Ethics And Financial Services
Author:
Genre: Finance

2. How would you describe the ethical behaviour of management towards asbestos victims?Explain your answer. What should be the company’s responsibilities in this situation?4. In your opinion, would a code of conduct that was effectively enforced by the profession make a difference to Minty/Towbrdge behaviour

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Ethics And Financial Services

Q2 Going through the facts of the case, it can be seen that the company (James Hardie Industries) didn’t act in an ethical manner in this case. The management of the company put financial benefits to the company on a higher level than its responsibilities towards the society. An ethical organization gives more priority to its responsibilities towards its stakeholders and its actions are defined with this consideration as the base. However in this case, the company was found to be taking decision based on the more on the consideration of financial performance rather than the interests of its stakeholders (which in this case were the employees who became victim of diseases caused by asbestos exposure during their work for the company).

The organization as per the case facts always tried to get away from its responsibilities’ towards the asbestos victims. Before the ED88 was published the company had put the asbestos liabilities only as $45 million which is a great underestimation as compared to the estimates which were found later by the actuaries (nearing $350 million). Furthermore, when the ED88 was published, the company tried to manipulate the actuaries while they were supposed to do the estimation independently. In 1998 the company tried for listing in US but it failed because the market realized that the company is hiding a lot of important facts and was presenting vague information to the market. The company claimed that it is not possible to assess the correct level of potential claims for the asbestos victims which was not the case as it had most of  the relevant information to find make the assessment. This shows that the organization was not interested in estimating the correct potential claims which it will have to pay which shows that organization didn’t take its financial responsibilities for the victims seriously. The organization was instead expected to show more responsible behavior and maturity and it should not have attempted to take the short cut of hiding the important facts under the garb of uncertainty. Even if the correct evaluation at that time was not good for it to get listed, it should have provided the correct figures and information to the market instead trying to get listed at US by hook or crook (CPCU 2001, pp. 45-47). The position taken by the management at that time clearly tells that the management was least interested in entertaining the claims to asbestos victims as it regularly tried to keep down the asbestos liabilities shown to the market and was more interested in improving financial performance.

Again in 2000 the company decided to form MRCF in 2001. Its major purpose as communicated to public was to hold assets for providing funds to the asbestos victims. Actually the company was trying to get rid of its responsibilities for the victims as the MRCF was also supposed to get Coy and Jsekarb as its wholly owned subsidiaries which were the major contributors for the claims for the company. Also the MRCF was made an independent entity that meant the organization tried to de-link itself completely from asbestos claim and pass on its responsibilities for victims completely to MRCF. Not only the company tried to get rid of its responsibilities by creating the MRCF, but also tried that MRCF doesn’t get adequate funds to provide the claims to the victims. The higher management all the times kept on interfering with the work of the actuaries who were hired by the company to give them the estimation of the potential claims. For example when the actuaries reached to its unbiased figures (to the tune of $350 million) of the potential claims, the management forced and coerced the actuaries (client capture behavior) to give estimations which are more in favor of the organization rather than the victims. The higher management also edited the draft reports of the actuaries, tried to add subtle meanings which can provide an escape from the financial responsibilities towards the victims and modify explicit sentences which add create financial responsibilities for the company in future as far as potential claims are concerned. This was a highly unethical behavior by the company against the asbestos victims. (The Actuarial Profession 2011, pp. 5-7)

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