An Ethical degree - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
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26 MAY 2008

A recent full page advertisement in the Financial Times caught my eye.
"Ethics", it screamed in bold print. And then went on to say, "When someone has achieved the CFA designation, make no mistake he, or she, is well aware of ethical responsibilities. He upholds the Code of Ethics and Standards of Professional Conduct. She knows why GIPS standards were created and to whom they apply. He has acknowledged his obligation to act in an ethical manner and to encourage others to do the same, acting with integrity, competence, diligence, and respect. The letters CFA indicate that this individual is committed to putting the investor's interest first at all times."

This was an ad issued by the CFA Institute. There are more than 90,000 CFAs in the world, according to the website of the CFA Institute which is headquartered in Charlottesville, Virginia.

While browsing through the internet I came across this comment: "None of the star analysts implicated in the Wall Street scandal that led to the $1.4 billion settlement - Merrill Lynch's Henry Blodgett, Salomon Brothers Inc.'s Jack Grubman, and Morgan Stanley's Mary Meeker - had the CFA designation, according to CFA Institute records." Of course, that was written a few years ago so I don't have any idea if any CFAs were involved in the recent sub-prime and mortgage mess.

The star analysts listed above were research analysts hired by the large broking houses like Merrill Lynch, Salomon Brothers, and Morgan Stanley to cover the then-booming technology and internet sectors. These analysts, investigations indicated, were writing wonderful stories on companies because their employees (the brokers) paid them very well to write stories and not necessarily what they really felt about the companies. So, for example, in one memorable quote one of these analysts wrote, in an internal email, that the company was actually rubbish but, because there was a "transaction" happening, they were writing nice things about the company.

The "transaction" was a reference to a public offering that was due to come out which, when successfully placed with the public and the investors at large, would result in a nice fee for the broking house. And this nice fee would result in a nice bonus for the research analyst writing the wonderful story to support the wonderful IPO.

But - though I am not a betting man, as such - even though there were no CFAs involved in the "star analyst" scandal, I can bet that there were quite a few MBAs involved in that failure and in the recent sub-prime and mortgage crisis.

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That's because of what they teach us (I am an MBA, too) at these business schools. We are treated like the chosen ones, some sort of saviours to mankind's problems. And we can solve them all in case studies in classrooms. And then, once we have done that we move on to mastering the art of making money. We MBAs are the ambassadors of capitalism - the science of being selfish and looking after our own interest - and sometimes disguised as the interest of The Company - is turned into an art. Capitalism is the given framework and we are taught to worship it. And further its cause. At any cost.

Don't get me wrong, there are many not-so-rich MBAs out there who believe in ethics and goodness and fairness. But, on balance, all the folks involved in some scandal or the other tend to be MBAs. This could be a sign that it is so easy to get an MBA that anyone who wants it can get it (so the course may not teach you greed and scandalous behaviour but the course selection process does not have the ability to check your background well).

Like a good friend from New York told me many years ago: "The closer you get to the money, the more it stinks". But - stink or no stink - many of us MBAs are out there hovering around for the kill.

Putting money matters into the hands of most MBAs is like giving a terrorist the key to a nuclear reactor. You know there will be a blow up - it's only a matter of time. And you know the damage will be huge.

And this is probably true for many CA's too. In an Indian context, tax avoidance is seen as another version of tax planning. And there are many CA's in this business. And in the fund distribution business, too. And not all of them act in an ethical or correct way.

So does the university that award the MBA take back the MBA degree?
Does the institute that awards the CA degree take back the CA certificate?

A friend asked me once, what I would do after I stopped spending my time trying to enlighten and educate on money matters. I told him I would like to set up a university where we granted MBAs to students with an understanding that, if they misbehaved, the MBA degree would be withdrawn.
I don't think many people would enrol in my university; so that may not be a good business proposition.
But, think about it.

What if every MBA or CA degree could be withdrawn and the penalty along with the withdrawal would be a return of all the wealth created from the time the person graduated with the MBA or CA degree.
Knowing the selfish nature of the focus of this twist in capitalism (one with a punishment for a crime committed) chances are that the behaviour of those MBA students would be a lot different.
I doubt the degree holders would sell all those dud mutual fund products; or write glowing reports on IPO's that are junk; or sit on a panel and tell television audiences how the next IPO their company was leading was going to head into 4-digit numbers very soon.

Come to think of it, if the people who grant the degrees cannot punish the recipients of their degrees, how useful are these degrees?

And if these same people enter the industry of financial services or work with companies that tap the financial markets, maybe SEBI should lay that down as Rule #1: "If you enter this industry and you are caught lying or cheating or indulging in fraudulent practices, we will take away all the wealth you have. And you have no recourse to a court that takes 25 years to decide whether you are guilty or not. Your fate will be decided by a jury comprising of the investors you serviced. If you agree to this rule, stay on in this industry otherwise find employment somewhere else."

A lot of people would leave this industry in a hurry - this would be an automatic wealth enhancement for most investors! A one-time "exit dividend" followed by the calm and peace of blissful, fair advice.

Think about it - but don't dwell on it.
Get back to reality quickly.
Because the reality is that every day there are another 100 MBAs hired by some finance company somewhere in the world - and many of them are out to get you!

Suggested allocation in Quantum Mutual Funds
Quantum Long Term Equity Fund Quantum Gold Fund Quantum Liquid Fund
Why you should own it: An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% 15% 5%

Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"

Note: Ajit Dayal, the author is a Director in Quantum Information Services Private Limited and Quantum Asset Management Company Private Limited. Views expressed in this article are entirely those of the author and may not be regarded as views of the Quantum Mutual Fund or Quantum Asset Management Company Private Limited or Quantum Information Services Private Limited.

Mutual Fund Investments are subject to market risks. Please read the offer documents of the respective schemes before making any investments.


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1 Responses to "An Ethical degree"

S.S.DABHOLKAR

Mar 26, 2013

My views are not about your article.I am requesting you to use your part of money to investigate and analise the Balnce sheets of all the nationalized Banks.Then go behind the balance sheet and talk with employees of the banks to find the morale of the staff.The continuous shrinking of toatal employees of each bank every year,the FINANCIAL SYSTEM is becoming weak.Once the Nataionalized Banks become WEak due to reduced Manpower,the Indian Monetary system will be affected beyond repair.Pl write about the PEOPLE who are weakening our Banking system which is backbone of Indian economy.

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