A. Basic Empirical Facts of the Problem
Societe Generale (SG), a French famous investment bank, has suffered an unprecedented loss of 4.9 billion Euros in 2008 due to a trader, Jérôme Kerviel (JK). He was accused of making unauthorized trade and using the fake portfolio to hedge the risks of securities. This provoked a heated debate concerning the ethical issues in this scandal.
Before proceeding to the investigation of ethical problems, the definition of business ethics will be reviewed in advance. According to Chris MacDonald (2010), a professor at Ryerson University in Toronto, business ethics is defined as a critical assessment of how people and organizations should act in the ...view middle of the document...
A moral trader should strive for the best interests of clients and truly inform them about the risks of investments. However, JK simply placed the pursuit of huge amount of bonus as his first priority and deceived clients by using false portfolio to hedge the risks of securities. This allowed JK to gain a 400% increase in the bonus received.
2. Firm level – Systematic flaw in promotion system
There was a systematic flaw in promoting staffs from the compliance department to the trading desk. In this scandal, the above transition allowed traders like Jérôme Kerviel to manipulate the computer system by using his knowledge learnt in the compliance department.
3. Industry level – Widely spread practice of ignoring clients’ interests
Another cause was the popular practice of disregarding customers’ interests among the investment banking industry. In 2008, Lehman Brothers was unveiled for the selling of high-risk Minibond to investors without informing the risks properly, which led to gigantic loss of clients. Also, multinational corporations adopted the concept of “too big to fail”, meaning that the government would help them in any fatal troubles since their failure would cause great damage to economy. This concept encourages them to adopt aggressive strategies for pursuing profits.
C. Warranted Actions
There are generally three measures that can be done to prevent fraud.
1. Individual level – Annual anti-fraud training program
In order to tackle the problem of the lack of awareness of business ethics, it is suggested that firms can organize an annual anti-fraud training program to enhance the alertness of staffs about the moral standard (The Business Owner, 2014). During the courses, different ethical issues can be analyzed to let traders to...