Trusting the Trust Accounts
Recognizing the difference between what is right and wrong may be simple, as it is a moral issue. However, knowing and making a choice between two divergent views in a business scenario where both views are generally considered tolerable is a matter of right versus right, which has first to be understood ahead of taking an action. Theorists like Rushford Kidder (2005) attempted to clarify the issues and suggested a model that is applied in this paper. An underlying assumption taken by this paper is that in a typical business scenario where an ethical dilemma is encountered, all parties have sets of shared core values, such as honesty, fairness, responsibility, and compassion (Gentile, 2010b). This paper presents a critical analysis of a situation portending an ethical dilemma, in which a bank focuses on increasing its own earnings to the detriment of the client’s earnings.
The Main Arguments
The two prominent arguments that portend a dilemmatic situation exist. The first is that the bank is keeping the money in the bank to increase its apparent assets with the view of drawing new customers. The opposing view is that the bank is deliberately not allowing its existing clients to earn a larger return by failing to expand the earning potential of the cash in the trust accounts, instead of investing it in a money market account in the hope of boosting its total earnings rather than that of the customers. In brief, the bank is doing little to maximize the customers’ earnings and more to maximize its earnings.
As illustrated in the case scenario, Billy is assigned the task of monitoring the trust accounts’ cash sweep balance. When he combined each of the cash sweep accounts in the Trust Department, he realized that the account amounted to nearly $5 million. On the other hand, the trust-sweep balance account comprised a comparatively small ratio of the bank’s total size, which indicated a rapid growth of the Trust Department.
At any rate, it is discovered that the cash that has been invested in the bank’s money market accounts was indeed bringing in a relatively small rate of return proportionate to other investment options with similar risks.
Issues at Stake for the Key Parties
The two key parties involved are the bank’s management and the customers. The bank needs to expand its earnings. However, as it goes ahead to maximize the client’s earning potential, then it is not likely to achieve its short-term growth goals and boost its overall size. Still, by exposing the bank’s unethical practice, it would still run the risk of losing its client base and ultimately failing to achieve its targeted growth.
On the other hand, the unethical practice of the bank is to the detriment of the customers, as the customers are not earning much return. Simply put, the bank is cheating customers when it is investing the cash balances in a money market account to spur its growth earning rather than the customer’s return. It is acknowledged that maximizing the customers’ investment returns is vital, particularly because of the recent economic recession that negatively affected people.
Levers Used to Influence the Bank’s Management
At this juncture, several levers based on Kidder’s Four Paradigms Ethical Dilemmas can be used to influence the bank’s management (Gentile, 2010).
The first lever is “Truth vs. Loyalty.” Truth is concerned with conforming with facts, while loyalty is concerned with a commitment to a body of people, a government, or sets of ideas requiring some form of fidelity. To influence the managers, it would be necessary to inform them of the fact that the bank is cheating the customers by gaining to their detriment. The second is that the bank is not being honest or loyal to its customers.
The second lever is “Individual vs. Community.” The bank’s management seems to assume that in the larger society where each stakeholder has to pursue personal interests, the social is likely to emerge mechanically. For instance, by expanding its earnings, it would ultimately be able to serve more customers and expand its earnings once it achieves its growth goals. However, the bank’s management will need to be reminded that the needs of the customers, which form the majority of the stakeholders, should outweigh their self-interests. When the customers eventually discover the bank’s unethical practices, it will lose its customers and ultimately collapse.
The third leverage is “Short-Term vs. Long-Term.” The short-term one includes boosting its overall size to serve more customers in the future. However, the long-term concerns include maintaining an ever-growing customer base to sustain its long-term growth and profitability. To this end, the bank’s management should be reminded that the long-term interest outweighs the short-term interest. When the practices of the bank are discovered, it will lose its customers, hence compromising its short- and long-term goals. On the other hand, when the bank increases customers’ earnings, it is still likely to achieve its long-term goals by maintaining its customers in the long run.
The fourth leverage is “Justice vs. Mercy.” The concept of justice requires that the bank should adhere to its principles of ensuring fairness to the customers, despite the current pressures to increase its earnings. The concept of mercy requires the bank to be benevolent. Both concepts, therefore, denote that the bank should be fair and benevolent to the customers (Gentile, 2010).
Most Powerful and Persuasive Response
The most compelling argument is that the bank should maximize the earning potential of the cash in its trust accounts to increase customers’ earnings, rather than invest the cash balances in a money market account to encourage its overall size to the customer’s detriment.
The argument would be addressed to the bank’s management within the context of Kidder’s model. According to Kidder, there are three ways of being wrong. These include violating the law, departing from the truth, and deviating from moral rectitude. While the Trust Department may not necessarily be breaking the law, it is still wrong as it is deviating from its moral integrity and departing from the truth by cheating the unsuspecting customers to achieve its short-term growth goals.
Indeed, if Kidder’s Front Page Test is used, it is clear that the customer’s response would be significantly disastrous to the bank as its practices that it does privately become exposed to the public. It would lose its customers, and face a possible collapse, as the customers would take away their money.
When the different moral philosophies are applied in the situations, it will still be clear that the Trust Department is being unethical. For instance, the ends-based theory of “utilitarianism” requires that a decision should focus on achieving the “greatest good for the majority.” In the case scenario, the customers form the majority of stakeholders, and, therefore, Trust Department should focus on achieving the greatest good for the customers. The rules-based principle of “categorical imperative” would also require that the bank adheres to its principles of fairness to customers. The care-based principle would, on the other hand, require that the bank be loyal to customers, as it would want them to be loyal to it.
In conclusion, the bank is doing little to maximize the customers’ earnings and more to maximize its earnings. The reality on the ground is that the bank is not expanding the earnings of the cash in the trust accounts, and is instead keeping the cash in the banks and investing it in a money market account in the hope of boosting the total size of the bank, although to the detriment of the customers’ return. The most compelling argument is that the bank should maximize the earning potential of the cash in its trust accounts to increase customers’ earnings, rather than invest the cash balances in a money market account to encourage its overall size to the customer’s detriment. While the Trust Department may not necessarily be breaking the law, it is deviating from its moral integrity and departing from the truth by cheating the unsuspecting customers to achieve its short-term growth goals.
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