But the companies and corporations offering investments don’t have to!!
Some say the fundamental purpose of a company or corporation is to maximize shareholder returns, and argue that if they put customer interests first and sacrifice profits, they are in violation of their responsibility. (I’d prefer not to invest with them).
Companies and corporations will often have a written “Code of Ethics” that governs standards of professional conduct expected of all in the field.
Many equate “ethics” with conscience or a simplistic sense of “right” and “wrong.” Others would say that ethics is an internal code that governs an individual’s conduct, ingrained into each person by family, faith, tradition, community, laws, and personal integrity.
Economist Milton Friedman writes that corporate executives' "responsibility is generally to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom".
Consultant Peter Drucker observed, "There is neither a separate ethics of business nor is one needed", implying that standards of personal ethics cover all business situations. However, he also observed that the ultimate responsibility of company directors is not to do harm.
Volkswagen put profit ahead of the environment, a huge story yet to unfold. Even worse Stewart Parnell, ex-president of Peanut Corporation of America, was sentenced to 28 years in prison for knowingly selling peanut products that were contaminated, killing 9 people.
Mutual fund First Eagle Investment Management USA was fined nearly $40 million for illegally using their investors’ money to pay for marketing and distribution.
How can investors tell the difference?
Good question. How can we distinguish between those corporations are who ruthlessly profit driven, and those that who seem to take pride in what they offer, and how it might benefit their investors.
In my 28 years in finance in NZ, I have seen both and it’s still pretty much the same. It will usually come down to the values of the 2 or 3 individuals at or near the top, and they are not always easy to see. We can be our own worst enemy too, as sometimes we just want to hear what we want to hear.
E.g. someone promising us 8% interest and making it look safe.
It may be difficult to sort the avaricious from the principled but it is so important to do so. We have all seen the havoc and loss that companies and corporations with unpalatable greed have wrought over the years.
The US Corporate Integrity Project
This US Based project "seeks to promote integrity in corporate governance, including honesty and fair play in relationships with shareholders, employees, business partners and customers."
The Corporate Integrity Project has led campaigns against Boeing, CBS/Viacom, Fannie Mae, MCI/WorldCom, and Subway for practices ranging from large corporate scandals to anti-American campaigns. The scandals they have unearthed have led to the firings of CEO’s and CFO’s, and prison terms for some too.
Got your attention yet?
We are talking about your life savings - you don’t want your money under the umbrella of the wrong type of company, and none of us can afford to invest just because:
· They promised 8% and said it is safe
· The lady was very charming
· The man represents a very big company so they should be fine
Without doubt there is good, greedy, and doubtful in financial companies and corporations, large and small, and investors just must do their due diligence. They just must.
Tip No 12 - what is the background of the company? What were they “born” out of? Do you feel comfortable dealing with this sort of organisation?
Tip No 13 - if your gut feeling says “not sure”, listen to it
Tip no 14 - look past the charming person or presenter – way past. What matters are the values of the organisation behind them?
Tip No 15 – don’t be cynical, but enquire, enquire, enquire.
Tip No 16 - there is never any hurry to invest. Do your due diligence first.
Supplied by Alan Clarke, financial & retirement adviser, & author.
His 2nd book “The Great NZ Work, Money & Retirement Puzzle” is now available.
Alan is an independent authorised financial adviser (AFA) FSP26532