Author: Adam Lipman
After the second of our new ethical case studies, we invited members to join the discussion and provide us with their views. Afterwards, Michael Barker, CFA, Miles Galaska, CFA and Sonia Gandhi, CFA collated responses and highlighted the issues that were raised.
In February, CFA UK’s Ethics Steering Committee posted the second of its ethical case studies, looking at ethical scenarios with no ‘correct answer’, and invited respondents to provide feedback and meaningful debate on the problems and issues raised by the scenario.
| Case Study Summary:
In our second scenario, A conflict of interest, 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.
Watch members of CFA UK Ethics Steering Committee discuss the case study 2: A conflict of interest?
CFA UK invited readers to provide feedback on the summary, asking about what behaviours they most agreed with and the steps that could have been taken to prevent a potential conflict. In May, Ethical Steering Group members Michael Barker, CFA, Miles Galaska, CFA and Sonia Gandhi, CFA collated responses and highlighted the issues raised. The two strongest answers from respondents were that Susan should not have discussed her son’s interest in Prospector Business’ as this would always potentially place her in a difficult position, and Dan should have consulted with his Compliance function prior to sending Susan’s son’s CV to the head of the internship programme. /p>
The Steering Group discussed the conflicts that can arise with the management of a firm and the investment analysts of that firm, in this case Dan Smith of Prospector Business and Susan Jones of InvestorScope. This case demonstrates the softer type of conflicts we are likely to see in the real world, with the suggestion of an internship for Susan’s son impacting her judgement and objectivity.
The overwhelming majority of respondents 72%, agreed with the statement that Susan should not have discussed her son’s interest in Prospector Business with Dan as this would always potentially place her in a difficult position. This portrays an appropriate and conservative approach by CFA UK members, where they are keen to avoid getting into situations that can lead to this type of conflict of interest.
The second most common response related to Dan’s lack of action in terms of engaging with his compliance function when dealing with this situation. When Dan passed on Susan’s son’s CV did he disclose the special relationship that the firm had with Susan? Did Dan pass on the CV with a note recommending the applicant for the job? These are all unknown questions and respondents strongly suggest that Dan should have involved his compliance department and/or encouraged Susan’s son to apply through the normal application routes.
The case highlights the importance for CFA UK members to remember that, if you’re in doubt, consult with compliance colleagues and your firms’ procedures.
Michael Barker, CFA, CFA UK Ethics Steering Committee
Miles Galaska, CFA, CFA UK Ethics Steering Committee
Sonia Gandhi, CFA, Director - Ethics Education at CFA Institute