Corporate Governance:
dilemma’s in the financial industry
Prof. dr. Tom Loonen
Tom.Loonen@vu.nl
Feb, 2018
1
Tom Loonen
• Director at Bank InsingerGillissen Bankiers
• Professor “Effectiveness of Financial Law”, Investment Management
(specialized in Duty of Care and Compliance), VU University
Amsterdam
• M.Sc., MBA and PhD (Economics & Econometrics UvA)
• Member of Court of Discipline Dutch Securities Insitute (DSI)
• Disciplinary judge for the Dutch Disciplinairy Court for Banks
• Legal Expert on investment fraud public prosecutor's office
• Legal Expert for serval Courts and Courts of Appeal
2
Agenda
o Monday Feb 5, 18:30-20:30 Principles of (personal) ethics
o Monday Feb 12, 18:30-20:30 Business Ethics
o Monday Feb 19, 18:30-20:30 Ethical dilemmas in practice
3
Central themes
o What is (business) ethics and why is it relevant in our lives?
o What is the relevance of integrity in the financial world?
o How should proper governance look like?
o Several case studys out of our lives for discussion.
o And methods of how to deal with dilemmas in practice.
Finalization is work out of a case study
4
Ethics
• What is ‘ethics’ not?
• Definition
• Elements of ethics
• Relevance of ethics
5
What is ethics NOT? (Verlasquez et al., 1987)
1. about acting in accordance with one’s feelings as sometimes a
person’s feelings about a particular issue may lead them to act
in a way that is unethical.
2. equated with religion because although most religions
advocate and provide incentives for people to act in an ethical
manner, ethics applies to everyone whereas religion is limited
to certain groups of people.
3. respecting laws as throughout history examples can be found
of laws which with hindsight were clearly unethical (e.g. linked
to slavery and apartheid).
4. “what society accepts” because people’s behaviour may
deviate from what is ethical and societies may condone
unethical behaviour.
6
Elementary ethics
o ‘Ethics’ derived from the Greek word “Êthos” (character).
o Character: the whole of attituted and habits of a person that
creates this person.
“Set of moral standards that are relied upon to reach make
decisions”.
7
Ethics elements
1. Standards of right of wrong
- Rights
- Obligations
- Social benefits
- Fairness
- Virtues
2. Development of personal standards
- Your view on rules and obligations
8
Relevance of ethics?
o Enable you to make responsible decisions
o Balance between good and bad
From a business perspective
o Risk mitigation
o Positive brand image
9
Consequences of non-ethical behaviour
o Legal issues
o High personal cost (criminal charges, jail time)
o Low staff morale and culture
o Diminishing company reputation (credibility loss and market
share)
10
Founder of ethics: Virtue ethics
Aristoteles (384-322)
• Virtues can be learned and are
attitudes that support ethically good
life
• Courage, moderation, justice,
generosity, humility, precision,
professionalism, customer
orientation
• Ethics is about whole person, ie
about integrity
11
Founder of ethics: Deontology
Immanuel Kant (1724-1804)
• Enlightment, think for yourself
• Autonomy
• Respect for autonomy of others
• Freedom of will: setting goals
• Freedom of action: achieving goals
• What do clients need to make a
decision autonomous?
12
Founder of ethics: Utilitarianism (part of
consequentialism)
John Stuart Mill (1806-1873)
• New ethics, emancipation, women’s
right to vote, equality.
• Doing the good (beneficence)
• Avoid damage (non-maleficence)
• Weigh the pros and cons (utility)
• Kind of ethical cost-benefit analyses
13
Consequentialism Deontology Virtue ethics
Morality is about good Morality is about good Morality is about good
outcomes rules people
We should make decisions We should come up with a We should strive to
based on what will most logical system of moral become more courageous,
likely result in the rules and always follow it honest, generous and
outcomes we want. no matter what. compassionate. Such a
person will make good
‘The ends justify the moreal decisions on their
means’ own without the need for
abstract moral rules.
Outcome-based theory: Rule –or obligation based Character-based theory:
“You should try to achieve theory: “You should not “Whatever the action, what
financial losses for as take the money of a does it say about you?
many people as possible”. person without their What is the intention or
consent” benefit?”
14
Deontology
Nature of duty and obligation
The case of the fireman also being a father.
15
Consequentialism
Thesis: “Each cild soldier kills 1.4 person on average. Exterminate
all child soldiers”
Maximise the good things. Killing is allowed in order to prevent
more killing.
16
Let’s look at daily practice
1. Ebola causes huge numbers of victims;
2. There is one possible drug;
3. Only few doses are available;
4. Who will get this doses first?
How to deal with this?
What are your considerations?
[youtube/ebola]
17
What is integrity?
• Openness
• Context
• Doing justice to all interests at stake
• Acting: taking responsibility
• Look further than only to the letter of the law
What’s the difference between ethics and integrity?
Ethics: set of moral standards and is a general concept.
Integrity: the quality of being honest and fair and is about the
individual.
18
Excercise
Ten situations (cartoons) concerning ethics and integrity are being
distributed. Please discuss the situation in each group and answer
the following questions:
1. Describe the situation shown.
2. What can be the consequence of such behavior?
3. Do you know a situation (preferably from your own practice)
that reflects this? Describe this and indicate how this behavior /
situation can be prevented.
Duration: 15 minutes discussion
Individual presentation: 5 minutes per group
19
20
21
22
23
24
25
26
