The financial tsunami in 2008 has stirred up some controversies in the selling practices of relationship managers. The broader issue involved is, however, that of corporate responsibility – whether DBS was ethical in their marketing approach for complex financial products. A market-based promotion approach was adopted, encouraging promoters to sell every investment product to all customers (particularly retirees), regardless of suitability and financial capability. However, lost savings were partially caused by external factors, making this issue complex and multi-tiered. Lack of ethical clarity here thus has effects on stakeholders or “individuals, organizations and other entities that affect, or are affected by, the organisation’s objectives and actions”1.
The absence of ethical transparency warrants an analysis of the issue with different theoretical perspectives, each yielding different conclusions. In utilitarianism, the conclusion of whether an action is right is drawn from its consequences2. Since certain types of pleasure are more desirable than others3, retiree investors could retrospectively argue that they would have been much better off with their money intact had they not been specifically targeted. Considering the failed investments and weighing the consequences of lying, it may have been more desirable if the investors were informed about the “first-to-default” clause and possibly curbed their investments in the High Notes. Consequentialism4 in utilitarianism tells us that lost investments suffered makes the bank’s actions unethical. However, since events in the US possibly contributed a bigger part in causing investors to lose their principal amounts rather than the ethicality of DBS itself, utilitarianism is a poor explanation of the situation since this theory makes use of the consequence of events as a basis for evaluation.
However, with deontological ethics and the ethics of care, the issue can be better justified since both theories evaluate the actions of the parties involved rather than looking at outcomes that could have been influenced by a variety of factors. From the perspective of a deontologist, an action is deemed ethical only if it conforms to moral principles of rights and justice. People are entitled to basic liberty and welfare rights and in this case, investors have the right to know all relevant information regarding the Minibonds and High Notes to enable them to make fully informed choices without restrictions. Knowing the complete picture also aligns their rights to basic welfare such as happiness and general well-being. In addition, since non-disclosure of facts has turned out to be harmful, it is an unjust action. As such, deontological ethics deems the mis-selling actions as unethical.
Also, under ethics of care, an individual is obliged to exercise special care towards those persons of valuable close relations, particularly relations of dependency. There is a relation of dependency between the relationship managers and the investors who get investment information largely from the relationship managers. As an agent of DBS, the relationship manager has a duty to exercise care towards customers. Moreover, relationship managers have a fiduciary duty to uphold the reputation of the bank. By hiding the “first-to-default” clause from investors, the relationship managers have failed to exercise special care and thus behaved unethically.
Inevitably, there are certain uncertainties that further exacerbate the ethical dilemma. Given such intervening factors, the situation may not have differed much even if investors were given full information. Firstly, the issue is complicated by events in the external environment (i.e. economic situation in the US) which are uncontrollable by DBS. Risk management methods are largely quantitative in nature but not comprehensive enough to fully estimate all possible risks in these complex products5. Thus, even sales representatives could have lacked a complete understanding6 of the Lehman Minibonds and High Notes, causing investors to lose not only money but also confidence in the banking industry. This in turn affects the banking industry in terms of credibility and flow of banking activities. Moreover, the corporate culture of DBS is unclear and as in the case of Enron, employees may be pressured to conform to employer’s expectations even if it means behaving unethically7. This may force regulators like the Monetary Authority of Singapore (MAS) to implement more regulation measures to monitor practices. Consequentially, MAS’ reputation of being a regulatory body is also at stake8 because failure of regulation measures will result in loss of confidence in governance of the banking industry. Tighter controls may result in human resource reshuffling and changes in job scopes and remuneration packages. As part of the domino effect, relationship managers may then have to adapt to changes in marketing approaches for investment products that may place more emphasis on the way customers are treated9.
Finally, however, we must recognize that analyzing the issue is more about whether DBS’ tactics were ethical rather than questioning the morality of the relationship managers. Moreover, the ultimate decision to invest still lies with investors. As such, the blame cannot be totally shifted to the lack of ethicality.
In order to avoid ethical dilemmas, more education on contractual obligations could be provided for prospective investors. If the importance of disclaimers like the “first-to-default- clause are more clear-cut, they will be more aware of what entails and possibly less susceptible to misleading sales pitches. In addition, banks should re-evaluate the suitability of each investment product and protect investors instead of doing mass sales10. In this way, both ethicality and business value will be maximized. More importantly, a set of incentives should be devised so that sales representatives can align personal goals with their roles as advisors, thereby encouraging them to represent and disseminate info accurately11 and developing a culture12 supporting ethical behaviour.
In conclusion, balance is required between reaching corporate goals (e.g. sales and profit targets) and ethical practices such that they are not mutually exclusive. For example, if remuneration structures change to encourage better dissemination of information, productivity could possibly decrease due to a lack of incentive. Yet, if they remain the same, the motivation for selling may be wrong as well. Thus, optimal ethical practices must aim to reach various corporate goals as well as prevent unethical selling practices from taking place.