Week 11, Fadhil's Blog #8 - Financial Ethics, Truth & Transparency.

Hi guys, back with me again in Fadhil's weekly blog, um, in this week blog is quiet emotional because this would be my last blog for International Finance. However, to be really honest with you guys, I'm really happy that this weekly blog thing is done because it means that I'm finishing this course and will have my summer holiday! Okay, back with the main topic of this blog which is financial ethics (the topic that I learned in week 11), I'm going to talk about how important companies to run as an ethical business. As the opening, why ethical is required for companies in order for them to succeed? Is it because of the trend or it's just because to prevent legal actions? The answer to all of that questions is a yes although in reality it is more than that.

So what do company get by doing business ethically? Well there are lots of benefits can be earned. A company that shows environmental, their ethics and social responsibilities will gain customers loyalty or even attract more investors. Investors do not want to take risk and worried about how their money is managed by the companies especially the people in it that they invested in.  Furthermore, with doing ethically, company also affect its worker to behaves and how they will represent the company publicly. As nowadays relationship with customers and public is very important to company success, In my opinion, reputation can be said as one of assets for company to have, hence, companies have to be able to maintain their ethics in running the businesses. Companies form their code of ethics to guide the stakeholders ensuring that the business behave ethically. Every single employee in the company should followed and obeyed the ethical  codes and laws that surely will affect them. Thus, if there are employees sees something off or weird from the company they can freely whistle blow or report.

As I'm learning about finance from this course, in the real world, truth & transparency is the most important thing in financial ethics. Why it's important? well basically from what I see, finance is a foundation of company and it is where the money's going which is why, ethics in that category is highly importance. There are several cases where companies failed to perform ethical behaviour by providing false financial statements for various purposes, which is definitely not telling the truth and being transparent. For instance, one of the popular job for finance people in company is a financial analyst. Their job is to provide recommendation about how to manage clients' money and informing the clients about the actual skills, capability, background, and past experience or what the analysts have done in the past as their job is to keep their clients money and investing it on stocks, trading, etc.  that is why working ethically is needed for this particular area.  An ethical financial advisor will always come clean to the clients before accepting the job. Moreover, financial advisors can sometimes be very dangerous as they often hides their criminal records or false financial in the past.

Have  you heard about CFA certification? it is a Chartered Financial Analyst, it is basically a thing that financial professionals should do and obtained in order for them to gain trusts from clients as in today's world, only that kind of thing will gain trusts from people. With that certification, it means they have passed the tests such as financial exams and ethical studies. With CFA, from what I read, they will be continuously scout by the organisation as if something's goes wrong, CFA is responsible. As financial analysts is only one of many company financial parts, I am going to show a popular example of how major financial can do un-ethical things that can be disadvantageous for the clients. The company is Barclays Bank, the problem is Libor Scandal which involves in manipulating the London Interbank Offered Rate. As a matter of fact there are lots of bank involves in this case Internationally but I would like to make analysis on Barclays since it is a UK company.

In this case, who is involved? the answer is quiet obvious, The Former Barclays CEO Bob Diamond himself had to resign after got caught involving in the Libor scandal. It's quite surprise isn't it? How come a giant company such as Barclays Bank could do such a thing such as fixing the interest rate and not think about the consequences to everyone around it with their CEO being the main person to do that as shareholders choose him to maintain the business. Furthermore, three Barclays' former star traders found are also caught involves in the scandal and helping it to be smooth. I mean, those people are rich as their salary will be millions per year, why would they still want to do these things? This unethical act must be driven by greediness and their fantasies of being richer. 

From this case, I'm now wondering like how will Barclays overcome this massive problem and gain clients trust again after gained it from many years before. Now Barclays might have lost numbers of customers and investors. Even wider, this Libor scandal might have affected other financial institutions and financial products not only in UK, but also other parts of the world especially with the banks that involved in this casesince it has created negative image towards banks from the society's perspective. Furthermore, from this scandal, as the rate is fixed and manipulated, there will be a lot of investors who earned amount of return smaller than it should be.

To conclude, the question real question that we should ask is that who is to blame and responsible for this mess? The government? The people? The Bank? Surely, I believe in this scandal, everyone is involves starting from the government to the bank itself since Libor rate was not in great attention at that time. Why I said that? it's because the scandal operates really smooths from its foundation to the top which means that everyone obviously needs to work together in order for this to not get caught. At the end, from  this scandal I'm pretty sure it has affected people's trust towards investment and banking negatively.