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Assessing Ethics in the Recruitment Process: The Need and Feasibility of an Ethics Assessment in the Financial Industry

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Assessing Ethics in the Recruitment Process: The Need and Feasibility of an Ethics Assessment in the Financial Industry
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Journal of Undergraduate Research
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Fielding, Abigail
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Gainesville, Fla.
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University of Florida
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While sound ethical decision making is important for any job, some industries are experiencing a more pressing need to assess the ethical development of potential practitioners. One such industry is the financial industry. Roles in this industry entail various duties but have one thing in common: the people in these roles are exposed to highly confidential material, large sums of money and pressure to fulfill certain quotas (i.e. returns and profits). Recruitment teams need to recognize ethical decision making as one of the necessary skills to be successful in a role within this industry. Those who enter the financial industry will face various internal and external pressures; new hires need to understand the existence of these pressures and the hiring teams need to understand that not all individuals will respond to these pressures equally. Beginning with the recognition that ethical decision making can be taught, but that ethical behavior is also influenced by personality traits and environmental conditions, this project explores the need and viability of including an ethics assessment during recruitment processes within the financial industry. The value of such an assessment includes mitigation of risks associated with unethical decisions and long-term viability of the financial industry.

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University of Florida | Journal of Un dergraduate Research | Volume 19, Issue 2 | Spring 2018 1 Assessing Ethics in the Recruitment Process: The Need and Feasibility of an Ethics Assessment in the Financial Industry Abigail Fielding Warrington College of Business, University of Florida While sound ethical decision making is important for any job, some industries are experiencing a more pressing need to assess the ethical development of potential practitioners. One such industry is the financial industry. Roles in this industry en tail various duties but have one thing in common: the people in these roles are exposed to highly confidential material, large sums of money and pressure to fulfill certain quotas (i.e. returns and profits). Recruitment teams need to recognize ethical deci sion making as one of the necessary skills to be successful in a role within this industry. Those who enter the financial industry will face various internal and external pressures; new hires need to understand the existence of these pressures and the hiri ng teams need to understand that not all individuals will respond to these pressures equally. Beginning with the recognition that ethical decision making can be taught, but that ethical behavior is also influenced by personality traits and environmental co nditions, this project explores the need and viability of including an ethics assessment during recruitment processes within the financial industry. The value of such an assessment includes mitigation of risks associated with unethical decisions and long t erm viab ility of the financial industry. nderstanding ethics in business is essential to developing a sustainable culture and positive work environment The well known theory of putting people first in order to build profits popularized by Jeffrey Pfeffer, fits with this view (Lawrence, 1998, p. 956) Acting ethically can lead to gr eater productivity, innovation, and happiness. There is a general acknowledgement that ethics should be understood and addressed within organizations, though it is difficult to incorporate and influence ethical behaviors of employees due in part to current recruit ment practices and external pressures facing the industry This paper focuses on these issues and is organized in three sections: the recruitment processes from a general standpoint with a review of the effectiveness of current assessment measure s; the recruitment needs for the financial industry; and what an ethics assessment for the financial industry might look like as well as what is needed to sustain an ethical culture. Ultimately, in order to instill ethical behaviors in organization s asse ssing ethics during recruitment is important and it is being argued here that ethics assessment should become a standard tool for recruiting teams. Further, this research suggest s that hiring candidates who demonstrate the capacity to make ethical decisions could positively impact the f inancial industry. RECRUITMENT PROCESS Recruiters evaluate technical and soft skills in candidates during recruitment by using qualita tive and quan titative measures. Q ualitative measures typically allow for more subjective interpretation by the person collecting data, while quantitative measures are designed to more objectively uncover statistically established patterns and trends. Measures used to a ssess technical and soft skills include interviews and conversations with candidates, which are more qualitative in nature as well as reviews of resumes and applications, which are more quantitative in nature These measures add value in many ways, but th ey also contain some weaknesses. Interviewers form s ubjective impressions in conversation with interviewees. It has been found that similarities between two conversation partners in leisure, extracurricular, and work experiences result in better impression s which can carry more weight than a (Rivera, 2012, p. 1004) Rivera stated that those who conduct interviews are likely not trained in interviewing and are usually the people the potential hi res would be working alongside (p. 1004) This further illustrates the reliance on subjective impression s during the interview process. According to Rivera, i t is important to employers that the people they are bringing into their organization are cultural ly similar to themselves, as well as prepared to adequately perform in their role (p. 999) Because of the importance placed on of cultural fit employers may not weigh technical skills as heavily in evaluating candidates In fact, it was found that interv iewers who felt an emotional spark of commonality with their candidate advocated strongly for them (Rivera, 2012, p. 1017) Considering the subjective nature of the interview it is important that these measures be coupl ed with more quantitative data. Another common measure used is a personality assessment. Personality is recognized as an indicator of employee company fit and is helpful in evaluating the suitability of job applicants across many levels in an organization (Bowen, Ledford, & Nathan, 1991, p. 37) Personality assessments are used in many industries. It is U

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A BIGAIL F IELDING University of Florida | Journal of Undergraduate Research | Volume 19, Issue 2 | Spring 2017 2 noted that 40% of Fortune 100 companies use a personality assessment of some sort (Rothstein & Goffin, 2006, p. 155) On a broad scale, value is created by using personality assessments during the recruitment process because recruiting teams need to understand the types of personalities that work best in certain fields or work environment s as to maximize efficiency and pr oductivity. Unfortunately there are some weaknesses associated with these assessments. A pervasive concern that has been brought to the attention of recruiting and HR teams is that candidates are beginning to strategicall y fake personality assessments (Rothstein & Goffin, 2006, p. 166) C andidates have strategized how questions should be answered for the company to perceive their answers positively. The implications of such behavior can hinder the success of using these a ssessments in the future. Even if only a small assessments, the usefulness of this measu re gradually begins to decline (Rothstein & Goffin, 2006, p. 166) Another issue co mplicating the use fulness of personality assessments is that not all industries and organizations attract the same personality types F job fit theory recognizes that certain personalities are more successful in certain ind ustries (Robbins & Judge, 2008, p. 48) Still, p ersonality assessments are quite vague in their results with c ommon results conclud ing that candidates ar e While it might be helpful to know such characteristics of a person, it has been recognized that personality tests may be more effective and accurate when the measures are tailored to the work setting (Bowen, Ledford, & Nathan, 1991, p. 40) It is important that recruiters are aware of these problems when using personality assessments. Another skill set that is difficult to identify, but certainly important to any organization, pertains to ethic al reasoning and ethical behavior. Developing a culture includes developing a set of organizational values that include s an understanding of ethics. Because of this, it is assumed that ethical development. T here are two ethics assessments that are addressed in (DIT, DIT 2) (Rest, 1999) Multidimensional Ethics Scale (MES) (Reidenbach & Robin, 1988) Both of these assessments are considered t o be reliable (Shawver & Sennetti, 2009, p. 665) The DIT 2 provides insights into candidates by posing questions with ethical components designed to measure moral reasoning and cognitive development (Shawver & Sennetti, 2009, p. 663) The MES allows respondents to not only respond to the ethical dilemmas posed but to provide justification and explanations for their moral judgments (Shawver & Sennetti, 2009, p. 663) However, the DIT 2 may not be a true sign of ethical decision making and behavior because cognitive development increases with age. Additionally, it the DIT 2 does not explain the moral reasoning of students who are unaware of the types of p ressures and chal lenges with which they will be faced in their professional roles (Shawver & Sennetti, 2009, p. 663) Classroom work may not address all of the specific pressures students may face in their industry or rol e upon graduat ion T his review of existing measures suggests that they may not accurately reflect the ethical decision making characteristics of a candidate. Because recruitment teams are seeking candidates with strong ethical decision making abilit ies ethics assessments are needed but c urrent ethics assessments may be too generalized We can learn from personality assessments that tailoring an assessment to a specific industry may be a more effective way to measure the decision making abilities of an i ndividual. Additionally, t he risk of subjective hiring could be minimized by relying more on quantitative measures of a candidate s abilities RECRUITMENT IN THE FINANCIAL INDUSTRY Current r ecruitment practices are effective in that they identify candidat es who demonstrate potential to succeed in a role but they need to be less subjective and more tailored to industry specific pressures and situations. On top of the general recrui ting guidelines and assessments, recruitment teams in the financial in dustry need to have a clear way of assess ing the ethics of potential practitioners A literature review has revealed that ethics and ethical decision making play a key role in finance related roles and organizations. Concern is growing regarding moral failure and malpractice in the financial industry (Oates & Dias, 2014, p. 94) A recent banking scandal, in which Wells Fargo & Company was found to have opened fraudulent bank accounts o n behalf of their clients (Cohan, 2016) is representative of scandals that have damaged the reputation of the industry. When Senator Elizabeth Warren addressed thi s issue, it was clear that the government was concerned with th e unethical behaviors of industry professionals (Cohan, 2016) Wells Fargo & Company professes three core values : leadership (Wells Fargo & Company, 2016) Judging by the recent scandal it is clear that they are not as true to their values as their stakeholders had been led to believe. S candals like these demonstrate the need to b egin hiring ethical individuals that can rebuild the reputations of orga nizations that have been damaged or tarnished due to inappropriate behaviors. In the financial industry practitioners must overcome various pressures Regulation s like the Sarbanes Oxley Act (SOX) of 2002 have been enacted in response to many scandals in the industry (Martin & Combs, 2010, p. 103) This type of regulation is complex, resulting in higher costs for firms with t he average size firm sustaining costs of close to $4.4 million and upwards of $8.5 million (Martin & Combs, 2010, p. 104) Furthermore, the advancement of technology is allowing interaction between managers and clients to advance.

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A SSESSING E THICS IN THE R ECRUITMENT P ROCESS University of Florida | Journal of Undergraduate Research | Volume 19, Issue 2 | Spring 2017 3 Technological advancements are allowing clients to have greater accessibility to their accounts and fund managers as well as allowing immediate transactions to take place. The advancements also allow for penetration of new markets which could not be reached before. I nformation is available to consumers and fund managers about small a nd emerging markets in underdeveloped areas These pressures could bring about positive developments, including better access to clientele but could also pose risks including increase d cyber and data security risks Tracking market performance and return s is another pressure in this industry Market values cannot be pinpointed and t he focus on tracking market performance, estimating future values of stocks, and managing returns puts pressure on investment managers. Specific pressures within a company can be attributed to business operating models, salary models, and leadership/management teams. Investment managers are often compensated for sales to clients, regardless of the returns that those sales create for the clients. Here, we often see people acting in their own self interest, rather than the best interest of the client. Financial and investment management organizations are facing pressure to become more transparent about fees and more competition for consumers increases the potential for profit los s. When practitioners fear that their salaries will suffer, there may be an additional pressure to engage in unethical behavior. M anagement also exerts pressure on teams within their organizations. T op competitors in the financial industry have to generate many sales, returns and profits to maintain their competitive stance among other organizations. To en sure that employees produce sales or other quota s leadership teams evaluate and incentivize the practitioners in their organization s in often unreasonabl e ways. Wells Fargo & Company, for example, incentivized their selling that allowed multiple sales to the same customer to be made (Cohan, 2016) These internal pres sures demons trate why it is important to address those pressures appropria tely during the hiring process. Current ethics measures are incomplete be cause they do not address specific situations Questions on the DIT 2 and MES assessments are not specifically applica bl e to the financial industry and w hile the results from these assessments can provide meaningful data, not all people who are being assessed are from the same industry and do not face the same pressures and situations. It is suggested that an ethics assess ment be tailored to finance related pressures in order to properly assess ethics as a skill during recruitment. It has been discovered through the use of the DIT 2 that accounting and business majors tended to exhibit the lowest scores relative to those be ing assessed from different disciplines (Shawver & Sennetti, 2009, p. 665) This may be because the ethical sensitivities and judgments that business students are reasonably expecting to face when they begin their profess ional roles are different from those faced in other disciplines (Shawver & Sennetti, 2009, p. 665) This shows that the assessment cannot accurately prepared to handle the pressures endemic to the industry I ndustry specific questions for assessing ethics in the financial industry can help to combat these issue s ASSESSING ETHICS IN FINANCE The first step in identifying what is needed for an ethics assessment that would provide maxim um value for the finance industry is to take a broad look at the categories of questions that such an assessment would target. Questions that capture the most general sense of ethics may not be useful during recruitment practices because, as stated before, they are not specific to pressures someone would face in their role Questions that are more specific to situations someone working in the financial industry would face will be useful Using the existing DIT 2 questionnaire (Rest, 1999) questions can be evaluated for their ability to address pressures common in finance A question from the DIT 2 assessment is provi ded below. The ways the question could be modified to fall into a more finance specific category are identified question directly from the DIT the financial industry (changes are underlined). Current question #1 (Rest, 1999) Mrs. Bennett is 62 years old, and in the last phases of colon cancer. She is in terrible pain and asks the doctor to give her more pain killer medicine. The doctor has given her the maximum safe dose already and is reluctant to increase the dosage because it would probably hasten her death. In a clear and rational mental state, Mrs. Bennett says that she realizes this; but she wants to end her suffering even if it means ending her life. Should the doctor give her an increased dosage? Rank the 12 issues for this story in terms of how important each issue seems to you. Rankings are as follows: 1 = great, 2 = much. 3 = some. 4 = little, and 5 = no. 1. everybody else if giving an overdose would be the same as killing her? 2. laws about what doctors can and cannot do? 3. If Mrs. Bennett dies, would the doctor be legally responsible for malpractice? 4. Does the family of Mrs. Bennett agree that she should get more painkiller medicin e? 5. Is the painkiller medicine an active heliotropic drug? 6. Does the state have the right to force continued 7. act of cooperation?

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A BIGAIL F IELDING University of Florida | Journal of Undergraduate Research | Volume 19, Issue 2 | Spring 2017 4 8. Would the doctor show more sympath y for Mrs. Bennett by giving the medicine or not? 9. Bennett so much drug that she died? 10. should end? 11. killed? 12. Where sh ould society draw the line between protecting life and allowing someone to die if the person wants to? Modified question #1 Mrs. Bennett is 62 years old, and just entered retirement She suffers from dementia and has over $2,000,000 in investable assets The financial advisor has provided her with his recommendations and is reluctant to increase the amount of money she has invested in risky assets because it could result in a large loss if the market were to underperform In a clear and rational mental sta te, Mrs. Benn ett says that she realizes this, but she wants to maximize the returns in her portfolio while she can Should the advisor give her a new recommendation for her portfolio ? Rank the 12 issues for this story in terms of how important each issue seems to you. Rankings are as follows: 1 = great, 2 = much. 3 = some. 4 = little, and 5 = no. 1. advisor obligated by the interest if investing in riskier securities would result in a huge potential loss ? 2. regulations about what advisors can and cannot do? 3. If Mrs. Bennett loses all of her money would the advisor be legally responsible for the loss ? 4. Does the family of Mrs. Bennett agree that she should invest in additional risky assets ? 5. Is the best interest ? 6. Does the Securities and Exchange Commission have the right to force clients, like Mrs. Bennett, into select investment options ? 7. Is helping to invest money for anot her person ever a responsible act of cooperation? 8. Would the advisor show more sympathy for Mrs. Bennett by investing in the riskier securities or not? 9. advisor feel guilty from investing so much of Mrs. Bennett money if she lost it all when t he market crashed ? 10. Should only the client have a say in how their money is invested ? 11. risking loss of all of their money ? 12. Where should society draw the line between assisting with investments and allowing someone t o risk their entire life savings if the person wants to? It is suggested that modifying the DIT 2 assessment, in the manner suggested above, can positively impact the financ ial industry. Because question s are structured similarly, it is hypothesized that the modified question s would produce the same reliable results as the original question s regarding the ethical decision making habits of the person being assessed. The next step in this line of research would be to fully develop and test the new survey to determine if it produces results that are reliable and if the assessment is worth implement ing during the recruitment process. CREATING AN ETH ICAL CULTURE Sustaining an ethical culture that is recognized by employees and consu mers as a positive development is invaluable industry A valuable component of company culture involv es performing eth ically and in accordance with the anies draft an ethics code by which employees are to abide However, if there is a lack of understanding or of implementation by the leadership of the company, results are minimal. If, during recruitment processes teams searched for evidence of ethical behavior, and when hired employees engaged in trainings or seminars to encourage ethical decision making, sustaining a n ethical culture would be more likely and could ultimately lead to greater and more long term success. In addition to assessing ethics during the recruitment pr ocess, it is important to set the culture of the company when new hires are going through training processes. W hile this culture of ethical behavior will not happen overnight, it is importa nt to recognize these crucial first steps. Having strong, ethical leadership is important when it comes to the succes s of sustaining this culture The financial industry fosters many talented and driven practitioners who are faced with industry pressures. Leadership teams and executives are no exception. In fact, we ofte n see scandals and poor decisions stem from the leadership or executives of that company. We lls Fargo & Company demonstrates t his idea well: w ith incentives coming from leadership teams, employees felt a pressure to make fraudulent sales to avoid any losse s (Cohan, 2016) In order to start progressing towards the goal of creating an ethical culture, management techniques need to be fine tuned. According to the exploration of the 7 criteria of ethics assessments Baggett management plays a huge role in the behaviors of employees and their likelihood of performing ethically (Baggett, 2007) Management should not on ly create expectations but should enhance the ability to cope wit h ethics in their organization by encouraging employees to speak up about issues they are facing, and providing timely

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A SSESSING E THICS IN THE R ECRUITMENT P ROCESS University of Florida | Journal of Undergraduate Research | Volume 19, Issue 2 | Spring 2017 5 support and encouragement is a mitigating factor when it comes to unethical behavior arising in the wo rkplace (Baggett, 2007, p. 67) Management also needs to consider and recognize the changing environment of their organization T echniques for handling ethical dilemmas may have to be modified and reassessed periodically (Baggett, 2007, p. 68) A consistent effort should be made by all employees in an organization to creat e or rebuild an ethical culture REFERENCES Baggett, W. O. (2007, February). 7 Criteria for Ethics Assessments. The Internal Auditor Bowen, D. E., Ledford, G. E., & Nathan, B. R. (1991). Hiring for the organization, not the job. Academy of Management Executive, 5 (4). Brown, T. A., Sautter, J. A., L ittvay, L., Sautter, A. C., & Bearnes, B. (2010). Ethics and Personality: Empathy and Narcissism as Moderators of Ethical Decision Making in Business Students. Journal of Education for Business Cohan, W. D. (2016, September 16). Wells Fargo Scandal May Be Sign of a Poisonous Culture Retrieved from New York Times: http://www.nytimes.com/2016/09/17/business/dealbook/wells fargo scandal may be sign of a poisonous culture.html?_r=0 Lawrence, P. (1998). The Human Equation: Building Profits by Putting People Fi rst. Administrative Science Quarterly Martin, J. A., & Combs, J. G. (2010). Sarbanes Oxley: Does the Cost Knock Your Socks Off? Academy of Management Perspectives Mudrack, P. E., Turnley, W. H., & Bloodgood, J. M. (2012). Some Ethical Implications of Individual Competitiveness. Journal of Business Ethics Oates, G., & Dias, R. (2014). Including ethics in banking and finance programs: teaching "we shouldn't win at an y cost". Emerald Insight Reidenbach, R. E., & Robin, D. P. (1988). Multidimensional Ethics Scale (MES). Rest, J. (1999). Defining Issues Test (DIT 2). Rivera, L. A. (2012). Hiring as Cultural Matching: The Case of Elite Professional Service Firms. America n Sociological Association Robbins, S. P., & Judge, T. A. (2008). Essentials of Organizational Behavior. Upper Saddle River, NJ: Pearson. Rothstein, M. G., & Goffin, R. D. (2006). The use of personality measures in personnel selection: What does current r esearch support? Human Resource Management Review Shawver, T. J., & Sennetti, J. T. (2009). Measuring Ethical Sensitivity and Evaluation. Journal of Business Ethics Wells Fargo & Company. (2016). Our Values Retrieved from Wells Fargo & Company: https://www.wellsfargo.com/about/corporate/vision and values/our values/ Willett, M. (2015, February 13). The strengths and weaknesses of every personality type Retrieved from Business Insider: http://www.businessinsider.com/trait s of every myers brigg personality 2015 2



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