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“Integrity, Honesty, and Ethics”
Ethics 2010
Welcome and Introduction
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I am Andy Gustafson
I teach Business Ethics at Creighton
Son of a Farmer from Nebraska
Overview of Ethics
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Summary:
Ethics Quotes
Business, Ethics, and the Law
Examples involving rationalization, self-deception
Moral Decision Making
Case studies principles
Professional Standards/Industry Paradigms of CPCU
Case Studies applying guidelines
Conclude
Ethics Quotes
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Which of these quotes is your favorite,
and why?
Which of these quotes seem especially
relevant in the insurance business?
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ETHICS QUOTES
1. When I do good, I feel good; when I do bad, I feel bad. That’s my religion. (Abraham Lincoln)
2. A man does what he must.. in spite of personal consequences, in spite of obstacles and dangers, and pressures.. and that
is the basis of all human morality. (JFK)
3. If you don't have integrity, you have nothing. You can't buy it. You can have all the money in the world, but if you are
not a moral and ethical person, you really have nothing. (Henry Kravis)
4. Always do right – this will gratify some and astonish the rest. (Mark Twain)
5. Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws. (Plato)
6. Associate with men of good quality, if you esteem your own reputation; for it is better to be alone than in bad company.
(George Washington)
7. To educate a person in mind and not in morals is to educate a menace to society. (Theodore Roosevelt)
8. A good name is more desirable than great riches; to be esteemed is better than silver or gold. (Pr 22:1)
9. Two wrongs don’t make a right. (old english proverb)
10. Its not enough to be busy– so are the ants! The question is– what are we busy about? (thoreau)
11. What does it profit a man to gain the whole world, yet forfeit his soul?
12. It takes less time to do a thing right than to explain why you did it wrong. (longfellow)
13. “Live so that when your children think of fairness and integrity, they think of you.” (H.J. Brown)
14. “The most important persuasion tool you have in your entire arsenal is integrity” (Zig Zigler)
15. “A man without ethics is a wild beast loosed upon this world.” (Albert Camus)
16. Ethics or simple honesty is the building blocks upon which our whole society is based, and business is a part of our
society, and it's integral to the practice of being able to conduct business, that you have a set of honest standards. And it's
much easier to do business with someone when you look them in the eye and say, "This is what we're going to do," and
you understand what you each mean, and you can go away and get it done. (Kerry Stokes)
17. If you can’t find time to do it right, when will you do it over? (Jeffrey Mayer)
Exemplary Ethics Code:
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"As officers and Enron Corp, its subsidiaries,
and its affiliated companies, we are
responsible for conducting the business
affairs of the companies in accordance with
all applicable laws and in a moral and honest
manner...We want to be proud of Enron and
to know that it enjoys a reputation for
fairness and honesty and that it is respected."
Exemplary Code Continued:
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"Compliance with the law and ethical standards are
conditions of employment and violations will result in
disciplinary action, which may include termination...in
addition to responding to the Act, we are adopting
this Policy Statement to avoid even the appearance
of improper conduct on the part of anyone employed
by or associated with the Company...We have all
worked hard over the years to establish our
reputation for integrity and ethical conduct. We
cannot afford to have it damaged."
Loosing your Moral
Aspirations
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“Men lose their high aspirations as they lose
their intellectual tastes, because they have
not time or opportunity for indulging them;
and they addict themselves to inferior
pleasures, not because they deliberately
prefer them, but because they are either the
only ones to which they have access, or the
only ones which they are any longer capable
of enjoying.” – J.S. Mill
Examples: Madoff and Spitzer
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Madoff explaining why market is secure
http://www.youtube.com/watch?v=ab1NTIlO-FM
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Madoff Critic http://www.youtube.com/watch?v=nlxb5LGX_KI
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Spitzer up:
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http://www.youtube.com/watch?v=BuLtYwT4ZGA&feature=PlayList&p=3265D66A49051026&playnext_fro
m=PL&playnext=1&index=1
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Spitzer down:
http://www.youtube.com/watch?v=2jEQKnU87Cg&feature=PlayList&p=3265D66A49051026&playnext_fro
m=PL&playnext=2&index=2
We can lose our moral
conscience and concern!
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“Capacity for the nobler feeling is in most
natures a very tender plant, easily killed, not
only by hostile influences, but by mere want
of sustenance; and in the majority of young
persons it speedily dies away if the
occupations to which their position in life has
devoted them, and the society into which it
has thrown them, are not favourable to
keeping that higher capacity in exercise.”
--J.S. Mill
Stay Fit!
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Being ethical is like staying in
shape, you have to be diligent
about it and practice to keep it
up. If you don’t use it, you will
loose it…
ETHICS
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QUIZ
Question 1
1. Which of the following has been found to be a true statement
regarding ethics and the insurance industry?
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a.) On average, insurance practitioners are more likely to act
unethically in business practices than in purely personal
situations.
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b.) More than 50 percent of people in business indicate having
observed one or more unethical or illegal acts in the past twelve
months.
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c.) Insurance practitioners believe that management’s emphasis
on the bottom line is one of the main factors leading to
unethical decision-making.
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d.) All of the above are true statements.
Question
2. A strong organizational culture is one in which there is a high
expectation of conformity with the organization’s beliefs, values,
and purpose. All of the following are true statements regarding
organizational culture EXCEPT:
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a.) In general, members of organizations having strong cultures
are more likely act ethically.
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b.) In general, members in organizations with weak cultures
are more likely to base their ethical decisions on the norms and
values of small groups within the organization.
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c.) In general, members of large organizations feel less
responsibility for their actions than those in small organizations.
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d.) In general, higher level employees have less ethical beliefs
and their ethical decision-making is less than lower level
employees.
Question
3. All of the following are true statements EXCEPT:
 a.) Individuals see themselves as more ethical than
their coworkers or supervisors.
 b.) The ethical behavior of supervisors strongly
influences the ethical behavior of their subordinates.
 c.) In general, supervisors’ and management’s
actions have little influence over individuals’ ethical
behavior because individuals form their ethical values
outside of the work environment.
 d.) Supervisors who are successful performers have
greater influence over their subordinates’ ethical
behavior.
Question
4. Which one of the following is a true statement?
 a.) Most employees report that a company’s ethical
position is stated in their training courses.
 b.) The existence of a formal code of ethics is a
strong deterrent to unethical behavior.
 c.) The awareness of a formal code of ethics is a
strong deterrent to unethical conduct rather than just
the mere existence of one.
 d.) The most successful ethical training programs are
ones that emphasize how to make ethical decisions
rather than setting clear, uncompromising rules.
Vocabulary: “Business Ethics”
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What is “Business” ?
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What is “Ethics” ?
What is Business?
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Money Making Opportunity
Social/Cultural Power
What is ethics?
“Ethics” isn’t “legal”
Difference between the Law and Ethics:
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Some legal issues are neither ethical or
unethical.
Some ethical issues have no laws to
support them.
Legal Route to Ethics
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The Insurance Industry is Highly
Regulated
Law often tries to encourage ethical
behavior:
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Federal Sentencing Guidelines
Sarbanes-Oxley Act (SOX)
Better to have self-regulation than more
gov’t regulations
Federal Sentencing Guidelines
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1. Having Standards
2. Assigned Responsibility - Adequate
Resources
3. Due diligence in Hiring
4. Communications and Training
5. Monitoring, Auditing, Reporting
6. Promotion and Enforcement of Ethical
Conduct
7. Reasonable Steps to Prevent Misconduct
Company Ethics
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Company Policy often has some basis in
the compliance regulations and legal
statutes and fine schedules set up by
government.
But Personal ethics requires personal
decision-making, rooted in values.
How to encourage ethics:
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External Sanctions:
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Positive: (evaluation criteria, bonuses)
Negative: Regulations, Rules & Enforcement
Internal Sanctions:
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Establishing a corporate culture or office Culture
through vision and leadership
Your Business is social
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Business has its own culture
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Business Transforms Culture
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Paypal, Google, your office
Financially, community outreach
Business is about relationships
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Insurance business is about relationships
Company vs Personal Ethics
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Company Policy often has some basis in
the compliance regulations and legal
statutes and fine schedules set up by
government.
But Personal ethics requires personal
decision-making, rooted in values.
Many think Ethics is just about
what to NOT do: “Don’t do __!!”
But ethics is more than just
what not to do
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Minimal: What we shouldn’t do
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Better: What we should do (justice)
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Don’t steal, don’t kill, don’t lie
Be fair, Be honest, Fulfill duties, work hard
Best: What we could do to make things
excellent for all of us…
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Mutual of Omaha Project, Real Estate
Our actions do affect others…
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61% of taxpayers say it's okay to cheat
on your taxes
Every person spends $250 more per
year due to Auto Insurance Fraud.
Our Nation spent $1.7 TRILLION dollars
on health care in 2003. Some estimate
that 20-35% of that was fraudulent.
Question: Business & Ethics??
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Can making a healthy profit and being
ethical go together?
MUST they go together??
Do we need Ethical Constraints? Or can
free market do it automatically?
Argument: Firms ought to maximize their
profits and consumer pressure/market
will keep them honest
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Because “profit really represents the net
contribution that the firm makes to the social
good and the profits should therefore be
made as large as possible.”
Natural constraints of the market will help
keep companies in check. I.E., if a company
is known to be dishonest or terrible to their
employees, then consumers will not buy from
that company!
Why Ethics Won’t Take care of
itself (criticisms of hands off
approach:)
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1. “Free Market alone” response
assumes that forces of competition are
sufficiently vigorous—but they aren’t.
2. Maximizing profits is socially
inefficient when costs are not paid for
(externalized)
a. ie, time vs pollution
b. ie, traffic congestions
2 more problems with pure
free market approach:
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3. Maximizing profits is socially
inefficient when seller has great
knowledge advantage over buyer
4. Distribution of income that results
from unrestrained profit maximization is
very unequal.
Market Interventions to
maintain Ethical order:
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1.
2.
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5.
6.
Moral Psychology:
WHY DO PEOPLE
DO THE RIGHT
THINGS?
Different Types of Motives
(kohlberg)
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Stage
Stage
Stage
Stage
Stage
Stage
1:
2:
3:
4:
5:
6:
Obedience and Punishment
For self-benefit
For sake of reputation (good boy)
Maintain Social order
Contractual-Legalistic orientation
Conscience/Principle Orientation
Motivation
Each of us and each person under us
might have different motivations for
doing the right thing. Its helpful to
realize that and encourage right
behavior, however it is motivated.
Moral Psychology
WHY DO PEOPLE
DO WRONG
THINGS?
Question: Why do Soccer mom’s
sometimes drive like jerks?
Question: Why do people forge
signatures and documents?
Why do people stretch or edit
the truth, or exaggerate?
Moral Development: Why do
people do unethical things?
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Why did the soccer mom drive like a
jerk?
Why did my student cheat on the
exam?
Why did people at Enron do unethical
things?
Why do insurance professionals cut
corners?
Some reasons people do wrong:
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Ignorant
In a hurry
Thoughtless
Didn’t plan ahead
Financial difficulties
Pressure from organization
Not clear communication from management
Lazy
Want a quick buck
They are a Bad evil wicked person
Anonymity
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“Any environmental or societal conditions that
contribute to making some members of
society feel that they are anonymous– that no
one knows or cares who they are, that no
one recognizes their individuality and thus
their humanity– makes them potential
assassins and vandals, a danger to my person
and my property—and to yours. (Zimbardo,
2004, p33)
Cognitive Dissonance: Conflicts
between action and knowledge
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“I am an ethical person, but I am doing
something unethical”
Solutions:
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A. stop doing it
B. psychological tricks:
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Disengage from your behavior
Ways to disengage from your
behavior
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1. Change perception of unethical
behavior: its not so bad
2. Change perception of damaging
consequences: no one harmed
3. Diffuse responsibility– no one in
particular is responsible: not my fault
4. Change perspective on victims–
dehumanize vicitim: number, whore
BASICS of Decisionmaking
Brief explanation of the 5 classic
ethical theories:
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Egoism: Do it to benefit YOU
Social Contract: We all covenant…
Utilitarianism: Greater Good
Deontologial: Duty-Based (universalizable?)
Virtue Ethics: Golden Mean/Excellence
Egoism
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People should always do what is in their
own self-interest.
(ex: do what it takes to get repeat business)
Social Contract Theory
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Make concessions to others– you want
them to do it, so you should too.
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Obey the law, respect others because you want
to be respected, etc
Rake your yard
When driving, slow down near other schools,
not just your own kid’s school
Utilitarian:Outcome-Based
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Do what benefits the greatest number the
most
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Jump on the grenade if it benefits the most.
Do what is right if it will make for a better
society in the long run, even if you could have
short term maximization right now
I can save my client on this insurance premium
by under-reporting risks, but in the long run
this will cause the insurance company and
other clients to be at considerable risk.
Principle/Duty-Based:
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Duty #1: Only act in a way that you could
make your act a universal law
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I cheat on my taxes? Would I want everyone
to do that? No. Then don’t!
Should I lie? Would I make lying a universal
law? No. Then don’t lie!
Kant’s Duty #2
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Treat others always as an end, not as a
means to an end.
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Don’t treat checkout person as humanoid ATM
Don’t treat other drivers as obstacles in your
path
Don’t treat customer as a just a means to $$
Virtue Ethics
What is the GOOD life,
and how do we achieve that?
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Aim for excellence
Moderation/Balance
-- Vice
Virtue
++Vice
(Too little)
(just right)
(too much)
Coward
Courage
Foolhardy
Being Virtuous:
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Does depend on the situation
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Does depend on the individual
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Child ‘Maestro’
Is something we must constantly strive
to upkeep, work at
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When to be witty
We can lose our touch!
It helps to have roll models: WWJD?
Virtues
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Honesty
Integrity
Responsibility
Respect/Caring
Truthfulness
How do people lose their
virtuousness???
Moral Principles for Living
and Working
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Banker Friend: “look in the mirror rule”
Showgirl from Las Vegas: Grandma rule
Golden Rule: do unto others…
Silver Rule: do no harm…
What rules do you use?....
Guiding Questions
Questions to help decide if the
situation or decision has ethical
dimensions
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Is it legal but unethical?
Is it necessary?
Does it involve a core ethical principle
such as honesty, integrity, truthfulness,
etc.?
Guiding Questions: Info
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Information gathering questions
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Who are the stakeholders and what are
their rights?
Consider the source, reliability, and
accuracy of all relevant information.
Who should be involved in this decision?
Do I have enough information to make a
sound ethical decision? If not, how do I
get it?
Guiding Questions: Options
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Questions to help identify and evaluate
alternatives
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Am I rationalizing to justify what I want to do?
Am I using anyone for my own personal gain?
(Who will be injured and how)
Are there conflicting loyalties to stakeholders?
What would result in the long run if everyone did
this?
Guiding Questions: Conclusion
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Questions that help in reaching a decision
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Could I defend my position before the Board of
Directors, the CEO, or the media?
What would ______________________ do? (Fill
in the name of the best role model you know.)
Will this seem to be the right decision a year from
now? Five years from mow?
Do I have the moral courage to take the more
ethical course of action? (Am I willing to pay the
price for my convictions?)
Ways that Brokers can act
unethically
(From Eight Ethics Guidelines For Brokers Brian Bloch)
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1. The half-truth - (or quarter-truth or
three-quarter truth) - One of the most
insidious temptations of bad brokering
is to mix truth with untruth.
2. Insufficient explanation
 Some brokers simply do not take the trouble
to explain things, and they prefer clients not
to know too much. An offshoot of this is
"blinding with science". It is possible to
mesmerize and impress clients by talking
above their heads about internal rates of
return, long gilt futures options and currency
derivatives and countless other financial
terms.
3. Discreet silence 
It can be very tempting for a broker selling a
structured fund, for example, to praise the
built-in protection and guaranteed returns
that it offers. Especially these days, investors
love security plus (reasonably) good returns.
But if this comes at the price of all the
dividends, the investor really must be told
this. There is no way it can be taken for
granted, or assumed that they know.
4:Not offering alternatives
 From both an ethical and legal standpoint,
inexperienced clients in particular are not
equipped to make meaningful decisions
unless they are aware of other options. If a
broker offers a novice investor one particular
fund, or even a combination of funds, with
the attitude "this is right for you", he or she is
not providing an optimal service.
Rule #1: When in doubt,
spell it out.
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If it even occurs to you that an investor
may need or want to know something,
tell them. Never succumb to the urge to
keep quiet, even when you know this
may cost you the deal.
Rule #2: Do unto others.
1.
Put yourself in the position of the investor.
If you would prefer not to be handled in a
certain way, don't do it to someone else.
Above all, avoid self-deception. The best
test is to ask yourself whether you would
want your mother, brother, best friend or
indeed yourself to have these investments.
Rule #3: Avoid one-sizefits-all approaches.
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Everyone has different needs,
preferences and circumstances. They
therefore need a portfolio that truly
caters to them. The correspondence
you send out should also be tailored to
each client
Rule #4: Ask the client don’t expect them to ask you!
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A client won't ask for clarification if he or she
doesn't realize it's needed in the first place.
Make absolutely sure that the client knows
what he or she is getting. They do not need
to know every intricate detail, but they
certainly need to know, at minimum, how
risky the product is in relation to the probable
returns. There should be no surprises in store
for the unwary and trusting investor.
Rule #5: Be specific about
the state of the market.
1.
You should discuss the market with
your client in general and with respect
to the specific asset classes. This does
not mean attempting to time the
market, but the investor ought to
know whether the market has been
booming for years and is regarded as
possibly overpriced, or whether the
converse prevails.
Rule #6: Be open about
monitoring and control.
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A client should know how often you will
monitor the investments and what this really
means. For instance, will you call the client if
there is news in the media that things may go
be going sour for a particular asset? If all you
plan to do is take a look at the asset
allocation once a year, that may be OK, but
the client needs to know that he or
she cannot expect more from you.
Rule #7: Show the client
visually how things work.
1.
The classic multi-color pie chart with asset class
combinations for high, low and medium risk is a
great way to demonstrate the very essence of the
investment process. Likewise, "pyramids of risk"
which show how one moves from a low-risk basis
of cash, upward through bonds to equity funds and
so on, should always be the starting point of the
advisory process. (To learn more about using
the risk pyramid, see Determining Risk And The
Risk Pyramid.)
Rule #8:
Explain brochures
1.
Simply handing your client a pamphlet
is not enough. There is a good chance they
will not be understood and they may not
even get read. The man in the street does
not know the meaning of such phrases as
"optimizing portfolio risk", "sector
allocation", "overweighting mid caps" and
dozens of others. (For more, see
Personalizing Risk Tolerance.)
Final Thoughts
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Usually, doing the right thing is clear,
even if its not easy
We tend to cut corners for short-term
apparently inconsequential issues, but
this can come back to haunt us
Having Ethical Habits takes practice,
and some thoughtfulness.
Summary:
What have we covered?
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What is Business Ethics?
Some moral theories
Moral Development
Moral Decision Making
Breaktime!!