Ethical Challenges in the Financial Sector

Finance, the lifeline of an economy has been inflicted with many cancerous issues ranging from IPO scandals, securities scams, churning and insider trading to window dressing, greenmail, accountability in government finance and agency issues in the corporate consortium.

The Enron scam and several others that followed it threw up issues that highlighted the need for a more transparent system to address the problems of window dressing activities such as under-reporting or over-reporting income, falsifying documents and allowing questionable deductions to protect the interest of stakeholders of a firm.

The lack of efficiency and accountability in Public financing is a matter of utmost ethical concern in India. The money allotted through the annual budget for implementing welfare projects run into thousand crores. But do we have a strong system of checks and balances to prevent corruption involved in implementing them?

In the context of banking and insurance sectors, with increasing complexity in the business environment, being ethical is not merely a choice between what is right and wrong, but is more about confronting moral dilemmas in the course of business. Moral bankruptcy is more serious with far reaching consequences than financial bankruptcy. Financial services are today changing and evolving at a rapid pace. There has been a growing emphasis on the need for transparency, trust and concern for clients. But, how often do wealth managers and consultants put these values in the forefront over the desire to increase their wealth?

In the world of investment, Insider trading that has swirled the stock markets across the globe has left behind a thin line of ethical issue attached to its name. Numerous instances of the same like the David Pajcin and the Harshad Mehta scams as well as the Yes Bank IPO scam have taken the world of financial markets by storm and managed to undermine investor confidence. Is it righteous for the executives to take advantage of their positions and exploit the innocent investors? Besides this, the conversion of unaccounted or black money into legitimate wealth and the reduction of capital gain tax through Double Taxation Avoidance Treaties with tax havens like Mauritius is also an ethical issue to be deliberated in the world of investments.

Another subject that creates a new dimension to the debate is the absence of ethics in the game of Mergers & Acquisitions. Who is being unethical in hostile bids – the shareholders by letting go off their stake in the company for the extra cash they get or the bidding firm with their concealed reasons? The issues pertaining to valuation of the target company to manipulate stock markets and investor sentiments should also be looked into.

"The unfettered love of money is the root of all evil". The demarcation between right-wrong, ethical-unethical in these finance issues is of paramount importance. This session on “Ethical Challenges in the Financial Sector” is aimed at ensuring deliberation and discussion on the concerns and issues indicated above.

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