Business Ethics in Investment

Business Ethics in Investment

Business ethics has become a major area of focus since the economic crises of recent years. StoneHouse Capital Partners take ethical issues in business very seriously. They know it ultimately affects the viability and profitability of investments.

Fair trade as Basis for Business Ethics
The concept of fair trade is the crux of ethics in business. It is not just the result that counts. Fair trade is also a process. Simply put it means that under normal circumstances a trade is seen as fair if both buyer and seller agree to make an exchange, without any coercion or misrepresentation. On this principle of willing buyer, willing seller rests the entire economic basis of civil society.

If this concept is applied to financial markets, it is clear that a fair deal is not cast in stone. During price volatility ideas of a fair price can change within moments.

The Ethical Context of Fair Trade
Any trade takes place in an economic system. All systems are geared to preserving themselves through keeping a dynamic balance. The social system makes use of ethics as one way to ensure its self-preservation. People create values, rules and regulations to promote the survival of the system. This has social, legal and environmental consequences.

The Ethical Test of Investor Choices
The Institute of Business Ethics (IBE) has a very simple yet highly effective test which rests on three questions:

Transparency - Do I mind others knowing what I have decided?
This accounts for the willingness to be measured by the ethical standards of society as a whole. The professional financial planner’s action must at least be transparent to his/her client. The idea of transparency can seem to be in conflict with the issue of confidentiality, especially when it comes to financial transactions. Transparency does not mean everyone has insight into someone else’s financial matters. The question can be rephrased as how willing am I to allow my decisions to be scrutinised by someone who is legally entitled to do so? A representative(s) of a legal or a professional body can possibly fall in this category.

Effect - Who (and what) does my decision affect or hurt?
A decision is therefore unethical if it hurts other people or the environment. Respect for and honouring the rights of others will be a clear way of ensuring positive ethical consequences. A positive effect can be brought about through the creation of shared value. This is where an investment has positive effects for the investor, the company in which the investment is made, and the community around this company.

Fairness - Would my decision be considered fair by those affected?
In investment terms the fallout of decisions goes beyond the immediate trade. Examples of fairness include measures and regulations which combat insider trading.

The Major Principles and Standards of Professional Ethics
There is much concurrence over general ethical principles, although formulations may vary. The International Federation of Accountants (IFAC) deals extensively with the most salient issues:

• Integrity
• Objectivity
• Professional Competence and Due Care
• Confidentiality
• Professional Behavior

Most countries have laws aimed at embodying and enforcing the principles of ethical investment.

Organisations Overseeing Ethics in Business and Finance
Professional bodies don’t always have the muscle to enforce codes of ethics. However, as watchdogs they can bring ethical beaches into the public eye. This can be very negative for a company’s reputation. The consequences can include declines in profit and ultimately it can force a company out of business. A number of recent scandals in the financial sector attest to this.

Here are some examples of organisations in the field of Ethics:
• International: IFAC
• USA: Institute of Business & Finance (IBF)
• UK: IBE
• Europe: European Federation of Financial Analysts Societies (EFFAS)
• South Africa: Business Unity SA (BUSA) and Financial Planning Institute (FPI) of SA.

Ethical conduct has become an indispensable part of professionalism. StoneHouse Capital Partners deliver a a high degree of professionalism which not only rests on a collection of high level skill sets but also on ethical behaviour of the highest calibre.