Corporate Governance and Ethics in the Financial Sector

The provided content comprises a diverse range of articles, papers, and studies on various topics related to business ethics, corporate governance, insider trading, and financial markets. These sources examine issues such as the ethical conduct of companies, the role of analysts in financial markets, and the importance of transparency in corporate reporting. The materials also touch upon the challenges faced by regulatory bodies and the need for effective compliance mechanisms.

Comparative Business Ethics and Social Responsibility
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Contents
Comparative Business Ethics and Social Responsibility...............................................................................1
Introduction.................................................................................................................................................3
Analysis of the unethical activities of Rajaratnam.......................................................................................4
Q1................................................................................................................................................................5
Q2................................................................................................................................................................7
Q3................................................................................................................................................................8
Conclusion...................................................................................................................................................9
Bibliography...............................................................................................................................................10
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Introduction
Ethical issues have been the major concern of the organisations in the present time. The
business organisations basically face complex situations and struggle to avoid ethical issues.
The immediate need of the present situation is to maintain a strict code of conduct and avoid
ethical issues. The diverse culture of the business organisation and in the process of their
decision-making, compliance & governance the ethical issues are identified.
The major concern of the business organisation is to follow the strict principles and code of
conduct based on the ethics. The management of the organisation requires identifying the
facts related to the ethical dilemmas and these issues are required to be assessed in order to
define a different course of action so that the companies will not face any difficulties in the
process of their governance (Heskett, 2011). The organisation will find the root cause of the
issue and will make strategies to resolve the issues. Thus it is imperative to say that
appropriate decisions based on the ethical code will help the employees and the management
of the organisation to work in a transparent way. The ethical issues will be resolved and the
culture of the company will be based on the values and beliefs that will help all the
stakeholders to gain benefits.
The present report is all about the impact of unethical practices made by Rajaratnam and The
Galleon Group. The unethical practices made by Rajaratnam is related to the inside trading
that gathered the information of the leading companies across the world. The allegation was
on Rajaratnam for collecting the inside information bribing the employee of Intel Corporation.
The inside trading affected some important companies like IBM, Hilton Hotel, and Google.
The immoral way of gathering information caused a huge damage to the companies and on
the other hand, Rajaratnam could manage to gather $ 64 billion (Jennings, 2013). The pre-
planned unethical activities brought a short-term success to Rajaratnam and his company but
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in the long run, he lost his credential in the market and he was convicted of the conspiracy of
collecting the inside information. He was sentenced to jail and was fined. The unlawful act of
Rajaratnam forced the regulators of the law and executives and the governance to remain
vigilant to all the activities in the organisations. The unlawful activities also affected on the
trust of the customers, the employees and of all the stakeholders of the company (Mittelstadt,
B, 2017). The unethical behaviour of Rajaratnam was an alarm for the trading companies and
they remain alert in the process of their business.
Analysis of the unethical activities of Rajaratnam
The inside trading incident is an eye opener for all the business organisations that deal in trading
activities. Rajaratnam and his Galleon Group is the example of unethical practices occurred in
the companies. The conspiracy of getting rich with a short period of time brought the audacity of
greed in the minds of the group of people those who are involved in the inside trading
(academia.edu, 2017). The greed of accessing the secret information of the investors and selling
the information for personal and financial benefits considered as the most unethical activity
conducted by Rajaratnam and his coworkers. Rajaratnam could manage to earn $64 billion for
the inside trading and later he was convicted on all eleven charges. The unethical success story
of Rajaratnam brought huge loss to the leading companies like Intel, IBM, and Google. The non-
public information of the companies was made public and with the access of the information, the
companies could make illegal practices (chegg.com, 2017). The objectives of Rajaratnam to
exploit the information of the insider before the information is made public in order to trade
ahead of the announcements made in public on the earning, forecast, merger & spinoff. This was
an illegal practice to disclose the insiders’ information for the financial benefits.
Rajaratnam exploited the information of the customers with the help of his secret executives and
that enabled him to capture a huge network of information. He seduced the trust of the people
and betrayed them. His business model was based on cheating. The court could find the
mechanism of fraud made by Rajaratnam and his team members (community.cengage.com,
2017). They swapped the secret information and recruited corporate insiders for providing them
information. Rajaratnam plotted to exploit the information and he avoided any suspicions from
the regulators. The unethical practice of Rajaratnam proved that his practices were illegal.
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The financial institutions require to remain alert to the fraudulent practices and avoid the
unethical activities in the business organisation. The investors who focused on the market
research should not involve in this unethical practices. The customers are also very vigilant now
and they are keeping eye on the growth and development of the trading market. The regulators
are very capable enough to find out the unethical activities. Wall Street is prepared against the
illegal investors (community.cengage.com, 2017). The responsibilities of the bankers & brokers
to enrich themselves are required. Thus the reformation is required to avoid unethical practices.
There is also a need of maintaining authentic timestamps by the traders in order to provide
information of the traders. Establishing relationships in the corporate world the financial groups
get the advantage over the average investor. The hedge funds get non-public information about
the organisations, trend in the market & the continuing events of the potential market. These
financial groups recruit consultants in order to get more information (cqpress.com, 2011). These
financial groups take the help of outside experts and pay them for the inside information on the
stocks and the impact of share pricing on the financial performance or the performance of the
products. The secret activities were very difficult to identify by the regulators.
The unethical inside trading brought horrible experience to the leading financial institutions. The
reputed companies, advisory board, banks etc. take care of revising the rules and regulations the
compliance standards in order to avoid any kind of issue in the future (dailykos.com, 2011). This
has been found that mistakes in the governance cause intolerable problems to the financial
institutions. The need of revising the trading rules had been very important and the strict
regulations were required to make against the discloser of the non-public information.
The insider crime has brought a change in the governance pattern. The government has become
very vigilant and is looking into the activities of the financial institutions. The wiretaps will
remain available to the commission of Security and Exchange. The incident also makes people
alert to deal with the information that has financial value. This act proves that greed is not good.
Q1.
The business organisations have potential customers. These organisations collect the data of the
information for the business purpose. In order to capture the data of the customers and use them
as per the need of the organisation, there are various techniques used by the companies. For the
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trading companies, it is important to keep the track record of the investors or the customers
(epic.org, 2010). Basically, companies collect information through the phone calls, meetings
with the clients and even though the text message. These are the techniques used by the
companies. These are the common mode of collecting information of the customers used by the
companies while dealing with the customers. In these process, there is also a chance of the leak
of the information (governanceforstakeholders.com, 2017). The gatherer of the information can
mishandle the information and take the advantage of it.
Rajaratnam followed a different kind of method to gather the information of the customers. The
information collected by the companies about the clients or the customers was gathered by
Rajaratnam and his company by hiring the employee of the organisation. This kind of gathering
information is called inside trading. In this process, the employee of the organisation provides
information to the conspirator so that the information will be passed to him or her and then the
information will be used for directing the process of the trading on the way that the conspirator
wants (icsi.edu, 2014). This activity is treated as the most unethical practice and the illegal
people are involved in this process of cheating people.
In this unethical process, there is urgent need of the attention of the regulators, investors, and
executives. The executive of the business organisation requires seeing the development of the
processes of the organisation. The executive of the company should not involve his or her
relatives in the process of the business (icsi.in, 2010). The executive should give more attention
to the communication process so that the business organisation will find the more involvement of
the executive in the activities. The executive should not involve the friends & relatives during the
business process of the organisation. The companies should encourage people to avoid exposing
the inside information. The employees of the organisation should not be involved in the unethical
practices.
The investors are required to be very vigilant. The unethical practice can be avoided by the
investors once they see it. They must raise their voice when they find that inside trading is
occurring in the organisation (ifc.org.wps.wcm, 2017). The inside trading will bring huge
financial loss to them and they may withdraw from the organisation. There is also a need for
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reporting the concerned legal authorities regarding the inside trading and the damages that cause
due to the inside trading.
The role of regulators is very important here to protect people from the inside trading. The
regulators should keep eye on the operations of the organisation and should see that the code of
conduct is adequately maintained by the companies (ijsses.org, 2017). The regulators are
required to restrain people to indulge in the unethical practices so that the companies will suffer
at the end.
Rajaratnam and his team made a wrong practice and hired people to give them inside
information of the customers. The inside information was used by Rajaratnam for his personal
use and the profits amounted $ 64 billion. Thus it is evident that the medium of extracting inside
information by Rajaratnam was an unethical activity.
Q2.
The companies collect the data of the customers for the internal use so that they can develop
the services and products as per the need of the customers. Thus the companies keep the
information of their customer’s secret so that other companies cannot get the idea about the
movement of the customers (justice.gc.ca, 2017). Thus the sharing of the confidential
information of the organisation will be treated as an unethical activity and the companies
should constraint themselves from doing this illegal activity. The sharing of the information is
always the risk for the companies.
The implication of the sharing of the information and basically the inside information is very
dangerous. Due to the disclosure of the information of the investors, the financial activities
are monitored and the information collected by the company can immediately make predict
about the intention of the investors (justice.gc.ca, 2017). The investors will lose their profits.
The decision of trading a stock is also affected by this. The persons involved in the illegal
practice will take the advantage of the inside trading.
The executive and the regulators will also similar problems to regulate the activities. There is
no specific mode to identify the people those who are involved in the inside trading. The
unethical practice has only become public when the corruption is identified (law.upenn.edu,
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2017). Thus for the regulators, it is very difficult to identify the culprits those who are
supplying the secret data to other.
It is also a matter of fact that the inside information changes the decision of the investors.
While trading a stock the investor is monitored in this process. Thus the prediction of the
analyst will trouble the company as well as the whole trading of stocks. The legal body does
not allow the business organisation to do wrong practices.
The case of Rajaratnam gives the insight to study about the illegal practices made by the
organisations. Rajaratnam could manage to get the insider information by hiring the employees
of the different companies. The activities of Rajaratnam are called illegal. Rajaratnam could hire
the number of the analyst to make market research and predict the market
(kaloramapartners.com, 2012). The analyst can help Rajaratnam. But the illegal way of getting
the information brought huge loss to the credibility of the company in the market. Rajaratnam
got a short-term benefit but he lost hard-earned reputations. He was convicted and sentenced to
jail for his illegal activities.
The implication of the unethical activities is very wrong. Rajaratnam could manage to earn more
credibility in the market if he has opted the ethical principles. The experience he had earned
while working in Needham & Co would help him to make more financial analysis and his
company could also earn more benefits (justice.gc.ca, 2017). The act of Rajaratnam states that
the non-public information should not be given to others by those who access it. It is always
correct to gather the information of the customers but passing the information for benefits is a
crime. This is definitely against the legal process. Thus the implication of disclosing non-public
information is an unethical act.
The inside trading may give short-term benefits to the person. But it is true that the ability of
the company will fall down in the long-term process as it remains involved in the inside
trading. Thus the individuals involved in inside trading should be given punishment. The ill
effect of inside trading is that the investors will not focus on investing in the potential market
and they will detach themselves from the market. There is also another chance of ill effects.
The investors will focus on the secured way of trading and will procure only the bonds of the
government. Thus it will seriously affect the ability of the market. It is always important to
make an investigation before making any trading activity.
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Q3.
This is a fact that punishment to Rajaratnam is an evidence of illegal practice made by the
fund managers and investors. The sharing of non-public information is considered as an
illegal activity. The secret investigation will alert those who remain involved in passing the
non-public information to others for their personal gain. The secret investigation is also
giving the regulators and the policymakers a warning to keep vigilant eyes on the movement
of the fund managers (justice.gc.ca, 2017). Rajaratnam is an example of the damage of the
companies like IBM and Google. The financial gain of Rajaratnam brought huge loss to the
companies. This investigation will help the organisations to remain alert and not to disclose
the information which is very much secret in nature.
The case of Rajaratnam also provided an example of punishment for illegal work. The fund
managers will never take steps to pass the information on the status of their organisation
depends on it. Once the company is exposed the possibility of growth of the company is
impossible (kaloramapartners.com, 2012). The incident of Rajaratnam can give benefits over
the competitors in the market. But this benefits cannot stay for a long period of time. The
stock market and trading require associating with day to day analysis. The company should
employ people to work for the organisation other than involved in the inside trading. The
illegal practice will spoil the credibility of the company in the market.
This is important for the managers & the investors to take appropriate decisions and they
should avoid any wrong practice (community.cengage.com, 2017). They should understand
the survival of the business does not depend on the inside trading. The wrong practice will
bring a fatal consequence for the organisations. The unethical activities of the fund managers
and the investors will bring loss to the customers and the company will lose its credibility in
the market. Later the survival of the company will be impossible in the future. This has been
evident from the case study.
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Conclusion
The case study on inside trading is an example of unethical activity. The act of Rajaratnam has
brought a very negative impact on the stock market. The trade is affected for the inside trading.
The unethical activities of Rajaratnam remain responsible for the threat in the trading of stock.
The customers get to know about the ill effects of the inside trading. Thus it is very important to
stop the unethical practice so that other fund managers and the investors will not involve in the
wrong practice. The regulators are required to see that no fund manager or the company is
involved in sharing the non-public information of the company. Thus it is important to avoid
any illegal activity. The fund manager should know that it is not important to disclose the inside
information of the customers. The information which does not affect the organisation or which
has no harm can only be disclosed. The people those who are involved in accessing the
information of the companies should not try to get benefits out of it. The case study shows that
Rajaratnam’s benefits were for a very short period of time. He brought a huge loss to him
individually and also to his company. The case of Rajaratnam is a warning for every fund
managers not to involve in wrong practices.
Rajaratnam could use his rich experience in the business instead of getting involved in the illegal
practices. The adequate knowledge he has earned working in his previous company could help
him to make an analysis of the market. The help of another analyst could also help his to make
more market research. This would help him to predict the market and get more benefits. As a
successful analyst, he has a great reputation. But the motif of getting immediate befits caused a
huge loss to him. Thus it is very much important for every fund manager to remain loyal to the
organisation and should not try to disclose the information of the company. The non-public
information should not be disclosed at any cost.
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