Interview of Mr. Dr Michael McMillan, CFA
Dr Michael McMillan, CFA
Director, Ethics Education at CFA Institute
Interview to John Vickers, Gold Magazine, Cyprus
- Your recent presentation in Cyprus was entitled “How to do the right thing even if no-one is watching”. How widespread are ethical dilemmas in business these days and who or what is to blame?
Ethical dilemmas are a normal and predictable part of many professions. In the investment industry, conflicts of interest often arise when investment professionals are paid on a commission basis. This represents an ethical dilemma, because it means that these professionals only get paid if the client buys the investment products that they are selling. So, when a client receives a call from an investment professional towards the end of the month, the client needs to ask themselves “is this individual recommending this product because it is in my best interest, or are they recommending this product because it is in the investment professionals best interest because they to generate commissions in order to pay their bills?”. This is not to say that investment professionals who work on commission (or anyone who works on commission) are unethical. It just exemplifies that the structure/compensation system in the industry creates ethical dilemmas.
2. What are the most common situations that people may find themselves in and which require them to think about ‘the right thing to do’?
See the above example. Another example occurs when investment professionals are paid a fee based on the amount of client assets that they manage (i.e. Assets under management). This may encourage investment professionals to maximize the assets they have under management in order to maximize the amount of fees they are generating. This can result in mediocre investment returns for their clients, since it is more difficult to generate higher returns the larger the amount of assets under management.
3. In the US, would you say that there is an awareness in most businesses of actions and behaviours that are unacceptable?
Not only in the U.S., but around the world there is a growing awareness in most professions of unacceptable actions/behaviors. After the financial crisis, the investment industry realized that many of the activities that precipitated the crisis were legal, but not ethical. This is why the CFA Institute is encouraging investment professional around the world to not just “do what is legal” but to live up to a higher standard and “do what is ethical”.
4. Are employees confident enough to report colleagues or to become ‘whistle blowers’ in the majority of organisations?
“Whistleblowing” is very difficult. Most employees who “blow the whistle” on wrongdoing that they have witnessed at their employer are dedicated and hardworking individuals who are committed to the organizations that employ them. However, they become frustrated when they observe misconduct in their workplace and their managers don’t do anything about it. As a result, they feel like they have no other choice but to contact government authorities and/or the media. It takes a lot of courage for an employee to go outside of his/her company to highlight misconduct. A number of laws have been enacted in the U.S. to protect whistleblowers. Many companies have developed “no retaliation policies” and have installed confidential “help lines” to allow employees to report wrongdoing without revealing who they are. Although there is a still a long way to go, in terms of encouraging and protecting employees who report wrongdoing, however, management is beginning to recognize the importance and value of whistleblowers.
5. How crucial is the role of the Board and the CEO in determining a company’s ethical culture?
The Board and the “C-suite” are ultimately responsible for creating an ethical culture in an organization. I am sure you are familiar with the expression “Tone at the Top.” If the Board and Senior Management don’t encourage AND model ethical behavior, then it is almost impossible to create an ethical culture within an organization. However, equally as important as “Tone at the Top,” is “Tone at the Middle.” This is because most employees don’t come in contact with the Board or the “C-Suite” on a daily basis, however, they do interact with their supervisor/manager constantly. Studies have shown that employees “model” their behaviour by observing their supervisor. As a result, if the supervisor is acting unethically or encouraging their subordinates to act unethically, then it will be difficult to create an ethical culture.
6. Doesn’t ethical behaviour differ from country to country? A gift in one place may be viewed as a bribe in another. Is there anything approaching a universal set of values on what’s right and what’s not in business?
The CFA Institute is global organization of investment professionals. Its Code of Ethics and Standards of Professional Conduct, establishes Best Practices for investment professionals globally. CFA Charterholders are required to follow the stricter of the laws/regulations in the jurisdictions where they are conducting business or the CFA Code of Ethics. This means that as a CFA charterholder, even if your jurisdication or company does not have a gift giving policy, you must follow the gift policy contained in the CFA Code of Ethics. To this end, we encourage all investment professionals not to accept any gift that could be “reasonably expected to compromise their independence and objectivity.” Perceptions are so important when it comes to gifts. Although an investment professionals “opinion” or “recommendation” may not be affected by the receipt of an expensive gift, it may appear to clients and other 3rd parties that this investment professionals judgement has been influenced by the gift.
7. How important is some kind of ethics or ethical intelligence training within business organisations?
Ethics education and training are critical elements in creating an ethical culture. It is important for ALL employees to know the “behaviors that are expected of them” in the workplace. It is also important to provide more specialized training to managers and supervisors, to insure that the “Tone at the Middle” is consistent with the “Tone at the Top.” Equally as important, all employees need to know that the rules apply to EVERYONE, and anyone who violates those rules will be punished regardless of their position.
8. Is there any evidence to suggest that young employees are more likely to engage in unethical behaviour than their older counterparts?
Studies have shown that younger employees are more vulnerable to being “exploited” or taken advantage of by managers, because they are so eager to “fit in” and become a “team player.” Younger employees have a greater tendency to “obey authority” and do what they are told without questioning the ethical dimensions of what they are being asked to do. One of the reasons why the military likes to recruit 18-21 years old is because they know that this age group is very impressionable, loyal, and unquestioning. This is one of the reasons why, CFA Institute has established partnerships with university around the world. Part of our mission is to equip “newer entrants” into the investment ndustry with the tools that they will need to cope with ethical dilemmas when they are confronted with them in the workplace.
9. Over the course of your career, have you ever found yourself facing an ethical dilemma? What was it?
Yes, I have faced a number of ethical dilemmas in my career. At one point, I felt that I had to quit my job, because I felt that the principals of the firm were acting unethically.
10. You have said that unethical behaviour does not necessarily mean that the person involved is unethical. How do you make this distinction?
There is a distinction between “unethical people” and “unethical behavior.” Most of the people who get into trouble are not “unethical people.” Instead, their unethical behaviour results from situations and circumstances they find themselves in.
11. What does it mean to have the CFA qualification?
For an employer, it means everything to have a CFA Charterholder working for them. Employers know that CFA Charterholders have studied and been tested on ethics and ethical behaviour at all three levels of the CFA Examination. In addition, they know that as CFA Charterholders, we must attest annually that we have lived up to and upheld the CFA Code of Ethics and Standards of Professional Conduct. Equally as important, employers are aware that the CFA Institute is a “self policing” organization, investigates all complaints against charterholders, and will sanction those who have been found to act unethically. Besides the ethics component of the CFA Charter and examination, employers respect the amount of time and effort that CFA Charterholders have dedicated to earn the designation. Becoming a CFA Charterholder not only requires, passing three 6-hour exams, it also requires four years of relevant work experience. Employers respect, not only the knowledge, skills, and ability that CFA Charterholders have developed while in the program, they also respect their tenacity and perseverance.
About CFA Society Cyprus
CFA Society Cyprus is the local society of the CFA Institute, based in Virginia, USA. With more than 140,000 members worldwide, the CFA Institute offers the Chartered Financial Analyst (CFA) designation; the most respected and recognized professional qualification in the world of finance and investments, after a stringent examination process. CFA Society Cyprus was founded in 2003 and currently numbers 124 members. All holders of the CFA qualification, they work at all major banks and investment firms in Cyprus. As Chartered Financial Analysts, they are best-trained at both a theoretical and practical level for advanced financial and investment analysis and work.