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Ethics Oriented Article Review

In: Business and Management

Submitted By FisherFam2010
Words 775
Pages 4
Ethics Oriented Article Review
UoP Student
RES/351
April 16, 2012
Dr. UoP Professor

Ethics Oriented Article Review
The following is a summary of unethical business research conduct by Citigroup Inc. and subsequently resulting in trial proceedings for the unethical conduct. The summary will reveal the specific unethical behavior and who were the injured parties in this misconduct. Additionally, insight into how the unethical behavior affected the organization, the individuals, and society. Finally, evidence will be show how this unethical behavior could have been avoided or at a minimum resolved early in the research process.
What unethical research behavior was involved?
In 2002, Citigroup Inc. was accused of misleading investors. This misconduct was accomplished by the organizations’ research divisions with pressure from the investment sections within the company. The research analysts used biased research to promote the sale of stock that research had shown was not a good investment. The analysts misrepresented the legitimate research because of concern over from backlash from the organizations’ investment bankers. Additionally, the internal pressure from the investment sections to accomplish this misrepresentation was met the reward of bonuses and stock options for the research analysts. The end game in this misrepresentation was to ensure Citigroup, Inc. would have a better bottom line.
Numerous examples illustrate the organizations viewpoint of increased profits were more important than a commitment to fair and accurate reports and recommendations by analysts (Di Lorenzo, 2006). The following communication demonstrates the openness of the misconduct among Citigroup and their associates. According to Di Lorenzo (2006) “At Salomon Smith Barney, analyst Grubman reiterated a stock buy recommendation in February 2001 on Focal, an investment banking client, and a target price of $30 (twice the stock price)” (p. 780, 781). Additionally, according to Di Lorenzo (2006) “In April 2001, Grubman stated privately the need to downgrade Focal stock, but nevertheless once again advised investors to buy Focal” (p. 780, 781). Citigroup Inc. was the parent of Salomon Smith Barney at the time of the unethical misconduct. The reality is some stocks went from $80 to $2 a share; however, the research analysts were still pushing the stock.
Who were the injured parties?
The injured parties were the investors who initially bought the stock based on their firm’s research and subsequent recommendations. The investors continued to buy the stock even although the prices were going down based on the biased research reports. This practice of misrepresentation oftentimes for went on for months until the stock were worth virtually nothing. Additional injured parties include the company’s whose stock was sold because of the biased research. The company was experiencing a false sense of success because of the sale of stock to investors.
How has the unethical behavior affected the organization, the individual, and society?
As an organization the company was affected greatly, specifically as part of the settlement Citigroup had to pay a fine of $400 million (Di Lorenzo, 2006). Additionally, the firm had to overhaul their businesses as a result of the misconduct by separating investment banking from research analyst to mitigate the sphere of influence. The unethical behavior also had a direct effect on individuals and society because of the misconduct by researchers. Many individuals and organizations experienced extreme financial losses because of the biased research analyst reports. Additionally, this had potential to erode the trust in Wall Street and the stock market, not just for the injured parties but also for the public at large.

How the unethical behavior could be avoided or resolved?
A simple solution for Citigroup in avoiding the unethical behavior would have been to align the investment and research departments as two separate divisions with no influence upon each other. Another inherent problem was researchers were getting bonuses and stock options contingent upon the amount of money they earned the company. This monetary incentive was a pressure to researchers to bias the research materials to bring up the bottom line and corrupted the business research.
In conclusion, Citigroup’s unethical business research conduct was shown to have a large sphere of impact. Ranging from those directly involved in the behavior to those who sustained huge financial losses as a byproduct of the misrepresentation of the research. The ramifications of the misconduct were also internal to the organization, the individuals within the organization and society’s vision of what Citigroup represents. Additionally, the summary shows how the organization could have either avoided, or at even resolved these transgressions through the proper application of sound business research methods and practices.

Reference
Di Lorenzo, Vincent. (2006). Does the Law Encourage Unethical Conduct in the Securities Industry? Fordham Journal of Corporate & Financial Law, 11(4), 765-805.

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