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Goldman Sachs Firm’s Unethical Business Issue Research Paper

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Updated: Jun 25th, 2021

The Mission of the Organization

Currently, Goldman Sachs uses two business principles instead of a mission statement. The first one is “Our experience shows that if we serve our clients well, our own success will follow” (Goldman Sachs, 2018a, para. 1). The second principle, accrording to Goldman Sachs (2018a, para. 1).

Our assets are our people, capital, and reputation. If any of these is ever diminished, the last is the most difficult to restore. We are dedicated to complying fully with the letter and spirit of the laws, rules and ethical principles that govern us. Our continued success depends upon unswerving adherence to this standard.

The Goldman Sachs Group, Inc. is a multinational financial services and an investment company. It also offers services in securities underwriting, asset management, investment management, prime brokerage, and securities. It is an outstanding market maker and a primary dealer in the security market of the United States Treasury. In the 2008 financial crisis, the company suffered huge losses, and it was bailed out by the government. The company has continued to grow through different strategies including acquisitions.

The Unethical Issues Demonstrated in the Company

The ethical issue is that Goldman Sachs hired an employee, who formerly worked for the Federal Reserve in New York, as an associate. The employee had just been forced to resign from the Federal Reserve for different reasons. The company was aware of the associate’s past, and that he was restricted from doing some jobs at the company. Specifically, the associate could not work for Goldman Sachs until February 1, 2015. However, the company hired the associate before the said date. Later on, the associate used his contacts to obtain private documents from the Federal Reserve.

Several ethical theories can be applied to this situation. The individualism theory in this context would demand the company and the associate to act in a way that allows them to make the most profits (Klikauer, 2017). As such, the associate acted in his best interest to make huge profits for himself and subsequently the company by obtaining confidential information that would get him ahead of others. The main purpose of the associate receiving the said private information from the Federal Reserve was to make money for himself, which underscores the individualism theory.

The second theory in utilitarianism, which requires a business to act in a way that causes maximum happiness for the shareholders (Klikauer, 2017). In this case, the associate brought maximum happiness to himself and some stakeholders, albeit in the short-term. The other ethical theory is Kantianism, which demands rationality in making decisions (Klikauer, 2017). In this context, the associate violated this principle by illegally and unethically obtaining confidential information from the Federal Reserve. Finally, the virtue theory demands individuals to act in a way that preserves good character traits (Klikauer, 2017). However, the associate violated the virtues of honesty and trustworthiness.

The ethical dilemma facing the company was whether to hire the associate with the knowledge that he was an ineligible candidate according to the notice of post-employment restriction. The company would benefit from the associate’s experience, but it was against the law. On the other hand, the associate faced the ethical dilemma on whether to use his contacts at the Federal Reserve to obtain confidential information. Getting such information would allow him to get ahead and make maximum profits for himself and the company. However, it was against the ethical code of conduct to obtain and use such information.

The Effect of the Unethical Behavior on Stakeholders

The company’s stakeholders include the government, customers, and shareholders. Others included employees and the community.

The first stakeholders to be affected was the shareholders and owners of the company. The organization was forced to pay $50 million to the New York State regulators as a penalty for failure to supervise the associate implicated in this scandal (Del Castillo, 2015). Additionally, the organization experienced declining profitability. As the company fortunes declined after the scandal, the shareholders suffered greatly. The main purpose of investing in any company is to make profits. Therefore, when a company starts making losses together with being forced to pay penalties, the shareholders’ wealth is affected According to Naidu and Varadhan (2016), the company’s 2015 profits were the smallest since 2011. In 2015 after the scandal, the company’s stocks dropped by 7 percent, which was the second largest drop in the banking sector (Naidu & Varadhan, 2016).

Following the unethical revelations, investors were not sure about whether to invest in the company, which explains the falling stocks. The employees were affected by the associate’s behavior. When such incidences happen, the public has a tendency of generalizing issues. As such, employees at Goldman Sachs would easily be branded as unethical due to mistakes made by one of them. Such unethical behaviors have to be investigated by the authorities, which has negative implications for the citizens, communities, and the economy. Looking into such cases affects the stock market negatively. As such, all investors in this market segment are bound to make losses in the process. Similarly, the economy is affected negatively, which then spreads to communities and citizens. The company’s customers suffered greatly. Clients entrust companies with their investments and savings and when cases such as what happened at Goldman Sachs occur, they are hurt and their trust is lost. Their money is put at a risk of being lost.

Organizational Ethics and Corporate Governance

The first company guideline that was violated was personal conflicts of interest. The associate broke the code of conduct that prohibits employees from putting personal interests ahead of the firm (Goldman Sachs, 2018a). As mentioned earlier, the main purpose of obtaining the confidential documents from the Federal Reserve was for the associate to make personal profits. Additionally, the company requires fair and ethical competition. However, the associate violated this provision by acting unfairly and unethically to beat the competition. Similarly, the company requires employees to report all emerging issues before they escalate to problems. In this case, the associate revealed that he was restricted from doing business with the company until February 1, 2015. However, the partner overlooked this information and hired the associate at a time when he was not supposed to be working for the company. Therefore, the partner failed to report pertinent information in time to prevent the escalation of the problem and the ultimate losses. Finally, the company had an internal policy restricting employees from using information and materials from former employers (Goldman Sachs, 2018a). Consequently, the associate violated this policy by using his connections at the Federal Reserve to obtain confidential information.

To fix the problem, the company fired the implicated employee. Other individuals that were involved indirectly were charged with community service to deter them from engaging in such practices in future. The company also reviewed and strengthened its policies after firing the involved employee to address such unethical practices and prevent recurrence. Employees were retrained and required to read, understand, and apply the company’s code of conduct.

The current ethical culture at the company is strong. The management has come up with a detailed document titled “Code of Business Conduct and Ethics” (Goldman Sachs, 2018a). This document outlines how the company’s employees should conduct themselves when representing Goldman and Sachs.

The code of conduct has several provisions and policies that define what the company has done to prevent similar activities from happening again. The first policy is compliance and reporting (Goldman Sachs, 2018a). All employees are required to comply with the set codes of conduct and report any arising issue the moment it is detected. Workers should not put personal interests before the company. Additionally, the non-retaliatory policy prohibits employees from attacking any colleague who decides to report a possible violation of the code of ethics (Goldman Sachs, 2018a). Confidential information should be protected, and everyone is required to comply with the set laws, rules, and regulations.

The Role of Government

The first role of government in business ethics is to enforce the law (Dentchev, Haezendonck, & van Balen, 2017). Companies operate within a set of rules that should be observed strictly. Additionally, the government should play an oversight role to ensure that businesses are conducted fairly. Similarly, the government is expected to intervene in cases where the law has been broken. The government should also ensure fair competition among companies. The government, thus creates different bodies to formulate policy and oversee its implementation in disparate sectors. In the Goldman Sach’s case, the associate was reported to the Global Head of Investment Banking Compliance for further actions to be taken (Del Castillo, 2015). Consequently, the relevant authorities launched investigations into the matter. Ultimately, the company was found complicit in the associate’s behavior, and it was fined $50 million in penalties for violating laws governing employees’ conduct. The company was also banned for three years from contracting such related consulting jobs. On the other hand, the associate was fined $5,000 and put on probation for two years, where he was supposed to serve 300 hours in community service. Therefore, the government enforced the law according to the set rules and guidelines.

Corporate Social Responsibility

Goldman Sachs is committed to sustainability as shown in the different initiatives that it has started. In 2005, the company came up with a policy document titled Environmental Policy Framework, which informs and guides its environmental stewardship (Goldman Sachs, 2018b). The company believes that a healthy environment forms the foundation of sustainable and strong economy and business models. Therefore, every year the organization undertakes different initiatives towards the realization of its sustainability objectives. For instance, in 2008, the company launched a global equity product to guide investors in making investment choices based on opportunities emerging from changes shaping the world economy (Goldman Sachs, 2018b).

In 2009, the organization set a goal to achieve carbon neutrality in its operations by the year 2020. This move was in line with the efforts to address the adverse effects associated with climate change and global warming. In 2010, the company created a group within the investment banking to expand its presence in the clean energy sector. In 2011, Goldman Sachs became a signatory to the United Nations’ principles underlining responsible investment (Goldman Sachs, 2018b). These principles seek to increase the relevance of governance, social, and environmental matters within the process of investment. As such, companies such as Goldman Sachs have committed to the integration of sustainable investment objectives.

One of the initiatives that the company has undertaken to demonstrate its responsibility to the environment is the formation of the clean technology and renewables group. This unit operates within the investment banking division to ensure that the company undertakes projects in line with its environmental sustainability goals. As such, the organization is now a leading franchise in clean energy. Additionally, as mentioned earlier, Goldman Sachs seeks to ensure zero carbon emittance in its operations by 2020. In Singapore, the company has partnered with the Sunscap Group to promote the usage of clean energy in businesses and households. This aspect underscores the company’s commitment to environmental sustainability.

Ethics in Technology and Globalization

Technology played an important role in the Goldman Sach’s ethical scandal. The contemporary technological innovations have eased communication together with information storage, retrieval, and sharing. In this case, the associate communicated easily with his former colleague at the Federal Reserve to ask for confidential information. Similarly, the involved employee at the Federal Reserve retrieved the information easily because it could be accessed from a computer. After the retrieval, the information was shared easily between the two individuals through emails. This process can take few minutes due to the advancement in technology. In days when technology had not evolved, it would take months to retrieve and share confidential information between two parties. Therefore, it suffices to conclude that technology played an important role in this ethical scandal.

Globalization has caused intense competition among different companies in disparate sectors. For instance, investors in the United States can easily invest in financial markets in different countries. As such, the growing options for investors have reduced the market shares of companies operating domestically and internationally. Therefore, employees may be pressurized into engaging in unethical behaviors to beat the competition and make profits for themselves and their companies. In the case of Goldman Sachs, the associate wanted to remain ahead and make profits in a steeply competitive market environment as occasioned by globalization.

Final Thoughts

If I were the associate, I would have observed all the rules and regulations that define my work. For instance, after receiving a job offer from Goldman Sachs immediately after my resignation from the Federal Reserve, I would respect the notice of post-employment restriction. Therefore, I would accept to work for the company only after February 1, 2015, upon becoming eligible to function at the job capacity being offered. Additionally, I would observe the company’s internal policy restricting individuals from using information and materials from their former employees. I would not obtain confidential information from Federal Reserve even when I am in a position to do so. I believe in fairness, honesty, trustworthiness, and other values that define a morally upright person.

I would be interested in working at Goldman Sachs. This company is one of the leading organizations in the investment and financial sector across the world, and I would be happy to work with it. I believe that I can only grow by facing challenges in my career, and I think Goldman Sachs can provide the best learning environment. I also think that the company dealt with the unethical issue appropriately. Therefore, I believe that Goldman Sachs is an ethical organization, and thus I would be willing to work at the company.

References

Del Castillo, M. (2015). New York Business Journal. Web.

Goldman Sachs. (2018a). Business principles and standards. Web.

Goldman Sachs. (2018b). Environmental stewardship. Web.

Dentchev, N. A., Haezendonck, E., & van Balen, M. (2017). The role of governments in the business and society debate. Business & Society, 56(4), 527-544.

Klikauer, T. (2017). Business ethics as ideology. Critique, 45(2), 81-100.

Naidu, R., & Varadhan, S. (2016). Reuters. Web.

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