Read the chapter Focus on Ethics (pg 421) and the Focus on Practice (pg 437) articles. For your post, use the Focus on Ethics if your last name starts with A-L and the Focus on Practice if your last name starts with M-Z. Respond to the questions at the end of the article. Post two or three (fully and thoughtfully developed) paragraphs of response to the questions.

For your responses to other students’ posts, please prioritize responding to one post from each story. (i.e. I want you to have read both stories.)

You must post first before you will be able to view those of your classmates. Once you have posted your thread you need to post two replies. The replies should be specifically about what you agree and/or disagree with, and why, not just to say ‘Good job’ or ‘Nice post’ type comments.

Requirements: 1) No more than 2 fully developed paragraphs per post. 2) Should be in Your Own Words. 3) Do not use quotations from others. 4) Use APA citation when referencing sources.

ANSWER

  Corporate Ethics

Wells Fargo customers’ faith was highly shaken. The negative impact on customers’ faith was detrimental notwithstanding that it had been earned for the previous 164 years. In addition, Wells Fargo lost the Better Business Review’s accreditation, becoming the first large company to lose the accreditation (Cox, 2016). One month after the disclosure, Wells Fargo’s stock fell by 13.5%. The loss in accreditation negatively affected investors’ and creditors’ trust, which was detrimental to the company’s reputation. Further, the S& P Global Ratings augmented the company’s credit rating downgrade probability. Before the scandal, the company’s comparable debt provided 151 bps over Treasuries, moving to 162bps after the scandal. The company’s WACC increased, indicating a common stock’s higher beta over the higher debt risk premium. The bad publicity also decreased checking accounts by 40% and credit-card applications by 43%. Consequently, by the end of the year, Wells Fargo’s beta rose to 1.0, indicating increased risk on its stocks. Moreover, in an expected move in 2018, the Federal Reserve announced that Wells Fargo could not grow its assets till it cleaned up its acts (Kemeny, n.d.).

Corporate ethics play a critical role in the markets to maintain long-term trust among investors and relevant stakeholders. No level of governmental regulation can substitute corporate ethics (Carter, 1993). As such, the markets should police corporate ethics and inform the public of unethical practices. Moreover, the markets should strive to build long-run relations with the relevant stakeholders. Therefore, the markets should ensure resources’ efficient allocation by exposing unethical corporate practices and punishing the involved individuals and organizations. The markets should ensure transparency with real-time trading, quotation, and relevant market information to all participants. Additionally, the markets should ensure that corporations follow the set regulations to protect investors. Lastly, the markets should ensure sufficient investors’ education and the risks accruing marketable securities (Carter, 1993).

References

Carter, J. B. (1993). The role of ethics in protecting the U.S. capital markets. U.S. Securities and

Exchange Commission. https://www.sec.gov/news/speech/1993/113093beese.pdf

Cox, J. (2016, October 20). Wells Fargo just lost its accreditation with the Better Business

Bureau. Cnbc.

https://www.cnbc.com/2016/10/20/wells-fargo-just-lost-its-accreditation-with-the-better-business-bureau.html

Kemeny, M. (n.d.). Evaluating the nature of business ethics in practice. Toptal.

https://www.toptal.com/finance/freelance/nature-of-business-ethics