As a business students, it has been drilled into our minds that the primary purpose of business is to create value for shareholders. A recent incident made me question this. My grandmother inherited some money from her father, and a banker convinced her to deposit it all into one of the bank’s mutual funds. This helped him to meet his sales quota, but even a freshman in business school knows that this is not a wise investment for a 65-year old. Wasn’t it unethical of him to take advantage of my grandmother’s trusting nature?
Contributed by a business student.
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Ethical Decisions 
This kind of conflict of interest is all too common in the finance industry. As a financial advisor, the banker should act in the interest of the client. But the bank gives him incentives to act in the bank’s interest, which may not be the same. In this case, it is not.
The banker’s behavior is unethical on several grounds. It is not generalizable, because if all financial advisors completely ignored their clients’ interests for personal gain, as this one is doing, clients wouldn’t take their advice. Beyond this, the banker’s conduct is plainly deceptive, because he is causing his client to believe something he knows is false. Deception merely for personal benefit is not generalizable, because if it were universal practice, no one who stands to gain from deception would have any credibility.
The banker’s behavior is also nonutilitarian. Stock prices could drop significantly during the grandmother’s remaining years. This would harm the grandmother much more than a small investment in the banks’ mutual fund would help the bank.
Finally, there is a blatant disregard for virtue ethics. The purpose of a financial advisor is to help clients make wise investments. By completely disregarding this purpose, the banker is acting contrary to who he is as a professional.
There is normally an obligation to act in the interest of stockholders (fiduciary duty), but not when this requires behavior that would be unethical for the stockholders themselves. If a stockholder were sitting at the banker’s desk, she could not ethically give bad advice. She cannot ethically ask the banker to do something on her behalf that is unethical for her to do. Similarly, she cannot ethically expect the bank’s management to incentivize unethical activity.
Fiduciary duty is based on an agency agreement: the firm’s managers and directors receive compensation in exchange for acting on behalf of the shareholders. This implies a promise to make financially responsible decisions. However, one cannot promise to do something unethical, because one can only promise to act in a certain way. Unethical behavior is not action because it has no coherent rationale, in this case because it violates generalizability. It is the existence of a coherent rationale that distinguishes human action from mere behavior that can be explained only as the result of biological processes.
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