Ethical Issues in the 2008 Financial Crisis

This assignment examines ethical dilemmas surrounding the 2008 financial crisis, particularly focusing on cases like AIG and Kaupthing Bank. It encourages students to analyze these situations through various ethical theories and consider the roles of different stakeholders in shaping the crisis.

Ethical issues in an organisation

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
The facts......................................................................................................................................1
Ethical issues...............................................................................................................................2
Stakeholder analyses...................................................................................................................2
Solutions......................................................................................................................................3
Pluralistic ethical analyses..........................................................................................................3
Decisions made by stakeholders.................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Present study will be based on ethical issues in organization. It will gibe in-depth
explanation of economy and customers related issues in organization after Financial crises 2008.
Furthermore, it will discuss stakeholder analyses ad decision made by stakeholders sue to these
ethical issues.
MAIN BODY
The facts
Ethical issue of economy: case of Kaupthing Bank Iceland
Financial crises 2008 has affected economy of the nation badly. After that it was very
difficult for the entities to run their business smoothly. Recently number of unethical practices
have been identified in investment banking system (Goh, Li and Yong, 2015). These unethical
practices have affected economy, bank reputation and consumers believes as well to great extent.
In the year 2008 Iceland financial collapse was the major ethical issue in banking industry.
Kaupthing Iceland bank was performing well at the international stage. Before financial crises
2008, it was having strong brand reputation and it had 3 billion pounds deposits of consumers.
But after financial crises 2008 it was difficult for the cited firm to sustain in the market for longer
duration. It had to pay huge liabilities and were not having adequate assets. After that British
government has taken over bank and special investigation commission was hired to investigate
assets and liabilities of the bank. At that time it was found that Kaupthing is holding 14.8 billion
principal assets and its liabilities are 26 billion.
Ethical issue of customers and stakeholder analyses: Case of AIG
Financial crises 2008 has created big trouble for the financial sector and due to which
companies were facing difficulties in managing their operations. AIG company was responsible
to sale insurance products to consumers (Ferrell, 2016). But after financial crises it was identified
that indirect bailout of insured bondholders practices are taking places in the organization.
Indirect bailout is unethical practice. In the year 2008 the issue came into existence where it is
found that 32.8 billion in collateral to counterparties. AIG was expected to giver bonuses to
stakeholders but it did not do this and people were expecting that this money will be used for
improvement of business. But AIG has adopted individualism approach. Company was not
respecting its investors, customers and other employees.
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Ethical awareness is very important for the reputation of the firm and image of entire
industry. If any firm finds engaged in unethical practices then it affects its overall image and it
decreases trust of consumers as well.
Ethical issues
Absolutism ethical theory
Moral absolutism theory explains that absolute standards define different between right
and wrong action. Individual or any organization is required to make normative ethical decision
by considering objective rules. Rules are same for every one thus, each person is required to get
equal treatment. In case of AIG bailout to bonuses, company has not treated all stakeholder
equally. It was supposed to prove equal bonuses to all involved person. But in order to get more
monitory benefits it did not provide correct bonuses to stakeholders and consumers as well. It
was against ethical practices.
Utilitarianism theory
As per this theory, it says on the basis of a person's capability that how much they can
predict the future consequences for any action. Utilitarianism theory can be further classified in
two types, namely act and the rule one (Ferrell and Fraedrich, 2015). Kaupthing bank can ensure
involving any one of them so that they can also make some improvements in their processes and
operations so that the customers as well as the employees can stay satisfied enough. In the act
Utilitarianism, it considers the fact of providing some sort of benefits to the people while in the
rule one, it also focuses on the same but it wants to accomplish the same by the possible fairest
method. So, it does believed in including any shortcut method or one such that can act as some
replacement.
Consequentialism theory
It is considered as an ethical theory according to which, it considers the fact that for the
conduct of some action of people, it can further act as the final basis, so it is important to be
ensured properly.
Non Consequentialism theory
It is also considered as a theory of mortality in which the good and the bad factor depends
on the non moral factors of whatever the consequences of the situation are.
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Stakeholder analyses
Stakeholders play a very essential role as they are also an important part of the
organisation (Nelson and Katzenstein, 2014). Whether it is about any organisation in the
corporate world, stakeholders have a very important place. There has been already observed an
issue of the collapse of the dept when some stakeholders of the AIG purchased the debt but they
didn't even got the total payout which means no sort of remuneration through the investment.
So, it is very important for both the organisations, whether AIG or Kaupthing bank, they should
ensure very carefully the stakeholder. Also, they can check the past records of them so that they
can ensure before only that what were the achievements of those stakeholders. So, on the basis of
that only, they can choose the particular stakeholder. It is important because stakeholders play a
very important role, so choosing them should be considered as a very better option so that it
cannot make any losses to the organisation, rather help in making profits to a huge extent.
Solutions
By including various ways, both these ethical issues can get solved. Some of the very
well known and common methods include collecting data and information from every possible
place. So, regarding the issue, one should know all the areas regarding the particular issue
because then only, it can seem easy for the person to collect the information. Also, the
identification of all the parties can be done as well because if the parties that are actually
violating will be involved, it can be easy for the organisation to make sure to exclude them from
the organisation just in order to make the processing go smooth enough.
Pluralistic ethical analyses
Ethical pluralism is considered as an idea about investigating what is wrong and what is
right. Also, it helps in checking what is compatible and what is not so that one can even get an
idea that for which fact, one should go for and for which, one should not (Bolman and Deal,
2017). It considers all those factors that are not correct and are acting as a harmful feature for
anybody. Whether it is about gender inequality or about the women's safety, it considers every
single fact that is right and which is not. There are various other factors as well which are
involved in the same and these include sustainability, motivations, cultural competence, training,
maintaining a balance etc. these all factors are essential enough for maintaining a balance
between every operation. Sustainability means to ensure to make use of the resources and
services in a way that the future generations can also be able to make use of it. Also, if a project
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is being going on protecting the knowledge of individuals, so in such cases, it is completely
restricted that any other member or authority is being threatened.
Decisions made by stakeholders
In the 2008 financial crisis, some very complex decisions were made by the stakeholders.
It was one of the biggest crises that ever happened There was a huge decrease in the stock prices
and a wide range of the financial institutions were released on bail and those that have not been
released, were classified as the bankrupt ones (Armantier, Ghysels and Shrader, 2015). Various
types of conclusions raised at that time, one of which was that enormous number of bad loans
were rolled out. Also, there had been the involvement of very aggressive lenders and it was said
that they all are engaged in mortgages which were of high risks. Also, more than half of them
were very openly violating the basic standards of the government. After some time, the situation
cooled down but along with that, it caused it ensured the collapse of various essential parties that
were acting in the financial sector.
CONCLUSION
It can be concluded from the report that there have been various ethical issues observed
as in case of AIG and the Kaupthing bank, but involvement of various ethical theories can
actually help in resolving these issues to a huge extent. Also, the role of stakeholders has been
included as well. Pluralistic ethical analyses and its essential characteristics has been included in
the same. The stakeholders decision for the 2008 financial crisis has also bee involved along with
the briefing of what happened in the financial crisis in the year 2008.
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REFERENCES
Books and Journals
Armantier, O., Ghysels, E. and Shrader, J., 2015. Discount window stigma during the 2007–
2008 financial crisis. Journal of Financial Economics, 118(2), pp.317-335.
Bolman, L. G. and Deal, T. E., 2017. Reframing organizations: Artistry, choice, and leadership.
John Wiley & Sons.
Ferrell, O. C. and Fraedrich, J., 2015. Business ethics: Ethical decision making & cases. Nelson
Education.
Ferrell, O. C., 2016. A framework for understanding organizational ethics. In Business ethics:
New challenges for business schools and corporate leaders (pp. 15-29). Routledge.
Goh, B. W., Li, D. and Yong, K.O., 2015. Market pricing of banks’ fair value assets reported
under SFAS 157 since the 2008 financial crisis. Journal of Accounting and Public
Policy, 34(2), pp.129-145.
Nelson, S. C. and Katzenstein, P. J., 2014. Uncertainty, risk, and the financial crisis of
2008. International Organization, 68(2), pp.361-392.
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