A conflict of interest?

Wednesday 24 February 2021

Ethics case study 2 : Influencing others


Outline of the case

Susan Jones, a fund manager with InvestorScope Ltd is meeting with Dan Smith, head of investor relations for Prospector Business, an oil and gas company for which Susan’s fund is a substantial shareholder.

At the start of the meeting, Susan mentions in passing that her son is a Chemistry student interested in moving into the oil and gas industry upon graduation. Dan states that he knows the head of Prospector Business’ internship programme and would be happy to pass on Susan’s son’s CV to see if he would be a suitable candidate for Prospector Business’ summer programme. Susan is hesitant but Dan assures her that the programme will look at applications based upon their merit and that her son would only be accepted if Prospector Business considered him a good fit. Dan then goes on to discuss an upcoming rights issuance that Prospector Business are planning to fund a potentially lucrative new pipeline and agrees to send Susan details of the proposals.

Susan sends Dan her son’s CV, which Dan passes on to the head of the internship programme. Susan’s son has excellent grades and would represent a top candidate for the internship and so the head of the programme decides to fast track his application.

Meanwhile, Susan and her top analyst review the proposed new pipeline and issuance. They determine that the pipeline would indeed be very profitable for Prospector Business and that, if completed, it would represent a sound investment. However, the analyst points out that a similar application in the same country was overturned by the government following pressure from environmentalists and therefore advises caution. Susan raises this on a follow up call with Dan, who informs her that the country’s new government is substantially more business friendly than their predecessors and that they fully expect that the pipeline will be approved. Susan’s fund makes a substantial investment in the rights issuance.

Susan’s son completes a successful internship with Prospector Business. Meanwhile, the pipeline is successfully approved due to the government insistence. However, pressure from environmentalists and several court cases against the project lead to substantial delays which increase costs and mean that the project is not as profitable as envisaged.

 

 

 

Watch members of CFA UK Ethics Steering Committee discuss the results of case study 2: A conflict of interest?

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