Ethics in the Real World: It's who you know, not what you know

Tuesday 2 February 2021

Author: Maha Khan Phillips

After the first of our new ethical case studies, we invited members to join the discussion and provide us with their views. Afterwards, Weiyen Hung, CFA, Michael Barker, CFA, and Miles Galaska, CFA collated responses and highlighted the issues that were raised.

In November, CFA UK’s Ethics Steering Committee posted the first 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 first scenario, It’s Who You Know, Not What You Know, James, an analyst at Alpha Return Corp, receives privileged information from a contact at the World Health Organisation about a potential new drug, developed by Zip Pharma, for a new respiratory illness. Based on that conversation, James writes a sell recommendation for the company, which he shares with his supervisor, Rohan. Rohan is not comfortable with James including the information he received from his contact, and asks that it is removed. Later, James goes for dinner with Petra, a colleague and friend who works in wealth management at the same firm. James is careful not to share specific views on the company, but he has already told Petra he is researching Zip Pharma. At dinner, he forcefully states that no treatment for the respiratory illness will be available soon. On the basis of that discussion, Petra realises James must be talking about Zip Pharma and its new drug, and eliminates Zip Pharma’s position in her portfolios. The stock falls sharply when James’ report is published.


Watch members of CFA UK Ethics Steering Committee discuss the case study 1: The Insider Information Dilemma:

CFA UK invited readers to provide feedback on the summary, asking about what behaviours they found most concerning. In January, Ethical Steering Group members Weiyen Hung, CFA, Michael Barker, CFA, and Miles Galaska, CFA collated responses and highlighted the issues raised. The two strongest answers from respondents were that James passed on information inappropriately, and that Petra placed orders based on insider information.

Picture of a pie chart of the answers to the survey

The Steering Group discussed the ways in which James had mishandled the information he had received. First, he introduced information in his report that was not publically available, and which could reasonably be considered to affect the value of Zip Pharma. His boss, Rohan, did ask him to remove references to the World Health Organisation, but James could have been more mindful about how he used the information.

James was also open with Petra about the fact that he was researching Zip Pharma and that no treatment would be likely for the respiratory illness soon. He didn’t share direct information, but it was easy for Petra to connect the dots. Given that James had already been told to remove the reference to the World Health Organisation, he should have been more careful.

Steering Group members felt that while James could have felt that it was reasonably fair to ask an expert’s opinion, he should have taken into account the guidance and standards that CFA Institute sets. If there was even the perception of him having, or being construed to have insider information, he should have raised it with his compliance function.

Respondents to the case study also highlighted Petra’s role in the scenario. One third of respondents felt Petra’s behaviour was worrying. Petra may have connected the dots, but she received that information from James, and the speed in which she acted was concerning. Petra should have done her own, independent research, and then come to a conclusion.

Similarly, the behaviour of James’ boss Rohan should have been called into question more. As a supervisor he was uncomfortable enough to request that certain information be removed. But he didn’t think more widely about how that information could impact the business.

The Steering Group members felt that, even though the social dynamic between Petra and James made the situation nuanced, there were several, better ways for both parties to have behaved. If there is even a suspicion of something being unethical, the agreed, then investment professionals should act accordingly.

Picture of Weiyen Hung, CFA Weiyen Hung, CFA, CFA UK Ethics Steering Committee chair










Picture of Michael Barker, CFAMichael Barker, CFA, CFA UK Ethics Steering Committee










Picture of Miles Galaska, CFA

Miles Galaska, CFA, CFA UK Ethics Steering Committee










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It’s who you know. Not what you know