Small businesses, corporations, and organizations in communities implement a code of conduct and standards that support ethical business practices. Many community leaders are executives, board members, investors, financial advisors, and investment managers who mentor to future leaders and prepare them for the real world.
Ethics addresses issues relating to moral principles that govern a leader’s behavior and conduct involving business dealings. People who practice ethically may question the integrity of some leaders because of dishonesty and violations of federal and state laws that regulate securities and short-stock selling.
A Trading Activity That Ended in 1933
The Albert Wiggin insider trading activity in 1929 contributed to the market crashing during that year, along with other investors who sold their Chase shares. Wiggin did not commit a criminal act because there were no laws governing stock short selling a quick security sell in hopes of a decreased share price. He made a substantial profit of $4 million after selling 40,000 shares of Chase stock and never faced federal charges because it was not illegal at the time of the transaction.
His trade transaction received questioning and led to the creation of the 1933 Securities Act, including the Wiggin Provision, to prevent it from happening again.
It is illegal for directors and executives to short-sell their company’s stock for a profit and repurchase shares after the price drops. That type of behavior in the financial industry can devastate the economy and millions of households. Since the 1930s, security laws are broader with requirements and professional standards set for leaders who have an interest in companies.
How Young People Are Becoming Leaders
Successful young leaders today started learning about ethics, knowing right from wrong at an early age to adolescence. Leaders and parents in communities, including households, businesses, and organizations, teach the importance of morality, behavior, and conduct. Millennials rely on established leaders as mentors for advice, industry knowledge, wisdom, and experiences in their profession. Along with mentorship, they studied ethics at a college or university and passed ethical qualification exams to stand approved as leaders.
What Research Reveals About Professionals and Ethical Practices
While there are leaders who participate in insider trading and short selling, many of them avoid such schemes because of their professional and personal moral values. A recent study showed that professionals such as financial advisors/representatives who passed ethics exams were one-fourth less likely to commit theft, deception, and fraud. Professors and a doctoral candidate conducted the research and studied approximately 1.2 million financial professionals working at brokerages in the United States from 2007 to 2010.
The sample research study focused on changes to the investment advisor qualification exam and its consequences. Researchers believe a decrease in weighted percentages of the rules, ethics, and technical sections in the test caused significant problems and negative results.
Before the changes to the exam, the ethics section had the most percentage weight at 80 percent, and the technical section had a percentage weight of 20 percent. After the change, the rule/ethics section reduced by 30 percent to 50 percent, and the weighted percentage for technical increased by 30 percent to 50 percent.
Researchers noted that the older examination comprised more rules and covered more ethical practices compared to the amended exam. They found that people with advanced training are more likely to resign from working for a company if they witness unethical behavior in the workplace. The research concluded that educational institutions can teach future leaders business ethical practices and how to apply them to their personal life and financial professions.
What Universities are Teaching Students in Ethics
- Financial Accounting Standards
- Financial Statement Reporting Requirements
- Compensations Disclosure Requirements
- The Law of Unethical Business Practices
- Theory of Capitalization
- Investment Vehicles and its Characteristics
Yes, universities and colleges can teach future leaders to maintain ethical business practices and the consequences of illegal activities, including short-selling and insider trading.
Financial professionals have to be responsible, accountable, transparent, and committed in their practice to resist the temptation of making a fast capital gain. SEC is holding all parties involved in illegal investment transactions accountable for their actions, since the passing of the 1933 Security Law and the Wiggin Provision.
The best advice to future leaders is to receive as much training as possible in ethics that reinforces moral values and a good code of conduct.