International Management Ethics With Respect

International Management Ethics

With respect to outcomes, the moral issue is that the analyst, if guilty of executing a pump-and-dump, is knowingly increasing his profit with the knowledge that many viewers will not sell at the right time and will consequently lose money. There is, however, some moral ambiguity with respect to this situation. Markets are only assumed to be perfectly transparent in business school theory. In reality, information is far from perfect and the vast majority of market participants understand that. Thus, outcomes are never truly predictable. Even a pump-and-dump scheme can fail, particularly on a widely-traded stock. Thus, there is greater moral culpability in the intent than in the outcomes. Mr. Stedman simply cannot be held responsible for the outcomes of every viewer watching his show -- they must take responsibility for their own trading activities.

In terms of honesty, the analyst is not being fully honest with the audience, as there are undisclosed motivations for making the recommendation. The analyst may be honest about his views of the stock, but failing to disclose pertinent facts such as a personal position in the stock is inherently dishonest. In terms of fairness, the analyst in a pump-and-dump is unfairly leveraging his position for personal gain. Stock markets operate on the principles of full transparency, so when he fails to disclose his position, he has knowledge that his viewers do not have, giving him an unfair advantage.

2. The viewers are stakeholders in DNHC, because they are using the station for information and commentary about the stock markets. They rely on that information to be as complete and accurate as possible. The owners of DNHC also are important stakeholders, because they need to be protected from negative financial events, such as lawsuits stemming from inappropriate activity of their employees. Management and owners of the company being discussed are also stakeholders. Their performance and outcomes can be affected by DNHC's reporting, thus they need that reporting to be as honest and complete as possible.

3. The analysts have a conflict of interest because, when they appear on television to discuss the market, they are doing so as a representative of DNHC. Therefore, their primary obligation is to DNHC. When they instead use their airtime to meet their own financial objectives, they are no longer acting in the best interests of the network. This is the source of the conflict of interest. In the normal course of employment, employees may be allowed to pursue their own activities, but when the objective of those activities is in direct conflict with the objectives of the employer, the conflict of interest is created.

4. Morally, James Lee is responsible for his own loss. Despite Rick Stedman's possible actions and the possible lack of oversight on the part of the network, James Lee is responsible for his own trading decisions. He should never had traded the stock if he was not prepared to accept the risk, or did not personally have belief in the stock's prospects. It is irresponsible to trade stock based on the recommendations of television analysts.

In a moral sense, Rick Stedman, if he was indeed committing a pump-and-dump, knew that some viewers may suffer adverse consequences. However, the limits of his moral responsibility are with his responsibility to the network. He is not morally responsible for the actions of any individual viewer. Likewise, the network is in the news and commentary business. That viewers may trade based on things that they hear or see on the network is a given. The network's oversight with respect to controls on its analysts does not amount to a moral responsibility.

No matter the set of events that lead to the unfortunate loss suffered by James Lee, the final decision to trade was made by Mr. Lee himself. He alone had the control to make this decision and could have stopped himself at any time. In stock markets, the onus of the decision-making is strictly on the investor and they must always conduct due diligence. This is not merely a financial obligation but a moral one as well. One cannot reasonably expect to walk through life making irresponsible decisions and expect to place blame on others. Mr. Lee had a moral obligation to himself to conduct due diligence before trading, and he failed in that duty.

5. The company did the right thing in hiring a law firm to investigate the allegations. The company is obligated to protect the interests of its owners, and Rick Stedman was potentially engaged in a conflict of interest. Thus, DNHC was protecting its own interests and the interests of its major stakeholders against potential harmful actions by one of its employees. That no more serious form of investigation was conducted by the company fits with the company's obligation to its employees to treat them with due respect, not treating Stedman as a criminal based on a single relatively-unsubstantiated accusation.