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Are we headed for another period of Financial Scandals?

Using the Giving ‘Voice to Values’ Approach to teaching Ethics to College Students

I fear that another scandal in business may be just around the corner. A federal regulator recently said increased risk is creeping back into the financial system, warning in a report that U.S. banks are relaxing loan-underwriting standards in a manner similar to the years preceding the 2008 financial crisis.

The largest U.S. lenders have loosened requirements for corporate loans and consumer borrowing such as credit cards and auto loans for three years in a row, the Office of the Comptroller of the Currency said in an annual report. The easing comes as banks search for higher-return investments amid low interest rates and competition from nonbank lenders

Officials at the OCC, which regulates national banks, warned a similar trend of gradual easing in lending standards took place in the early 2000s. The regulator noted similarities between the 2014 survey, which measured underwriting standards through June 30, and one issued in 2006.

The survey “showed a continued easing in underwriting standards, with trends very similar to those seen from 2004 through 2006,” said Jennifer Kelly, senior deputy comptroller for bank-supervision policy and chief national bank examiner, in a statement.

The OCC’s examination of 91 large banks with $4.9 trillion in loans found the greatest relaxation among leveraged loans—or loans to companies that already have large amounts of debt—as well as auto loans, credit cards, large corporate loans and international loans.

Among regulators’ concerns are what they view as risky auto-lending practices, including an increasing number of loans to borrowers with poor credit, and long loan terms of as many as seven years.

The OCC survey, which covered the year that ended June 30, 2014, was broadly consistent with other data looking across the banking industry.

I’d like to think that banks have learned their lesson from the great financial recession but I also know that history tends to repeat itself with respect to business frauds. Despite new legislation under the Dodd-Frank Financial Reform Act, the banking industry has not learned its lesson and greed is once more raising its ugly face. My fear is we all will pay the price down the road as we did during the recession.

What we can we do as business ethics professors to inculcate ethical values in our students in the hope that they won’t be part of an environment that loosens the reins on ethical behavior such as we have experienced in the banking industry for so long?

The challenge to ethical behavior in the workplace is to resist pressures to act in a way that one knows is the wrong thing to do. Most people instinctively know what the right thing to do is in most workplace ethical dilemmas. However, the difficulty is what comes next. How do we “give voice to our values” in such instances. Thankfully, there are resources to help us not the least of which is the Giving Voice to Values educational program developed by Dr. Mary Gentile at Babson College outside Boston.

The Giving Voice to Values approach calls for a post-decision-making perspective that relies on developing an action plan to carry out what a person knows is the right way to behave. In my ethics courses I ask students to develop a script that details what they will say; to whom will they say it; how might they enlist the help of others to support their decision; and how will they counteract those with countervailing opinions.

The Giving Voice to Values approach is not full-proof. No method of ethical reasoning or action can be. The reason is we have to react sometimes instantaneously to the facts at hand and how they might change. Even though we may want to voice our objections, exercise moral courage, and do the right thing, we still need to deal with the pressure from those who are aligned against us and might have a say over whether we progress in an organization or even get fired.

There is an old expression that “Good ethics is good Business.” I’m not partial to it because, at least to me, it minimizes ethical behavior and relegates it to a utilitarian perspective. We shouldn’t be ethical in business, or in life for that matter, because we expect some end result. We should be ethical in all that we do because it is the right way to behave and it has intrinsic value.

Blog posted by Dr. Steven Mintz, aka Ethics Sage, on March 12, 2015. Professor Mintz is on the faculty of the Orfalea College of Business at Cal Poly San Luis Obispo. He also blogs at: www.ethicssage.com.

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