Background

Rachel works as an investment adviser and manager for Outrageous Wealth Managers, which she joined last year, having worked for a number of years for the wealth management subsidiary of Azure, a major UK bank.

One day, as she returns from visiting clients at their home in the country, she boards the train and sees sitting at a table Bruce, with whom she used to work and who still works for Azure. Bruce is engaged in reading what look like business related papers but Rachel says hello and sits down opposite him.

Rachel asks Bruce how he is getting on at Azure, which she hears is undergoing a periodic reorganisation and he responds gloomily that life is not getting any easier. He is only on this train because he has been to see his doctor who says that he is suffering from stress.

Rachel sympathises with him, adding that she will not disturb him from his work and she begins to read a magazine. Meanwhile Bruce continues reading his papers, occasionally apparently signing what Rachel takes to be letters to clients. After a while, the train slows, and Bruce begins to gather his papers, which he places in two piles. One pile he gathers up and puts in his brief case. The other pile, which seems to have hand writing on, he tears in half and puts under his empty coffee cup.

The train pulls into the station and Bruce quickly says goodbye to Rachel and hurries off, putting his cup in the bin as he does so. As Rachel gets up and puts on her coat she notices the Azure Bank logo on the papers that Bruce pushed into the bin and she wonders to herself whether she should retrieve them.

The dilemma

Rachel tries to rationalise this thought by saying to herself that she will see that the papers are more securely disposed of since they may be confidential and although she no longer works for Azure, she would not like Bruce to get into trouble.

Rachel takes the papers out of the bin and although they have been torn in half and one edge is damp, she can see quite clearly that they are draft letters to Azure customers and contain their contact and detailed financial and investment information.

At this point Rachel, who had picked up the papers apparently with the best of intentions, finds her mind racing. These papers could be extremely valuable to her in providing an entrée into valuable new clients and without any great effort on her part. Bruce must really be under stress if he can be so careless, she thinks. But she wonders whether it would really be fair to Bruce if he was suddenly to lose all his best clients. Rachel and he were never more than fellow advisers at Azure, but even so, she would not like it if the boot was on the other foot.

Nevertheless, Rachel dries off the papers, puts them in her briefcase and returns to the office where she types out a report on her customer visit. But even as she does so the question of the Azure papers plays on her mind and she decides to discuss the matter with Simon a fellow manager, with whom she gets on well.

She tells Simon what happened on her train journey saying that she considers there to be four options for dealing with the letters, which she retrieved.

She says to Simon that her initial thought is simply to shred the papers, since that way she will not be tempted to do anything with them and no one will be any the wiser, although clearly Bruce is entirely unaware of what he has done.

On the other hand, she could send the papers back to Bruce saying that she had perhaps saved him from some embarrassment if someone else had found them, which might cause him to think a bit harder about what he does.

If she sends the letters to Azure compliance, they will no doubt conduct an investigation and Bruce might get into trouble, possibly even lose his job, which she certainly does not want.

But why should she not use the information that she has found?

Simon says that he quite understands Rachel’s dilemma, which has the added personal dimension that because she worked with Bruce, she does not want any action that she might take to rebound on him. He then asks Rachel if she would worry less if the person who had abandoned the papers had been a stranger and she says that it would make life a bit simpler but does not resolve her principle dilemma, which is whether she should actually make use of the information.

Simon and Rachel debate this issue for some time saying that a useful yardstick would be to consider how they would feel if the boot was on the other foot. If they had “lost” some client information, which was found by a competitor, would they expect it to be returned, or would they assume that the finder would try to use it; and what would be their reaction if they did.

Rachel continued to feel that shredding the papers was the right course of action and is dismayed that Simon argues that since the papers had been abandoned and they had done nothing dishonest in obtaining them, then there was absolutely no reason why Rachel should not make use of them. He even suggests that if Rachel does not intend to use them, she should give them to him!

At the team meeting next Monday, Rachel recounted what had occurred on the train and her struggle to decide what to do with the papers that she had retrieved from the bin, adding that she had discussed the matter with Simon but that they had been unable to come to a conclusion. Matthew, the partner, said that this represented an interesting dilemma and that he would be interested to hear the views of the other 6 team members and perhaps they should spend a few minutes discussing it about it.

Matthew allows the team a few minutes to consider the matter giving them four possible courses of action:

1. Return the papers to Azure compliance.
2. Return the papers to Bruce at Azure
3. Shred the papers and any copies that have been made
4. Keep the papers and make use of them.

Verdict

The most ethical course of action would be to shred the papers and to let Bruce alone know what you have done, so that he is aware of the potential ramifications of his carelessness without the risk of causing harm to either you or him.

Further reading

Background

You are the Chief Executive of a medium sized company which employs about 300 staff. A few years ago, your company embarked on a policy of outsourcing many of its processing functions and to ensure competition, you deliberately placed the business in three equal parts to three outsourcing providers. Sorted, Leapfrog and Zebra

This has proved successful and the additional cost of managing all three has been outweighed by the more competitive pricing you have been able to extract from them and their keenness in wanting to increase their own market share of your “wallet.”

After a number of years successful operation the outsourcing contracts are under review and it has been suggested that competition between the firms and the economies of scale which will result from using a single firm, should ensure a considerably improved contract. Richard, your head of operations is tasked with overseeing the process..

You returned from holiday yesterday and whilst discussing a number of issues with Richard, he tells you that his son Thomas is now working at Sorted, having been accepted onto their graduate scheme. You recall that Thomas graduated from university last year and having problems in finding a permanent role, initially had undertaken voluntary work.

As if sensing some disquiet, on your part, Richard asks if there is anything wrong and points out that Thomas has not lived with him or his wife for the last four years and is completely independent. He tells you that Thomas applied to Sorted on his own initiative and that he had not mentioned Thomas’s application to anyone at Sorted until Thomas told him that he had been accepted.

Given the impending contract negotiations involving Sorted you remind Richard of the need for strict impartiality in making recommendations and decisions and he strongly protests at the inference that he might be influenced in favour of his son’s employer. You tell him that whilst you may have no concerns about that, it is important that not only is the process fair, but also that it is seen to be fair.

In due course, following final presentations by the bidders, your team-members discuss their views and the Leapfrog offer is slightly more financially attractive than Sorted’s bid However, Richard argues strongly that from an operational point of view, Sorted offer a better solution and he points out that past involvement with Leapfrog had thrown up a number of technical issues, which he was not convinced had yet been overcome, whereas Sorted offered proven technical competence and that was why they cost a little more.

After a prolonged period of deliberation you concede that there is no obviously best solution and tell the team that you will take the matter to the board and make them aware of all the views and ask them for their input before coming to a final conclusion. As you leave the room, you ask Richard how his son is getting on and he tells you that Thomas is doing well and currently on attachment to Sorted’s offshore processing centre, which you realise is where Sorted will handle your firm’s work.

When the board meets and you present the outcome of the contract negotiations discussion is fairly brief and the conclusion is that for the relatively small price difference the better and more established technical performance of Sorted is felt to be crucial and you are instructed to accept their bid. Later that day when you tell Richard the outcome, he is very pleased and says that it will be the icing on the cake for Thomas, whose next attachment is to work in the CEO’s office.

The dilemma

You telephone the Sorted CEO to tell him the good news and during your conversation he tells you that the firm annually sponsors two members of staff to undertake MBA ‘s and that he has decided that one of these should be Richard’s son Thomas. Although you are a bit nonplussed by this, you say how pleased you are for Thomas and are sure that Richard will also be very pleased. Because it is not clear from the CEO’s remarks whether he has yet told Thomas about the MBA scholarship, you decide not to say anything to Richard at this stage, but you are concerned whether the award is an entirely objective decision, on merit, or whether it may have something to do with Sorted winning the contract.

At this point you are seriously concerned at the possible implications of what you have been told and wonder what, if anything you can or should do about it.

There are a number of ways of seeking undue influence in decision making, some obvious, some less so and indirect influence over someone in the decision chain is one of those.

In this instance, although you have no evidence that Richard was influenced by his son’s employment and nothing that he has ever done has caused you to doubt his integrity, you are concerned that Richard’s support for Sorted leaves your firm open to the accusation that Richard’s support for Sorted was influenced by his son’s employment and the subsequent MBA opportunity. Although neither is of direct benefit to Richard, there is a potential unspoken message that reciprocity will be expected at some time in the future.

Accordingly, whether or not there is a corruption of the decision making process, it is important that your processes are seen to be open honest and transparent by all taking part. Are you confident that is the case in this situation and, if not, what can or should you do about it?

Options

Your first step should be to raise your concerns with Richard, particularly regarding the award of the scholarship to his son. Whilst it would be entirely wrong to try to influence whether or not Thomas accepted the award (and why should he not?) the fact is that if the information was in the public domain, it would be likely to arouse suspicion of favours being bought. In the context of his support for Sorted, Richard did make a logical case for preferring them to Leapfrog and his position was ratified by your board, albeit that they were asked only to judge the business case, so it is not as though Sorted won the contract unexpectedly.

However, it is important that the other participants in the bid, particularly Leapfrog, are reassured that the process was entirely open and it would be sensible to explain why it is that they have not been chosen, but not in such a manner that it actually makes them suspicious that you do have something to hide, which is not the case.

Although you now feel uncomfortable about your firm’s relationship with Sorted, it would be quite inappropriate to try to influence whether Thomas accepted a “scholarship” but the obvious way of dealing with this situation is to ensure that Richard has no involvement in any significant decision making processes involving Sorted, albeit that is quite difficult, given his position.

Verdict

Clearly it is not appropriate to try to control the legitimate activities of the offspring (or wives) of your staff members, but they should be encouraged to be as open as possible regarding employment of family and friends in any business capacity which has a realistic prospect of giving rise to a conflict of interest. In this instance, had you been made aware at an earlier stage of Sorted’s employment of Richard’s son, it would have enabled you to have removed Richard from the contract negotiations and thus to have prevented this uncomfortable situation arising.

Further reading

Background

Jake is a member of the trading desk of a commodities derivatives trading firm, where he has worked for several years and is an experienced derivatives trader. The firm has recently recruited Ravi, as their first trainee trader, previously having recruited only traders with several years experience. Because it has only recruited established traders, the firm does not have any formal training procedures to provide guidance in how Ravi should be treated.

Jake has been appointed Ravi’s mentor, to work with him, share his knowledge of the firm’s products and procedures and befriend him. However, Jake is unhappy with this role because he is under time and stress pressures in his own job, having been given a new project with a tight deadline. He has protested to his head of desk, who told him that even so, there is nobody else to take on the role and he’s got to do it.

Grudgingly Jake accepts the role but is given no guidance in what is actually expected of him and having given Ravi a brief overview of what goes on in the office, particularly the location of the coffee machine, he tells him that he should observe what the traders do suggesting that he will soon pick things up.

After a period of this informal and unstructured “training”, Jake is asked whether Ravi is ready to begin trading and replies that “doing it is the only way to learn and he will soon pick it up”. Jake is relieved that his mentoring role, whatever it meant, appeared to be over as he had not found much time to spend with Ravi, and anyway, he had not really felt that it was a priority, either for him, or even the firm, since no one had actually told him what the role required.

The problem

Ravi is told that he can begin to trade and that if he has any problems he should refer to Jake, who is asked simply to keep an eye on him. One day Jake overhears Ravi starting to place an order on the market in an exotic derivative. Ravi has not been trained in the derivative and although Jake had discussed it briefly with him, Jake realises that Ravi has misunderstood its nature, and that the credit and position risk of the trade is much larger than the desk is allowed to execute under the firm’s procedures. Jake quietly and deliberately leaves the desk for a break.

Within an hour the head of the desk is called urgently by the risk department with questions about the outsize trade, which had been blocked by the firm’s risk control system. He summons Jake and Ravi and angrily asks how it happened. A visibly upset Ravi explains his misunderstanding of the credit consequences of the trade and said that the trade was 100 times bigger than he intended. He is told that he is in very serious trouble and is sent home for the day.

The desk head then asks Jake what he knows about it, and why he failed to keep an eye (or listening ear) on Ravi. Jake responds aggressively that he knows nothing about the trade since he was away from the desk, that he’s not responsible for any mistakes that Ravi makes and anyway he was employed as a trader not a nursemaid.. No-one knows whether Jake was at the desk at the critical time, although they suspect he knew about it..

The dilemma

Whilst the firm has been spared an embarrassing situation on this occasion, thanks to its control systems, the event does raise a number of questions which the Chief Operating Officer is asked to address.

Her first consideration might be whether this situation is actually one where the primary responsibility rests with the firm’s policies, or lack of them, or if it is simply a case of poor performance and a failure by one or more of the three individuals directly involved. If so, what should she do?

Options

If we consider first of all the position of the firm, they appear to be the authors of their own misfortune because they have no formal training program for Ravi and seem to have relied on a process of osmosis to educate him in what he needs to know. So a failure of corporate responsibility appears to be at the root of the situation. This has then been amplified by a continuing failure of responsibility by the head of the trading desk in assigning to Jake the role of mentor.

Despite being alerted to the fact that Jake was unenthusiastic about his additional role, citing pressure of work, the head of the trading desk appears not to have made any effort to oversee what support Jake was providing to Ravi in his role of mentor. Neither does he appear to have shown any ongoing interest in how Ravi was progressing. Consequently the head of desk and Jake were both individually and equally at fault at that level.. But there is Jake’s additional complicity in the “fat-finger incident” in which he was aware that Ravi was in difficulty but chose to walk away, an action completely lacking in integrity.

As for Ravi, how might his role be regarded?

Ravi appears to carry the least blame of all in this incident, in which he was assumed to be competent, without having been provided with the proper means of gaining such competence. As a result the firm had unreasonable expectations of him. But what about the trading error, which was his fault?

Verdict

Although this should not be overlooked, it would be unreasonable of the firm to point to that as being the sole problem, and place all of the blame on Ravi. Although clearly he undertook the trade in a type of derivative with which he was not familiar, it is apparent also that the salesman in the firm gave Ravi instructions in a cryptic form, which only an experienced trader would understand, expecting him to do something for which he had not been properly trained and which he should not have been asked to do, without proper supervision.

• The firm needs to put in place a remedial training programme, to ensure that Ravi receives proper training, if he is to be permitted to continue and it would be extremely unfair to assign all the blame to him.
• It would be appropriate at least to reprimand the head of desk and Jake for their combined failure to oversee Ravi.
• Whilst Jake’s actions are deserving of a more serious sanction, the fact that he was not seen leaving his desk rather than supervising Ravi, allows him to avoid a more severe penalty, which he undoubtedly deserves.
• And what of the COO making the decisions? Should she be willing to accept blame for inadequate mentoring procedures which were her responsibility? It will be hard for her to accept that she, rather than only the trader or Jake was at fault, but she should do so.

Further reading

Background

Tracy is a junior member of staff in the settlements team of a small regional stockbroker, where she has been employed for under a year, having joined straight from school. Although she feels reasonably confident that she can deal with most of the requirements of her job, she is a little nervous when her two colleagues suddenly are sick as the result of a virulent flu bug, leaving her as the sole member of the team apart from her supervisor Laura.

On Friday afternoon, Laura has to leave the office early to visit the dentist and as Tracy checks through the outstanding items late in the day, she is concerned to discover that a purchase instruction from Sir James Moat, one of the firm’s key clients, instructing the firm to buy 60,000 shares in Grey Bank at a price of 38p is due for settlement that day.

The market in Grey Bank shares is very volatile and they have nearly doubled in price since the client gave his instructions, and Tracy is very worried that failure to settle the transaction will cost the firm a lot of money if they have to re-buy the shares at the current market price.

Tracy decides to ring the bank which holds the firm’s client money account to see whether she can get them to act on her payment request over the phone and although she has a good relationship with the bank, they tell her that they will act only if they receive a fax in the next 15 minutes, and it must be signed by two authorised signatories of Tracy’s firm. Conscious of the time ticking away Tracy quickly prepares the fax instruction and in Laura’s absence looks for Ken, her office manager and one of the firm’s other managers to sign the fax. She successfully gets the signature of Peter, an investment manager, who is the only person that she can find but Ken has apparently left the office for a few minutes.

The Dilemma

Tracy is very worried as there are now only 10 minutes left, when she sees on Laura’s desk a signed fax instruction for a different transaction, but containing the necessary signatures. Quickly she photocopies the instruction, cuts off the signature section and sticks it on to her own fax. She then photocopies her fax and satisfied that once it has been transmitted and printed at the other end it will stand a quick scrutiny, she sends it off. Tracy follows up the fax with a phone call to the bank and is told that the instruction is fine, and they will make the payment.

On Monday, Tracy came in to work and Laura asked her how things went on Friday, expecting to be told that all was quiet in the office as it was Friday afternoon. Tracy told her about Sir James Moat’s Grey Bank settlement situation and the difficulty that she had in getting signatures, explaining how she had dealt with the matter, expecting to be congratulated for using her initiative. Instead, Laura reacted with a look of horror saying, “you’re telling me that you instructed our bank to make a payment using forged signatures?”

Tracy defended herself saying that she had obtained Peter’s signature, which was the only one available and, in any case, she had the client’s instructions and failure to complete the transaction not only would have cost the firm several thousand pounds, but also have made the firm look incompetent in the eyes of a valued client. She believed that what she had done was simply acting in the best interests of the firm. Besides which, she had spoken to the bank on Friday and they were happy that they had a valid instruction, so there was no problem with them and the only person who appeared concerned was Laura.

But Laura focused only on the fact that Tracy had forged a signature and said that she would report the matter immediately to Ken and see what he had to say about it, since this was very serious.

Options

Ken thinks about what happened and what might be the most appropriate response:

• He recognises the dilemma which Tracy faced and congratulates her on saving the day by her pragmatic response to a difficult situation.
• He recognises the dilemma which Tracy faced and accepts that she had to do something but is very concerned that she felt that what she was doing was acceptable. He tells her that under no circumstances should she repeat it.
• Ken is influenced by Laura’s views and says that, regardless of the circumstances, what Tracy did is entirely unacceptable. She should be subject to serious disciplinary proceedings, which might well result in dismissal.
• Ken feels that because of the circumstances, including Tracy’s inexperience and short time that she has been with the firm, it would be inappropriate to take any draconian action against her. She should be firmly reprimanded and cautioned against undertaking anything of a similar nature in future.

Clearly, Tracy found herself in an invidious position. She felt that whatever course of action she might take had serious ramifications and she made a choice. But did she have any other choices?

Where junior members of staff are involved, the most appropriate course of action when faced with a serious dilemma beyond their competence or delegated power must be to refer the matter to someone more senior. Taking responsibility upon oneself should never involve any action that is fraudulent, illegal or even questionable.

Verdict

One possible alternative course of action could have been to pass the problem on to Peter, the investment manager, who was an authorised signatory, leaving it to him to try to convince the bank to make the payment against his sole signature, or to determine an alternative solution. Whilst that might not have worked, it would have resolved Tracy’s dilemma in that she involved a more senior member of staff, who should have been better able to decide upon an appropriate course of action. However, it might not have resolved the problem for the firm.

However, faced with what has occurred, Ken’s approach should be to discuss the matter with Tracy, to go over her options at each stage and to advise her what she should have done. He must tell her that using the copied signatures in the way that she did is not acceptable and that in the circumstances he would have accepted her explanation had the transaction not been processed, since it was not her fault that it had been overlooked. It was not for Tracy to judge whether failure to process the payment might have cost the firm money.

Ken should also discuss with Laura how it was that the important payment came to light only after she had left the office, and tell her that she was as much at fault as Tracy.

Further reading

Alistair has been employed for a number of years by Incognito Partners, a small firm of investment advisers, where his role required him to take professional examinations as a part of his training programme.

Having found his threshold competence examinations quite taxing, and with a heavy workload, Alistair is none too enthusiastic about the increased examination requirement arising as a result of the Retail Distribution Review although the firm has allowed him time off for study and sent him on a training course.

Alistair is aware that Gordon, one of the partners in the firm is a keen supporter of the local branch of his professional institute and is a member of the review panel for the key examination, which Alistair is sitting this year.

Alistair receives a phone call from Gordon, who is out visiting a client at their office close by, telling him that he has forgotten some key papers, which he has left in the top drawer of his desk. He asks Alistair to find them and bring them straight round to the client’s office.

Alistair, keen to oblige hurries into Gordon’s office and starts going through his desk drawers looking for the file, as instructed, but can find nothing in the top drawer and begins to look more widely when his eye is caught by a folder labelled “Investment Institute 2009 Summer Examination.”

His heart skips a beat and as he takes it out of the drawer he sees underneath it the file containing the papers which Gordon had asked him for. He drops the examination folder back in Gordon’s drawer, puts on his jacket and hurries over to the client’s office. Having handed the client file to Gordon, Alistair makes his way back to the office and, as he does so wonders what the folder that he saw in Gordon’s desk might contain. Would it be the exam questions and answers?

Alistair spends the rest of the morning wrestling with the temptation to nip into Gordon’s office to have a look in the folder and becomes rather distracted from his work, until Gordon returns from his client visit and Alistair becomes caught up in the administration resulting from it.

At the end of the day, Alistair chats with his colleague Hazel, who is also taking her exams but, unlike Alistair, seems to have no difficulty in studying or passing her exams. Alistair mentions to Hazel what he had seen in Gordon’s desk drawer that morning and says how tempted he had been to have a quick look at the contents of the folder and she smiles sympathetically saying how much easier it is to pass exams when you know the answer!

Examination day arrives and Alistair struggles with the paper, later admitting to Hazel that he found it really tough and the outcome was “in the lap of the gods”. Hazel is rather more sanguine about her chances saying that the paper seemed to play to her strengths and she anticipates a good result.

Some weeks later the dreaded results day dawns and Alistair anxiously arrives in the office early, to access his result. He is somewhat surprised to find Hazel and Gordon there already, particularly when he hears Gordon congratulate Hazel on her Pass with Credit, adding “it looks like the help I gave you really paid off”. Seeing Alistair come in, Hazel blushes as she thanks Gordon, and immediately asks Alistair how he fared. Alistair logs in to his computer and accesses his Institute record where, with his heart pounding he opens his record to be greeted with a result of Grade D-marginal fail.

Understandably, Alistair is upset and at the end of a difficult day he heads for the pub, inviting Hazel to join him “and help drown my sorrows and drink to your success”. Although he tries not to focus on his exam result, Alistair is unable to avoid the subject and particularly Gordon’s comment, which he overheard. When he asks Hazel what help Gordon had given her, she is very cagey and says that he simply helped her understand some of the investment concepts that she was having trouble with and, as a member of the exam panel, he provided a good understanding of the way the examiner thinks.

The Dilemma

Alistair feels aggrieved that Gordon felt able to help Hazel, who appeared to him to have no trouble with the subject, whereas he received no offer of help, Gordon having told him that as a member of the exam panel, it would be improper for him to coach members of staff. As the evening wears on Alistair becomes more despondent as he contemplates the prospect of further months of study, whereas Hazel becomes more relaxed, particularly when other friends join them and, in an apparent effort to enliven Alistair, says to him with a laugh “do what I did, get Gordon to leave the paper lying about!”

Alistair smiles ruefully thinking “I wish it were that simple” but, as he lies awake that night he wonders whether Hazel was serious and whether that was what Gordon meant by his overheard remark. But is there any truth in it and what should he do?

Options

In this instance, Alistair has some suspicions of malpractice by Gordon, who as a member of the exam panel has a duty of confidentiality to the Institute and appears also to have deliberately favoured one member of staff over another. However, he has no direct proof of anything. Consequently, it is imperative that he does not make rash accusations against either Gordon or Hazel, particularly since there is a danger that he is viewed as being motivated simply by jealousy.

Consequently Alistair has four main options:

1. Immediately contact the Institute and report his suspicions.
2. Discuss the matter with his firm’s senior partner and seek his support in approaching the Institute about the matter.
3. Approach Gordon direct and tell him that he is aware of what he has done.
4. Do nothing.

Contacting the Institute, either in person or via a “whistle-blowing” address, immediately raises the stakes and, assuming that Alistair’s story is taken seriously has potentially profound consequences for both Gordon and Hazel. If an investigation determines that Hazel cheated and was helped by Gordon, disciplinary action is likely, which could result in both of them losing their careers.

Discussing the matter with the senior partner is a sensible course of action. It gives Alistair the opportunity to air his concerns with a third party who may either support his view, including taking further action, or by looking at the situation from a different perspective, come to a different conclusion.

Approaching Gordon directly is not likely to achieve anything beyond a flat denial that he has done anything wrong, albeit that he may be embarrassed if he did provide help to Hazel, having told Alistair that he could not do so. As Alistair works for Gordon, this is not a good move

Doing nothing may now seem quite attractive. Whatever action Alistair takes, he has not passed his exam and this is not going to change. Making life difficult for other people with whom he works may be viewed by them and other colleagues as unnecessarily vindictive, with only negative consequences for all concerned. So what will Alistair have gained? He may consider it better to let sleeping dogs lie.

Verdict

This is very much a case of thinking before you act. Our recommendation is that Alistair should first discuss his concerns as dispassionately as possible with a close colleague and then, if he still believes that he should take action, Alistair should approach his senior partner. It should be accepted that his senior partner may not be supportive of Alistair, preferring either to ignore the matter, or telling Alistair to leave it to him to tackle Gordon. This may leave Alistair feeling that he will contact the Institute anyway.

Further reading

Background

You are a senior supervisor in a large financial services firm which, in common with many of its peers, has announced a significant number of redundancies and there is a generally unsettled feeling in the office.

You are approached by your line manager who tells you in confidence that he has been asked to review staff performance, with a view to implementing a 5% across the board cut in staff numbers and asking for your help in trying to identify those who can be put on the list. The principal criterion is that their departure should not result in any operational problems.

This is a task that you have always feared becoming involved in, as you have built up your team over a number of years and, having encouraged them to think of themselves as more than just colleagues, have become friends with many of them. Consequently, it is seemingly inevitable that a number of your friends will find themselves on the list, regardless of whether or not you are responsible for their inclusion.

In preparation for the meeting to which you have been invited the following week, you consider all your team individually and the more you look at their names the more you are faced with the fact that almost all of them seem to have a reason, either personal or professional, why you do not want to put their name forward.

On the Tuesday night you spend a few wakeful hours wrestling with the problem of how to adopt a “professional” approach which will not leave you feeling that you have betrayed your colleagues/friends. Your mood is not helped when you get into the office early on Wednesday and Eddie, one of your team members comes over and invites you to a lunch time drink to celebrate the news that he has just heard that he and his wife Nicola, are expecting their first child. Nicola used to be in your team, but now works in another part of your firm.

As Eddie says to you, the event is wonderful, but the timing could have been better, with all the uncertainty in the air about job security and he asks you whether you have heard anything on the grapevine. You reply that these are difficult times and that you are as concerned as everyone else.

At the meeting with the line manager, your HR manager is also present and says that the firm will need to ensure that all the appropriate procedures are followed as they don’t want to get involved in a large number of claims for wrongful dismissal. The meeting starts with your line manager going through a list of members of staff who report to you and making observations about the performance of a number of them, whom he feels would not be a loss to the firm. Although you agree in general with his observations, which are based largely upon annual performance appraisals which you have signed, you are concerned when he mentions Eddie’s name as being a possible contender for the list, bearing in mind what he told you that morning.

The meeting ends and you are told that there will be a follow-up in a couple of days time to confirm the names. In the meantime you have your lunchtime drink with Eddie to contend with and although you think about trying to excuse yourself, you decide to go along as it would be churlish not to, particularly since a large number of other team members will be there.

When you get to the pub Eddie buys you a drink and whilst doing so says that he had hoped that Nicola would be there but her department has been summoned to a meeting and he is very worried that she might lose her job. At this point, you wonder whether there is anything that you could say to Eddie to alert him to the possibility that he might suffer the same fate, or might you have a word with your line and HR managers?

The Dilemma

Understandably, you are concerned that a member of your staff may be about to lose his job at a time which is likely to be very stressful for him and his wife. This may be compounded if his wife also loses her job. You wonder whether there is anything that you could or should do to try to prevent this or ameliorate the impact.

Should you intercede for personal reasons? ie Eddie and his wife, who also works for the firm are about to become parents.

Should you try to soften the potential blow by tipping-off Eddie that he may be made redundant?

Considerations

When dealing with situations which have a direct human dimension there is an obvious temptation to take actions which you might not otherwise take, particularly if you are friends with those involved. Accordingly you may well ask yourself the questions:

Should I/Can I intercede for personal reasons? ie Eddie and his wife, who also works for the firm are about to become parents.

Should I/Can I try to soften the potential blow by tipping-off Eddie that he may be made redundant?

After all, there may be numerous other members of staff with situations which are much more difficult than Eddie is about to face, of which you are unaware. Should not you consider all of them as well? But how can you?

And, if it is known that Eddie and his wife are being favoured, what might be the reaction of other members of staff? Alternatively, if you tip-off Eddie, how do you think that he might he react?

Verdict

When decisions have to be made that have a personal dimension, it is more important than ever to adhere to the primary requirements of ethical decision making and to measure your proposed course of action against the yardstick of openness, honesty, transparency and fairness.

In this instance, any overt action that you may be tempted to take to favour Eddie, however you to try to rationalise it, is likely to fall short of some or all of these requirements.

One consideration which, in such a personal situation as this, may not be at the forefront of your mind, is your responsibility to your firm, both as an entity and as a representative of the interests of all your other members of staff. Not only does this mean that you must seek to act objectively and impartially in this matter, but also that you have a primary responsibility towards your employer. This is a recurrent theme in the SII Code of Conduct, where it sits alongside your responsibilities to clients and the market.

Consequently, unless you have good business reasons, such as Eddie’s performance being better than that of other potential nominees, or that he genuinely occupies a key role, you have no overriding reason for seeking to keep his name off the list.

Additionally, you may feel that you should tell HR that Eddie’s wife is pregnant, but this is not a decision that you should make on Eddie’s behalf. It is up to her and Eddie to decide who they will tell and when, even though this may have a bearing on the firm’s decision on her future.

Accordingly, in this instance the correct course of action must be to compile the list and then assess the strengths and weaknesses of all of the nominees. This would enable all of you involved in its compilation to consider matters objectively, before coming to a final list. It may be that this will actually result in Eddie being removed from the list but, even if it does not, you have acted in an ethical manner.

Further reading

Background

You are a relationship manager at Knights, a well-regarded boutique investment bank, where your director has been building a relationship with the finance director of Inks plc, a printing supplies manufacturer, for many months. Knowing that Inks has recently pulled out of a large acquisition deal, he believes that it is likely to be looking for another opportunity in the future.

Last week, this relationship building seemed to have paid off when Knights was approached by Inks plc and asked to tender for some corporate finance work. As ever, the time scale for producing the proposal document was tight, but the firm had been preparing for such an opportunity and seized it gratefully.

The team worked round the clock to produce the proposal document and yesterday it was finally sent to the finance director of Inks plc, using the firm’s email system. All the members of the team are confident that the proposal should win, as the team includes a leading industry expert, has recently delivered a highly publicised and successful piece of work and your director has a good relationship with the finance director of Inks plc.

The engagement is expected to be highly lucrative and is vital to your team to reduce the possibility of redundancy, which is an ever-present threat in today’s difficult environment.

This morning, you were shocked when your director summoned you into his office and asked you to explain why the proposal document was sent to Inks plain an email with a footer stating:

Our staff have chosen this year to support the charity Trees for Tomorrow.

‘Is it really necessary to print this email – think before you print.’

You explained that the proposal was sent using a standard Knights email. Knights customises the footers of all its emails on a regular basis to promote various products and issues. For example, last quarter the footer promoted the ethical funds advisory service which Knights offers and read: ‘Ethical funds – we can help you – think before you invest.’

You reminded him that the current footer had been given to Knights’ staff to promote their chosen charity, which encourages environmental awareness, and currently all the firm’s email footers read: ‘Is it really necessary to print this email – think before you print’. You had not thought to remove the footer before sending the proposal.

Apparently, your director had received a rather irate telephone call from the finance director of Inks plc. The finance director had been offended by the footer, reminding your director that, as a leading manufacturer of printer inks, Inks’ profits could be jeopardised if people took the footer seriously and reduced the amount of printing they performed. Your director had been told in no uncertain terms that, unless the footer was removed immediately from all Knights’ emails, Knights’ proposal would not be considered further.

Your director had indicated to Inks finance director that the email footers would be removed, noting that it was only a temporary footer anyhow. Your director asked you to determine who in the firm is responsible for the footers and to have it removed immediately.

Although you can understand the director’s desire to appease Inks plc and so remain in the tender process, hopefully winning this highly lucrative piece of work, you can’t help feeling that responding to a potential client in this manner is wrong and is, effectively, suggesting that the firm will do whatever it takes to win lucrative work.

You are conscious also that many of your colleagues, who support Knights’ charitable initiatives and worked hard to get the bank to agree to use of the email footer, will be extremely angry if it is removed under these circumstances.

The dilemma

If Knights changes the footer on its corporate emails in order to win the work:

• What impact will this have on Knights’ reputation, which relies on the firm acting and being seen to act with complete integrity and objectivity
• What message does this send to clients with regard to Knights’ integrity and willingness to stand up for its beliefs?
• What would the bank’s stakeholders think, given that Knights advertises its green credentials and currently has a high ranking in the Business in the Community index?
• What will be staff reaction to what might be regarded as outside interference in an internal matter, the firm’s support for a charity chosen by the staff?

On the other hand, you could argue that:

• With the prospect of redundancies in the air this is no time to get defensive about such a seemingly trivial matter.
• Knights exists to make money and this will be a highly profitable potential client. Without the income which business such as Inks might provide, the bank would not be able to be so generous in its charitable support, nor employ so many staff.
• Changing the email footer is not a big deal – there are many other worthwhile messages that could be written instead.
• Footers are changed regularly and no-one else needs to know why the footer was changed a little earlier than normal.

Verdict

The matter should be brought to the attention of the head of corporate finance so that an appropriate response can be discussed, hopefully defusing the situation.

Knights’ reputation relies on it adhering to the highest standards of integrity and objectivity and, ideally, it should not accede to the demands of Inks plc by changing the offending footer.

Instead, it would be preferable for the head of corporate finance to explain the bank’s position (and reason for the decision) to the finance director of Inks plc and seek to persuade him that the footer, on the one hand, and Knights’ highly attractive proposal, on the other, should not be seen as incompatible. After all, inviting Knights to tender was presumably influenced, at least in part, by its reputation.

By standing up for its beliefs and explaining to Inks plc why it is reluctant to change the email footer, Knights should be able to maintain its reputation for integrity and trust. In essence, the question is the extent to which you or your firm should stand up for your own beliefs and policies and the extent to which you are prepared to dilute these in pursuit of commercial objectives.

However, it is pertinent to consider the impact which failure to win this mandate might have on staff numbers and, when faced with such a decision, staff might feel less hostile to the potential loss of the footer, the reason for its removal notwithstanding. Accordingly, it would be sensible to put the facts to the staff, so that they can be aware of the dilemma. Their response may be different in times when business is plentiful to when business opportunities are scarce.

In this instance, the trigger for this difficulty is something that is apparently quite trivial and the key to resolving it must be to ensure that it is not allowed to become more significant. Since appearing to give in, on the one hand, or losing the business on the other, might each be seen as a sign of failure, it is probably necessary to spend more time on resolving this issue than it might warrant indifferent circumstances and, if unavoidable, give in to the client, for the good of those staff members who might otherwise lose their job, having first made them aware of this possibility.

Further reading

Background

You are the new Administration Manager of a London based bank incorporated 3 years ago and you have responsibility for all ‘Back Office’ matters.

Senior front office staff have been travelling extensively for the bank to promote its business and a junior member of the administration team looks after all business travel arrangements and flight booking. She has taken over only recently from a more senior administrator who has recently left the department to join another firm.

The amount of overseas business travel is running at a high level, incurring significant expense and your MD asks you to consider ways of curtailing these costs.

One of your team mentions to you that the Bank has accumulated a substantial number of ‘air-miles’ as it is the Bank’s policy to accrue air miles generated by business travel in its name, rather than permit staff to collect them personally. No attempt seems to have been made to use these air miles to defray the cost of business trips and there are no other policies or rules covering the air miles scheme, leading you to conclude that there exists some general uncertainty about these arrangements.

On investigating the air miles total, which proves to be very substantial you notice that, while no business flights have ever been booked, surprisingly, there appear to be a number of flights booked in the personal names of both the former administrator who has left the bank and her successor who is now responsible for the scheme administration.

Analysis of the records indicates that these flights were for holiday purposes judging by the destinations, the fact that the air miles were also used for hotel bookings and that on at least one occasion, a non-member of staff also travelled. It transpires that the non-member of staff was the former administrator’s boy friend.

You interview your junior administrator who appears somewhat naïve and who says that her predecessor told her that the former Head of Administration had said that it was OK to use the air miles in this way. You also contact the former administrator who confirms what you have already heard, namely that your predecessor had said that it was acceptable for her to use the air miles as a perk. When you express surprise at fact that her boyfriend had his travel and accommodation paid for by the bank, she replies that the bank did not pay for anything; she and her boyfriend had paid all of the airport taxes, “which were a lot of money” and they only used the air miles. She repeats that her former boss knew about this and permitted it.

Upon checking, you ascertain that there is nothing in writing to confirm what you have been told and there is absolutely nothing in the bank’s procedures to cover this situation. Accordingly, you decide to contact your predecessor who has now retired and ask him whether he did in fact give permission for these two-administration staff, or indeed anyone else, to use the bank’s air miles for private travel and accommodation.

He says that he really cannot remember specific situations and is generally vague about the whole matter, leaving you feeling somewhat uncomfortable about the situation you are now faced with.

To complicate matters further, the team member who first informed you of the bank’s air miles account complains to you that it is unfair that only those staff directly responsible for administering the air miles scheme, can benefit from it. He considers that everyone in the back office should be able to benefit.

Verdict

There are a number of issues which may influence how you respond to this situation:

• There are no bank procedures to control the scheme
• Two staff who have been responsible for administering the air miles scheme have personally benefited from it
• It is unclear whether the former Head of Administration actually gave permission to any of his staff to use the air miles for personal travel
• It is unacceptable that only staff responsible for administering the scheme, benefit personally from the air miles without specific permission being given each time and within the context of formal scheme rules and independent controls
• You have received a complaint from another staff member about the apparent unfairness of the distribution of bank air miles
• The bank itself is not benefiting from its substantial air miles balance which could be used to reduce business travel costs
• According to your in-house legal counsel, you have no tangible evidence that the staff members concerned have actually done anything illegal.

Possible Courses of Action

• You might seek to obtain re-payment from the former administrator of the value of the flights/accommodation she and her boyfriend enjoyed.
• You could indicate to her that there will be a late P11D submission to HMRC for the value of the flights and hotel accommodation, which were a benefit in kind.
• You may wish to re-consider the wording of the written reference that the bank gave to her present employer which asked about honesty and integrity.

The practical difficulty with the three options above is that while you may question the honesty of the former administrator, bearing in mind your predecessor’s unhelpful attitude, there is no proof of wrong-doing.’

Notwithstanding these difficulties you should:

• Introduce formal written procedures for the administration of the air miles scheme and publish to all staff. This should include a requirement to obtain appropriate senior, sign-off for all flight/hotel bookings.
• Decide formally whether company air miles may be used only for business travel or whether a proportion may be ‘given’ to staff as an incentive.
• If air miles are distributed as an incentive, a demonstrably fair distribution method should be developed and published, applicable to all staff.
• Immediately advise your current administrator that, pending application of the new policy, any use of corporate air miles must be pre- signed off by you.

Conclusion

Although issues such as that referred to above may not, of themselves, appear significant, recent media attention, demonstrates that they do have the ability to generate a lot of attention. In public bodies this is likely to engender the view that no one in public life should receive any benefit that is not open and transparent. The question might then reasonably be asked, “Why should it be any different in business? “.

The response ought to be that standards of openness and transparency should be no different, in public or corporate life, even if the rewards themselves may be.

Consequently, and as suggested above, the introduction of a documented procedure, together with its formal application, are essential to prevent the continuation of this unsatisfactory and opaque situation which, if left unchecked, is likely to fester, and generate ill-will and possible general disregard for rules and policies.

The response of the former administrator suggesting that only cash counts as payment is a mistaken view that also needs to be dispelled. There is an often-expressed belief that because an item referred to does not involve actual cash, it has no value. However, the reality is that air miles have a value akin to that of the future cost of the travel to which the holder is entitled which, in a business, can be a significant amount, running into thousands of pounds.

Further reading

Background

Trawler is a small securities firm which has a highly successful corporate finance team, which has been assembled over a number of years and the income from which represents a major share of the firm’s profits.

Two years ago the board of Trawler felt that the firm needed to broaden the scope of its activities, and decided that the best way of doing this was by way of a formal alliance with another firm from which there would flow additional mutually beneficial opportunities.

Twelve months ago, Trawler concluded an alliance with Sceptre which, although slightly bigger than Trawler, had only a small corporate finance team. Sceptre had developed a reputation for recognising up and coming businesses in bioscience, but had been less successful at helping them take the steps from developing business with potential, into actual success stories.

Consequently, Trawler’s board felt that their team had the skills necessary to maximise this potential and following discussions with Sceptre an alliance was formed, whereby business opportunities would be shared between the firms, according to where the expertise lay. Although there was no form of merger or joint venture and each firm retained its own staff, the arrangement is covered by a Memorandum of Understanding.

You are the Executive Chairman of Sceptre. Last month one of the highly regarded members of your small team of corporate financiers left and you have been searching, via headhunters and network contacts, for a replacement.

You have recently become aware that an unnamed suitable senior replacement has been identified and approached. You understand that she can also bring one or two junior colleagues with her. Your Director has now satisfactorily concluded negotiations and asked you to sign off the contract. He is particularly pleased at his coup but, just as you are about to sign off, you recognise the name of Gildenstern as that of a senior member of the Corporate Finance team in Trawler.

Given the alliance between Trawler and Sceptre but against a background of your firm’s need to strengthen the team, how would you respond?

Verdict

The dilemma you are faced with is whether and to what extent your decision should be based upon the immediate needs of your own firm, or whether you should take a more rounded view and consider the possible implications on your relationship with Trawler.

If you take the view that your firm’s needs are paramount and approve Gildenstern’s hiring, you will have to be prepared to deal with any consequences that may arise. Although you do not have a contractual agreement with Trawler, to take the view that your decision need take no account of the impact upon them, is likely to be viewed as a hostile act and a sign of bad faith. This may jeopardise not only your existing agreement, but any future cooperation and so the benefit of the hiring might be outweighed by the damage to Sceptre’s reputation.

On the other hand, you might take the view that you will not take any action at all that might call into question Sceptre’s commitment to the arrangement and so decline to authorise the requested hiring. Although this may be regarded as a highly principled approach, it does not help solve your firm’s needs and, since you do not know why Gildenstern wishes to leave Trawler, you may decline an opportunity to hire someone who will be lost to the arrangement, if they are determined to leave anyway.

There is also a potential middle way, which is to suggest that your Director contacts his opposite number at Trawler and says that you have been looking to hire a replacement in your Corporate Finance team and one of his members of staff has responded. You are intending to hire them, but are concerned that this should not be seen as a hostile act, since you did not poach the person, who had responded to a job advertisement.

However, this is quite a high risk option and you should consider what you would do if Trawler are insistent that Sceptre should not recruit Gildenstern, as it is unlikely that you would wish to be a part of an acrimonious legal dispute. You should also consider what might be the potential consequences for Gildenstern. Accordingly, it is probably only worth considering this option if you have agreed terms (although not entered into a contract) with Gildenstern and have her agreement that you can approach Trawler.

The key issue is your need for Gildenstern to accept that Sceptre’s relationship with Trawler is more important than a single hiring and that should Trawler be unhappy with the proposal, then Sceptre would feel unable to offer the position to Gildenstern.

If Gildenstern is not able to accept that and thus will not allow you to discuss the proposal with Trawler, her response will effectively give you an answer to the dilemma.

Finally, there is the question of whether you should facilitate the hiring of the junior staff who have also been mentioned. Since Trawler is a small firm, it is improbable that they would be relaxed about losing several members of staff at the same time and since they did not form part of your initial recruitment objective, it would be unwise to pursue them as well. Additionally, Gildenstern could also face legal action from Trawler for inducing her colleagues to leave Trawler.

Although each of the above courses of action has a demonstrable drawback, the key issue is that Sceptre’s relationship with Trawler is more important than one hiring and if this proposed hiring will jeopardise a valuable relationship, then the sensible course of action is to continue the search.

Further reading

Background

Chris is a young compliance officer who has recently joined XTB, a mid size international bank, where he is involved in overseeing compliance of their international operations department.

Because of the location of his office, Chris travels to and from work on the train surrounded by people some of whom are employed in his bank, but also many similar organisations and other financial services firms. There is much general chatter on the train, particularly telephone calls about work and Chris is surprised at the extent to which some people treat the train as an extension of their office, seemingly oblivious to their fellow passengers.

Chris is unsurprised therefore when on his way back from a meeting in the City, he sits next to two men having an earnest conversation but when he hears the words regulator, legal department and fine, he begins to listen more intently. The pair talk animatedly about maintaining the integrity of customer data in the face of an apparent data loss some time previously and Chris understands from what is said that the firm has not yet reported the matter to the regulator and there is an internal argument about whether to do so. Although the problem has now been resolved, based upon a recent case involving a major international bank, there is a strong possibility of the regulator levying a substantial fine if they do own up and this will significantly affect profitability and thus bonuses.

As one of the pair comments, “if no one in our organisation picked it up, the chances of anyone from the regulator doing so must be remote and anyway, no customer has been affected and no one has done anything illegal”

Chris is still intrigued about whom and what they could have been talking when, that evening, on his way home, the lift makes a stop several floors below where he works and he is surprised to see one of the pair whom he had overheard on the train, getting into the lift and using a Staff security pass to leave the building.

That evening, Chris tells his partner about what he had heard at work and she says that as he is still on probation at XTB, he must not interfere and this is none of his business. He agrees that is probably sensible and determines to put it to the back of his mind. However his resolution wavers when he encounters the same person entering the lift as he saw the previous evening. His uncomfortable feeling returns that, having become aware of what is happening, or rather not happening, probably he should do something; but what?

Should Chris have said something at this point?

Although new to XTB, Chris, as a compliance officer was in a position to report what he had heard to a more senior, or even the most senior, person in compliance, who would be in a position to decide what, if anything to do. Chris should have been able to do this, without being drawn into the underlying issue, which seemed to be his main concern.

Convincing himself that he had heard nothing of significance would not have been the right thing to do.

The next day

Arriving at his desk, Chris’s concerns are rapidly pushed to the back of his mind when Louise, his boss, calls him over to tell him that the firm has been told to prepare for a visit from the regulator and that a major theme will be to look at the integration of the business of Vertigo Bank which XTB had bought three years previously.

On learning this, Chris felt that he should say something to Louise about what he heard on the train and related what he could recall, particularly that one of the pair which he had overheard, he had seen in XTB’s building and so assumed that the bank which the pair was talking about was actually XTB. Chris is concerned that they seemed to be engaging in a high level cover up, although he is not aware of the exact details.

Louise tells Chris that it is not something about which he should concern himself, but she will make some tactful enquiries with a colleague in International Wealth Management, which is located on the floor identified by Chris. If she discovers anything, she will let him know what it is all about, although she considers it unlikely that XTB would be a party to anything dubious. Chris returns to his desk and prepares for the regulatory visit but notices that Louise is away from her desk for some time.

Is Louise doing the right thing?

At this stage, Louise has received nothing more than hearsay, but she has responded positively, whereas she could have just said that one frequently hears gossip on the train and Chris should treat what he heard as just that.

Late that day, Louise returns to her desk and in due course calls Chris over. She tells him that she had been gone so long because, on going to speak to her colleague Martin in International Wealth Management, she had been drawn into a highly political debate regarding the matter which Chris had overheard on the train. It appeared that there was disagreement amongst XTB’s senior executives within Wealth Management about how the bank should most appropriately deal with the matter, in order to comply with its obligations to the FSA and at the same time maintain the confidence of the clients of Wealth Management.

Although Louise did not contribute to this discussion, she told Chris that when she had told Martin what Chris had heard on the train and that subsequently he had identified at least one of those involved as working inXTB, Martin had become extremely alarmed and said that they must go and see the Head of Compliance at once. Louise had then been made aware of the underlying problem, which had arisen following the takeover of Vertigo, when a decision had been taken to outsource client data processing to an overseas centre, which system was still in operation. As a result of a recent visit to the overseas data centre by a specialist of XTB’s internal audit team, it had been learned that a few months after the off-shoring process began, in the course of physically transferring data between two of the processing/storages facilities, the company vehicle had been involved in a road accident resulting in a fire which damaged some of the storage tapes. It now transpires that in accounting for the damaged tapes there is an inconsistency between the number of tapes which was recorded as being in the vehicle and the number which was recovered, the assumption having been made that the difference was accounted for by some tapes being destroyed in the fire.

Furthermore, there is uncertainty whether the tapes, which contained personal details of many of XTB’s wealthy international customers had been encrypted and, although the assumption was that the data had been, there was no evidence one way or another. This incident had not been reported at the time to XTB in London.

The resolution

The Head of Compliance was furious on learning this and immediately asked to see the Wealth Management executives, telling them that she was amazed and incensed by what she had just learnt. She then told them in no uncertain terms that XTB’s duty was urgently to report the matter to the regulatory bodies involved, indicating what actions had been taken to remediate the situation, hoping that this would positively influence any regulatory sanction. She added that if they did not agree, she would take it upon herself to report the matter, quoting both the financial regulator’s rules and principles but also the Data Protection Act requirements.

Following this, the Head of Compliance had then said to Martin and Louise that senior members of staff had been highly irresponsible in discussing a sensitive matter in a public place and that had it become public knowledge without the regulator being made aware, the impact on XTB could have been catastrophic. Accordingly, the opportunity must be taken to remind all staff of the dangers of holding discussions about work, taking or making phone calls, or using computers in public places where they could be overheard or observed.

Nevertheless her decision that the regulators must be advised was not influenced at all by learning that members of staff had been overheard discussing the matter in public, but rather that trying to suppress the incident was highly unethical and could have set a dangerous precedent within the firm and, since inevitably it would have come out, it would be highly damaging to the company’s reputation.

PS

Subsequently Louise asked Chris what he would have done if he had learned that XTB intended not to report their problems to the regulator. He replied that although he knew that he should then report the matter to the regulator, perhaps via the “whistleblowing” hotline, he remained uncertain that he would actually have done so, for fear of the consequences for himself and all his colleagues at XTB.

Further reading

Background

Joe Frazier was a young trainee working in a branch of the bank a few miles from his home and had recently been assigned to be a cashier, where he was just getting the hang of his duties in what was a quiet country branch. There was little pressure on the staff and Joe was able to cope easily with the work load.

After some weeks of this quiet life Joe was summoned by the branch accountant and told that there was a problem at Miltown branch where many of the staff had caught a bug and they were very short of cashiers. Consequently Joe was asked to report to Miltown branch the following day for a brief attachment and warned that it was a busy branch which would really test his abilities.

When he arrived just in time at the unfamiliar Miltown office the next day, after a more difficult than expected journey caused by a road accident, he was directed to the senior cashier Eric, who seemed less grateful for Joe’s presence than he had expected and spent very little time briefing him on what to expect.

During an increasingly busy day, quite a queue of customers built up and Joe worked as quickly as he could when he found in front of him a gentleman who announced loudly that he was a former manager of the branch and “that standards appear to have slipped since I retired” leaving Joe somewhat flustered, particularly when Eric the senior cashier came up behind him and started talking to the man.

It transpired that the customer was Mr. Macdonagh who had retired from the bank about 10 years ago and was now the secretary of the local golf club, which kept its account at Miltown. He came into the branch regularly and paid in large numbers of cheques and cash and frequently was impatient with the cashier if he was not served with what he considered to be adequate speed and deference.

Joe was conscious of the other customers waiting behind Mr. Macdonagh and began to check the deposit as quickly as he could, but he was unable to reconcile the amount of cash on his till with the figure on the credit slip and became increasingly anxious. Eric, noticing a potential incident seized the deposit from Joe’s position, saying to Mr. Macdonagh “I am sure that we can rely on our former manager to get things right.” He stamped the Golf club paying in book with Joe’s position stamp and gave the book back to Macdonagh, who thanked him grudgingly and left.

As things quietened down, Eric told Joe to close his till and check the golf club deposit carefully and to make sure that it was right, as the last thing they needed was Macdonagh complaining about them as he still had friends in the bank. Joe counted the cash several times but each time he came down to the fact that there was a £10 shortfall in the cash deposit and he wondered what he should do.

Finally, he plucked up the courage to report the shortfall to Eric, who looked distinctly unhappy at what Joe told him and said that as Joe had stamped Macdonagh’s deposit receipt, the simple answer was that they would have to report it on the end of the week return of “overs and shorts in tills,” which as luck would have it was being submitted that day. Eric told Joe that he would help him complete the form explaining how the loss had arisen but that Joe would have to request the accountant to countersign the form. Joe accepted what Eric said but felt that he was being made responsible for something that was not his fault and was particularly aggrieved that the accountant brusquely told him that he would have to be more careful in future, if he was to get on.

Joe felt rather belittled by this treatment and when he returned to Miltown the next day, he was determined to be on his guard.

Fortunately the branch was a bit quieter and Eric was soon making noises about not needing Joe the next day when he saw Macdonagh enter the branch and head straight for Joe’s till which fortuitously had no customers.

“Young man” he said, “I don’t know what they teach you at school these days, but you seem unable to count any better than the people we employ at the golf club. They found £10 under the drawer of the till in the bar, which they said had been included in the club deposit, which you certified as being correct. So who does this £10 belong to?” and he pushed a £10 note towards Joe.

At that point, Eric, who had been hovering once again, took the note saying to Macdonagh “I’m awfully sorry that you had a problem yesterday. This young man had found a discrepancy in his till at the end of the day and we had identified the likely source as your deposit and were going to phone you, so thank you so much for coming in.” Macdonagh looked witheringly at him, turned round and stumped off, whereupon Eric, with the £10 note in his hand returned to his position as another customer stood before Joe.

The dilemma

Shortly before the end of the day, Eric approaches Joe and thanks him for his hard work, saying that the busy days of the week are now past, a number of staff will be returning the next day and so Joe can return to his own branch, but in the meantime should take the opportunity to leave an hour early. Joe is quite relieved and grateful to have a head start on the commuter traffic, so he does not give another thought to the question of the £100 until he is on his way home, when he begins to mull over what happened and what if anything he should do. Joe feels that Eric made him look foolish both in the branch and with the controlling office, to whom his name will be reported. And what has become of the £100, which should have gone into his till, but seemed to have stuck to Eric’s hand and why did Eric send him home early?

Options

As he sits at a red light he muses on the possible courses of action open to him.

• Should he ring Eric the next day and check that he has done what he should, crediting Joe’s till with £100, or will Eric feel that Joe is suggesting that he may have pocketed the money?
• Should he forget the matter and assume that it is just one of those things?He is not going back to Miltown and is unlikely to see Eric again, so there really is no need to do anything.
• Should he contact the bank’s confidential helpline and report what happened? But anything he says will be pretty specific and so if they do anything it can easily be traced back to him.
• Should he discuss it with his own accountant, but what if he then rings the Miltown accountant and says that Joe is concerned about the £100; that will still make him look bad and may easily be seen as accusing Eric of pocketing the money.

Verdict

It is best for Joe to discuss this with his line manager in his own branch, to make his own role transparent and to raise any irregularities. This avoids any direct confrontation with Eric or the accountants, and Joe’s line manager should be able to judge the best course of action.

Further reading

Background

George is a production manager in Elixir, the UK subsidiary of an international electronics firm and he considers that he is fortunate to earn more than the national average salary. While his income is not yet subject to the 40% “higher” rate of tax, it is just on the margins. George’s firm has an incentive scheme designed to reward staff who make valuable suggestions which benefit the firm’s performance and George, together with a young colleague Dean, made a suggestion which removed a production bottleneck and resulted in a measurable improvement in productivity.

As a result of this suggestion, George and Dean were each awarded a bonus of £5,000 but have been advised that, because of the timing of the announcement, there is a bit of uncertainty whether the award can be processed in time to include it in the March payroll. Both men were delighted to receive the award and Dean, who is still struggling to pay for his Christmas holiday in Thailand, is very keen to ensure that payment will be made in March. George, on the other hand calculates that this bonus will push him over the tax threshold, so that £4,000 of his bonus will be subject to tax at 40%, rather than the 20% rate which would be applied to the rest of his income. Dean earns less than George who assumed that none of Dean’s bonus would be subject to more than 20% tax.

George feels very aggrieved that he might have to pay twice as much tax as Dean and wonders whether he can do anything about it, since it will make a big difference to what he and his wife can spend on the new kitchen they have long been planning. That evening he discusses the matter with his wife who tells him that he must speak to whoever organises the company payroll and see that payment is not made until April.

The next morning, George tells Dean that he is going to see Nicola, his HR Manager who is responsible for organising the company payroll, to try to get the payments delayed until April, because it will save him nearly £1000 in tax. Dean does not respond.

When George meets Nicola she congratulates him, saying that he will no doubt be pleased to learn that she is confident that she will be able to get the award payments included with the March salaries. George looks horrified and Nicola asks him what is wrong. “That will cost me £800” he replies and explains why, adding that he was sure that Nicola and Elixir would be sympathetic towards him. Nicola is taken aback at this saying that she did not realise that and would have to think what could be done and there is very little time.

George returns to work leaving Nicola with a dilemma. In trying to accommodate Dean’s need to receive his award payment as soon as possible she in danger not only of upsetting George, but actually costing him money and Nicola worries whether she will be able to satisfy both Dean and George.

Although Nicola has not said that she can do anything to help either George or Dean, she arranges to speak to Richard, the Finance Director with whom she shares her dilemma. Richard says that he quite understands George’s feelings, but income tax is something that everyone has to pay and the company avoids getting involved in any sort of manoeuvres that might attract unwelcome publicity. In any event, the award was made during the current year and will be included in the report and accounts for the year just ending. Accordingly, Elixir has no real justification for delaying the payment until the following year.

At the same time as George and Dean are awarded their bonus, the Board of Elixir’s parent consider the anticipated group results which are particularly good, as a result of which a proposal is discussed to award Walter, Elixir’s Managing Director, a bonus of £100,000. At the meeting when the decision is ratified, a member of the compensation committee suggests that it would be sensible if they consider how to make the payment in a tax efficient manner. If they delay payment until the following year, a lower tax rate would be in force thus saving Walter some £5,000 in tax.

A member comments that they should be aware that any apparent delay to an award simply to permit Walter to benefit from a lower rate of tax might attract unwelcome publicity. The Chairman says that is a justifiable risk, but losing a key executive because you do not offer a sufficiently attractive compensation package is not. The committee do not demur at this, and agree that the “bonus” should be paid in the form of a retention payment, which could justifiably be made once the lower tax rate applies.

In due course the executive team of Elixir meet and the final results for the year are discussed, including the funding of end of year bonus payments. Richard has been pondering what Nicola had said to him about the tax impact on George’s bonus of it being taxed at a higher rate and what, if anything, Elixir might or should do to help him. Accordingly, at the end of the meeting he raises the matter as a topic of general interest for consideration by the executive team, in the light of the public debate about the morality of deferral for tax purposes of bankers’ bonuses which reward people who are already highly paid, in the knowledge that a lower top rate of tax would apply in the following year.

Walter says that he does not see it as an issue; it is really no different to suggesting that someone should not be awarded a pay rise if it would take them into a higher tax bracket and that companies should try instead to find alternative means of rewarding their staff. That approach, he adds is what, had led to the rash of non or low tax items such as company cars and “entertainment allowances” which had been paid until they were made unattractive by subsequent tax charges being imposed on them by the Inland Revenue.

As the other members of the team nod in apparent agreement with Walter, Richard, who is unaware of the pending award to the Chief Executive, asks how that argument is different from the position of a highly paid individual who receives a sizeable bonus, payment of which is deferred to enable them to take advantage of the lower tax rate that it will attract the following year, when the top rate of tax will be reduced by 5%.

In fact, adds Richard, this is a perfect example of the well-off being treated differently to the lower paid employee. The impact of the 20% increase in tax paid by the lower paid employee on his relatively small bonus is significantly higher than that on the 5% saving on the high earner award, even if the actual monetary amount is much smaller. Accordingly, he says, there must be a strong argument that in the interests of equity, companies should not differentiate in how they treat any discretionary awards, irrespective of the amount or the beneficiary.

Walter thanks Richard for his “interesting observations” and the meeting closes.

The dilemma

The first quarter of the year which often sees lurid headlines about the size and iniquity of “fat cat” bonuses. Following the announcement by the Chancellor of the Exchequer that he was reducing the top rate of income tax with effect from 5 April 2013 these headlines were given an added twist as a result of proposals by a number of firms proposing to defer payment of bonuses so as to take advantage of the forthcoming lower tax rates for high earners.

 

But is this outrage based more on the size of the proposed bonuses and levels of income of the beneficiaries, rather than the principle itself?

Options

• Since all parties cannot be satisfied, the firm should adhere to its existing policies, accepting that this may satisfy only a minority.
• Following the signal given by the board, it should delay the bonus payments for everyone.
• It should try and make specific allowance for individual employees.
• It should consult compliance as to the best course of action.

The Verdict

The most honest and fair thing to do would be to impose the same standard on all employees, which is consistent with the first option. The second option potentially attracts unwelcome publicity, reinforcing a perception of unfairness. The third option seems unwieldy and smacks of unfairness, and could attract attention from HMRC. The fourth option is likely to result in the same outcome as the first option.

Further reading

As you may be aware, the CISI Southern branch runs regular CPD and social events in both Guildford and Reigate, to help members keep up to date with developments in the financial services industry and to network with other professionals.

These events are organised by the Southern branch committee. We’re a group of industry volunteers drawn from a range of sectors and we all have in common the desire to benefit from high-quality CPD events and to promote our industry to a wider audience, including engagement with schools, colleges and universities to help education.

We are keen to recruit new members to our committee, in part to replace two members who have stood down after a number of years of dedicated service, and also to bring new ideas, perspectives and views to the group. New ideas are always welcome!

The committee meets around once a quarter in Guildford to plan topics for future CPD events and to discuss strategies for growing the effectiveness of the Southern branch in our area, both in terms of attracting more members to events and encouraging engagement with the academic sector and other professionals from different industries.

Committee issues and topics

We are normally joined by our CISI representative at our meeting to look at any issues and topics for our branch area and these can include:

• Future topics for consideration at CPD events, linked to industry experience of relevant issues that our membership faces
• Future speakers at CPD events who can add value to our educational needs
• Social events in and around our Southern branch area
• Education events and contact with local schools, colleges and universities
• Liaison with young professionals to engage in the CISI programme, both from within the industry and outside, with the legal and accountancy professions as an example
• Liaison with other branches to engage in future CISI events, with the recent example of a ‘super-event’ in Portsmouth.

This is not an exhaustive list but provides a flavour of what our committee may consider during its meetings.

It is a satisfying and rewarding role and certainly not onerous. We would welcome volunteers from any sector of the financial services industry and if you feel able to offer your time and expertise, then please do let me know.

I would be happy to discuss this opportunity with you either over the telephone or in person.

Keith Churchouse CFP Chartered FSCI
President, CISI Southern Committee

The Annual General Meeting for the Southern branch of the CISI was held at 5pm on the afternoon of Wednesday 19 June 2019 at the Harbour Hotel in Guildford. Please contact me if you would like a copy of the minutes of this meeting.

More committee members needed!

May I take this opportunity to note that two members of our Southern branch committee have now stood down (thank you to them for their past service) and we are looking to replace them and to build our committee membership further. I have prepared a separate blog on this topic – please do have a look at this and volunteer if you can.

CPD and social event

The AGM was followed by a fascinating and thought-provoking presentation from David Guild, Divisional Director of Brewin Dolphin, who took us on an engaging journey through the events and changes he has experienced over his illustrious City career. The broad theme was one of ‘then and now’, exploring how the economy, regulation, investment trends and consumer attitudes have changed over time. It was interesting to note that although there have been many changes over the last four decades, David highlighted the one constant as being the importance of the adviser or investment manager’s relationship with their clients. This certainly struck a chord with the audience, who were very much in agreement.

This excellent presentation was followed by the Southern branch summer drinks event on the terrace of the Harbour Hotel, which was enjoyed by all.

Keith Churchouse CFP Chartered FSCI
President, CISI Southern Committee

Bev Bevan, drummer extraordinaire and Birmingham music legend who has played with such bands as Electric Light Orchestra and Black Sabbath, was guest speaker at the CISI Birmingham & West Midlands annual dinner 2019, held on 6 June at the Clayton Hotel

Click here to view photos from the event.

It was 1973, Jo Jordan had scored the goal that would send Scotland to the World Cup for the first time in a generation, Harold Wilson was considering devolution for Scotland, Dark Side of the Moon was number 1 in the album chart and I was in Primary school. It was then that that Scotland’s last Stock Exchange closed in Glasgow and everything moved to what became the London Stock Exchange. But last week our members in Glasgow, Aberdeen and Edinburgh had the opportunity to learn that things are about to change with the creation of a new Scottish Stock Exchange, under the working title of Project Heather until it gets recognition from the FCA.

Tomás Carruthers heads up Project Heather and provided an overview of the plans that will open a new exchange for the 21st century. The Scottish Stock Exchange will be the first Recognised Investment Exchange worldwide for which companies have to measure their positive social and/or environmental impact before listing and produce an annually updated impact report publicly available on their website.

The members heard Tomás discuss the need for impact reporting to become as mainstream as financial reporting and that they were building an exchange that is more inclusive and accessible to advises, issuers, and investors. He talked us through the agreed technological and strategic partnership with Euronext and how the Scottish Stock Exchange is setting out to bring access, visibility and liquidity to businesses. Scotland has a huge tradition of demonstrating entrepreneurship and inventing just think of all the things attributed to Scotland and this will provide a huge opportunity for raising capital for our new businesses. He asked the advisers to work with them and get involved so they understand the changing financial market imperatives towards sustainable investing which is being driven by investor demand.

The Q&A sessions increased with each presentation and the word with our members was how fascinating this opportunity was and more so that it was happening in Scotland. Following comments about Dundee’s absence from the roadshow, we are looking at dates to rectify this in the near future.

During the Edinburgh session Project Heather were able to announce the home of the new stock exchange will be on George Street in Edinburgh with offices in Glasgow and Aberdeen as well.

Subject to approval from the UK’s Financial Conduct Authority (FCA), the Exchange hopes to launch in the second half of 2019. I suspect that the Scottish Stock Exchange will be well established before we find another Jo Jordan to head us to another World Cup.

Colin Anderson

 

John Moran, former Secretary General of the Irish Department of Finance, speaking at a Chartered Institute for Securities & Investment (CISI) event in Dublin yesterday (29 May 2019) said that following the European elections the centre of power in the European parliament has fundamentally changed.

The results, said Mr Moran, mean that the duopoly of power between the European Peoples Party and the Socialists is broken. This will impact the Parliament’s priorities for the next five years, and critically define how the next generation of EU leaders will be selected.

The much-feared lurch towards populist nationalist ideals didn’t happen, and the largest voter turnout since 1994 has given a strong mandate to pro-EU parties.

View the full press release here

ET Response: The Buddy system is in place to ensure that new individuals have a reference point, a ‘go to’ in another team and someone to ask advice from. There is no set policy for who is selected and the choice is left to the hiring line manager as to who might best assist and support the incoming recruit. However, the aim is to make the new joiner feel comfortable and so the line manager will select someone who is likely to be of similar age and/or experience level. If you would like to be put forward as a buddy for new joiners, please ensure that is made known to your line manager, HR and we will make sure that is shared with other teams.

On Thursday 16th May, CISI sponsored STEP Northern Ireland's Charity Quiz Night which was held in aid of Age NI. The Society of Trust and Estate Practitioners have held the event on previous occasions but this was the first time that the two professional organisations had combined. There was an excellent turn-out, with well in excess of one hundred attendees and five of the twenty tables taken by member firms of the CISI. The drinks reception provided by the CISI meant that the event immediately got into full swing and the pleasant atmosphere provided excellent networking opportunities in a relaxed environment.

The "speed quizzing" via tablets was a really enjoyable format, rendering any use of smart phones impossible and teams had to rely on their wits and dexterity alone to get any success. There were a number of spot prizes provided and whilst the competitive spirit was high, everyone kept the evening's priority in mind and an impressive total was raised for Age NI. The CISI members seemed to dominate the event, with Quilter Cheviot taking a strong lead into the half time buffet. Perhaps their wits were then dulled by the excellent fare on offer as Investec came through in the second half to emerge as overall winners. Our thanks to STEP NI for allowing us to collaborate with them in such an entertaining and worthwhile event and we hope to work with them again in the future.

This morning saw a first for the CISI - a joint CPD event between the Southern and South Coast branches. Held at the University of Portsmouth, the event attracted attendees from across both regions, including some individuals for whom this was their first CISI CPD event.

This ground-breaking event was introduced by Keith Churchouse, President of the Southern branch. An insightful presentation followed from Neil Dobson of Invesco, who focused on the topic of behavioural finance, with some audience participation. Neil’s presentation was very helpful for investment managers and financial planners alike in understanding client attitudes and reactions to investment risk, gains and losses.

A choice of two breakout sessions followed, with Trevor Neil of Beta Group providing a fascinating overview of Bitcoin and crypto currency and Trevor Head of AIG Life focusing on the range of protections that are now available to protect clients and their families. This was a particularly useful presentation for financial planners, given the now mandatory requirement for 15 hours of protection CPD per year.

The group came together for the final presentation from Gervais Williams of Miton Group, who provided an absorbing and thought-provoking view on global and UK markets going forward. 

The event was a great success and much positive feedback was received.

Our thanks go to the four excellent speakers and we look forward to running another joint event in future.

Keith Churchouse CFP Chartered FSCI
President, CISI Southern Committee