Edward Freeman’s model of Stakeholder Analysis, it incorporates the theories of both organizational management and business ethics. The analysis helps to show the organization’s moral and values that are required or held inside the organization. Not only does the model serve as a way to look at the organization’s obligation to the shareholder, but also points out the legal obligations of fiduciary duty. Not only should organizations act ethically to meet the standards and expectations of the stakeholders, but also to protect the interest of the business community. The stakeholder’s theory places the stakeholders as a priority in their decision-making process. In tying ethics into the decision-making process, the role of the stakeholders must also be identified. It involves ethical awareness, an ethical issue intensity, individual factors, organizational factors, and opportunity to correlate to the intentions of the business. In doing, so, the organization is left with deciding to make an ethical or unethical decision or chosen behavior. (Ferrell, Ferrell 2014)  The Stakeholder Analysis model must be used as a matter of significance with the organization. As a form of engaging in activities that utilized the resource that are designated to maximize profits, and stay within the ethical and legal standards.

Ways in which to approach business ethics, and to help in ethical dilemmas are to implement not only a policy of corporate responsibility, but also a corporate governance in which oversees the actions of the management in regards to having the stakeholder’s interest as their priority. Corporate social responsibility is an approach in which does not conflict with the fiduciary duties and legal obligations, but adds to the ability of the organization to maximize the shareholders/stakeholder’s wealth. Organizations have social responsibility to the stakeholders, but also the shareholders, ensuring they do no hard, and treat them fairly within the ethical bounds. At times it may conflict with satisfying the interest of the stakeholder or the shareholders, the corporate social responsibility approach is effective. In doing so, the organization will implement business ethic policy in which is upheld by the management. When the executives and management practice business ethics, then it will trickle down to the rest of the organization.

Overall, HSBC, was faced with an ethical dilemma in which they were faced with making the right decisions to report the unlawful practices. Instead, they lacked the business ethics to follow the guidelines, and in doing so were levied a heavy penalty, and cost them the trust of the society at large. When making ethical decisions, businesses must make the stakeholder’s interest a priority. Ways to do this include practicing a Stakeholder’s Analysis Model, as well as Business Ethics framework in which involves them in the decision process. This can be followed by approach ethical dilemmas by using Corporate Social Responsibility as a guideline to make the legal and moral choices in each decision. While also implementing a business ethics policy that presents the behavior that follows the legal and ethical guidelines that uphold the standards of the organization, while also the letter of the law.

References

Davies, Rob. (2012). HSBC held offshore accounts for criminals: Bank accused of helping customers launder money by opening thousands of accounts in Jersey.Daily Mail. Retrieved from http://www.dailymail.co.uk/news/article-2230349/HSBC-accused-setting-thousands-tax-evading-accounts-Jersey-including-drugs-arms-dealers.html

Ferrell, O.C, Ferrell, John Fradrich. (2014). Business Ethics: Ethical Decision Making and Cases. Cengage Learning.

Johnston Jr, Joseph F. (2011). Natural Law and the Fiduciary Duties of Business Managers. Journal of Markets & Morality.

The World’s Biggest Public Companies. (2013). Forbes. Retrieved from http://www.forbes.com/global2000/list/

Worstall, Tim.  (2013). HSBC’s $1.9 Billion Money Laundering Fine And the Somalian Cost Of Bank Regulation.Forbes. Retrieved from http://www.forbes.com/sites/timworstall/2013/08/08/hsbcs-1-9-billion-money-laundering-fine-and-the-somalian-cost-of-bank-regulation/

Viswanatha, Aruna. (2012). HSBC To Pay $1.9 Billion U.S. Fine in Money-Laundering Case. Reuters. Retrieved from http://www.reuters.com/article/2012/12/11/us-hsbc-probe-idUSBRE8BA05M20121211