Ethics, Greed, & Psychology Within the Libor Scandal
Ethics, Greed, & Psychology within the Libor Scandal Ethical dilemmas within the business environment have always garnered considerable attention and reaction from all global stakeholders. Issues such as fraud, insider trading, discrimination, bribery, and compensation are only some of the ethical problems that have disrupted the global financial system. In response to these ethical issues, stakeholders have undertaken various protective measures; for example, businesses have progressed corporate social responsibility and corporate governance while still fulfilling their fiduciary responsibilities to shareholders. Reactive measures guiding ethics within the business environment typically stem from two systems: law and
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So far, the profit-seeking activities have come primarily from trading desks, but where was upper management during all of this questionable activity? Due to the economic incentives of Libor fixing, management condoned such behavior while ignoring flagged e-mails containing substantiation to questionable activities (Doyle, 2012). Former Wall Street executive, Larry Doyle (2012) stated that “it defies logic to think that at some point the heads of compliance and trading would not have mentioned the manipulation of a rate such as Libor to the highest levels of the organization.” Whether it was non-action or encouragement from senior management, protective features of corporate governance could not withstand the pressures to maximize the profit vital to banks’ short term performance, stock price, and bonuses. Another derivative of profit maximization leading to Libor manipulation implies masking liquidity problems. Reputational theory addresses the incentive to appear less financially vulnerable, especially in the midst of what was the post-Lehman market turmoil where the financial industry felt severe liquidity and solvency shocks (Rauterberg & Vertsein, 2012). For example, reporting a lower Libor figure could reduce borrowing costs for the bank while also making it seem financially stronger.