Title:The effectiveness of Goldman Sachs’ code of ethics Date:17 October 2012 To:CEO, Lloyd C. Blankfein Introduction The code of ethics is adopted by organizations to assist members in understanding the difference between 'right' and 'wrong' and in applying that understanding to their decisions. An effective code of ethics should also help to delineate the proper procedures to determine whether a violation of the code of ethics has occurred and, if so, what remedies should be imposed.
After reviewing the company’s code of ethics, we found that it has well established the concept of business ethics and the company’s objective, and also several kinds of encouragement to promote the ethical business behavior effectively. The company’s code of ethics, however, is not practical enough for implementation as the content is too general and vague, and there are not enough guidelines and regulations to help the staff to detect or solve the ethical issues. What makes the Code of Ethics Effective: According to the code of ethics, the employees are encouraged to expose any misconducts or unethical issues in the company.
The company has also established a certain department, the Global Compliance Division or Legal Department, as the platform for reporting any violation of the code, and it also helps the employees to identify and escalate potential ethical issues. Meanwhile, the company has also set up the Non-Retaliation Policy which strictly prohibits the retaliation against anyone who reports in good faith a possible violation of the Code. Under those policies and procedures, the employees will feel easy to voice out if they found something going in the wrong track.
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What makes the Code of Ethics Ineffective: The code of ethics of the company consists a large portion of text about the general code of ethics which is applied to every individual unit, but it emphasis less on the code for investment banking industry, such as insider dealing, money laundering, outside business activities and relationship and other potential conflict of interest, and staff’s personal financial affairs. Without any detailed case illustration for each of the particular issues, employees may feel hard to follow the code.
This imposes potential risks for employees to make unethical transactions unknowingly. Moreover, the code does not strictly restrict the actions of personal conflicts of interest but are allowed if approved by the firm that may violate the independence of professional. Audit firm prohibited any conflicts of interest which had been stated clearly on the statement. Auditors, for example, are prohibited to accept any favors which violate the professional. Another weakness of the code is that it omits the implementation and administration policies.
There are no content how the company supervises the implementation of the code, what the company do if the code is found to be not effective, how long the company reviews the code and so on. Also, the code illustrates that the company take a passive role on discovering the ethical issues. The code requires employees take their own initiatives to report any unethical issues. However, it is not guaranteed that all employees are going to follow the code. There is a risk of undisclosed misconduct by employees if the company does not investigate in it. Improvement The code of ethics specifically focuses on banking industry.
Take Bank of America’s code as an example. Although it is impossible to define every action that could be reasonably interpreted as a conflict of interest, company also defines several potential conflicts of interest as examples with a brief description so that everyone can have an idea on conflict of interest. In addition, the code has stated employees should conduct their financial affairs responsibly and keep their business expenses in order. The bank is prohibited money laundering and economic sanctions which have also mentioned in the code. Those are helpful to provide a clear picture to staff on what they should conduct.
It is good practice to have the way reporting the misconduct issue, but company is still played as passive role. And also it may be biases if the issue is examined by internal staff from other departments. To be independence, establishing Committees involved external individual or professional to monitor and investigate the misconducts and unethical issues, and the committees may directly notify the Board of Director. Company’s code of ethics can be introduced during the orientation. Each new employee may be requested to complete a set of ethical questions after the introduction to ensure everyone understand this code.
The failure may be requested to attend another ethical course to recap the important sections. One of global investment bank, Greenhill & Co holds information and training sessions to promote compliance with the laws, rules and regulations that affect their business. Conclusion: It is appreciated that the company put effort on setting the code of ethics. The above suggestions are given to your kindly consideration as it is good for the company to review the code once again in order to maintain high standard of integrity.
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