Case study of chapter 20 UBS: ethics scandal

Case study

1. Aliya Dharaningtyas 29319180
Andan Anjani 29319039
Savitri Ayu Saraswati 29319098
Shinta Ayu Widyastuti 29319082
Tyalintika Angelinrizki Sari 29319080
Widya Ayu Cahyaningtias 29319159

Syndicate Group 8
UBS: A Pattern of
Ethics Scandals
1

2. Case
Summary01
2

3. Union Bank of
Switzerland
●Merged between Swiss Bank Corp. and Union
Bank of Switzerland in 1997.
●One of the top financial services companies in
the world and the biggest bank in Switzerland.
●2008 - 2015: its reputation was severely
tarnished by series of ethics scandals. Lead to
lost billion dollar in fines and severely
diminished reputation.

3

4. Ethics Scandal No. 1:
US Tax Evasion


Swiss banks have long enjoyed a competitive
advantage conferred by Swiss banking privacy laws
that make it a criminal offense to share clients’
information with any third parties. The exceptions are
cases of criminal acts such as accounts being linked to
terrorists or tax fraud. Merely not declaring assets to
tax authorities (tax evasion), however, is not
considered tax fraud.
In mid-2008, it came to light that since 2000, UBS had
actively participated in helping its US clients evade
taxes. To avoid QI reporting requirements, UBS’
Switzerland-based bankers had assisted the U.S. clients
to structure their accounts by divestingU.S. securities
and setting up sham entities offshore to acquire
non-U.S. account holder status. Aided by Swiss bank
privacy laws, UBS successfully helped its U.S. clients
conceal billions of dollars from the IRS.



4

5. On September 15,201 1, UBS announced that a rogue
trader named Kweku Adoboli at its London branch
had racked up an unauthorized trading loss of $2.3
billion over three years. Nine days later, UBS CEO
Oswald Griibel resigned "to assume responsibility for
the recent unauth onzed trading incident.
After more than a year of joint investigation by the
U.K. and Swiss regulators, the case was concluded
with findings that systems and controls at UBS were
"seriously defective."
UBS was fined $41.6 million in late 2012. Adoboli was
sentenced to seven years in prison, of which he
served about half before being released in 2015.


Ethics Scandal No. 2:
Rogue Trader
5

6. Ethics Scandal No. 3:
LIBOR Manipulation


●LIBOR, or London Interbank Offered Rate, is the most
frequently used benchmark reference rate
worldwide.

●UBS, as one of the panel banks, was fined $1.5 billion
in December 2012 by IJ.S., UK, and Swiss regulators
for manipulating LIBOR submissions from 2005 to
2010. Besides accepting the fine, UBS pleaded guilty
to U.S. prosecutors for committing wire fraud. During
the stated period, UBS acted on its own or colluded
with other panel banks to adjust LIBOR submissions
to benefit UBS's own trading positions.

●During the second half of 2008, UBS instructed its
LIBOR submitters to keep submissions low to make
the bank look stronger.

●Tom Hayes, a 35-year-old man, a former UBS (and
Citibank) trader, was sentenced to 14 years in prison
for rigging the LIBOR.



6

7. UBS had avoided prosecution in 2012 by agreeing
to cooperate with authorities and promising not to
engage in rate rigging and other illegal activities in
the future. The Department of Justice now alleges
that UBS violated the terms of the agreement and
“did it again.”
This time, prosecutors say that UBS manipulated
foreign- exchange rates. In particular, UBS and
other banks are accused of having colluded in
moving foreign exchange rates for their own
benefit and to the detriment of their clients.


Ethics Scandal No. 4:
UBS “Did It Again”
7

8. Problem /
Issue
Identification02
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9. 9
1.Given repeated failures at UBS, who is to blame? The CEO? The board of
directors? The supervising managers? The individuals directly involved?
Who should be held accountable? Is it sufficient just to fine the bank?
2.Given the information in this MiniCase, do you think that 11-year jail
sentences for Tom Hayes was too harsh? Did he serve as a scapegoat?
Note: The average jail sentence served a person convicted a murder is 17
years in England and Wales.
3.What can UBS do to avoid ethics failures and to repair its damaged
reputation?

Problem / Issue Identification

10. Related
Theories /
Concepts03
10

11. 11
In general, a person’s ethical
decision-making process is
highly dependent on the
organizational context.
Research shows that when
people work in organizations
that expect and value ethical
behavior, they are more likely
to act ethically.
Employees will take directions
from their environment on
how to act. Therefore, ethical
leadership is very important,
and strategic leaders set the
tone for the ethical climate in
an organization.
To encourage ethical behavior
in employees, boards must be
clear in their ethical
expectations and top
management must create
organizational structures,
cultures, and control systems
that value and encourage
desired behavior. In addition,
the formal and informal culture
of the company must be
harmonized and the behavior
of the executive must be in line
with the visions and values that
are formally stated.
Related Theories / Concepts

12. Is a structure and mechanism
that regulates company
management to produce
long-term and sustainable
economic value for
shareholders and stakeholders
Good Corporate
Government
12

13. Business Ethics are an agreed-upon code of conduct in business,
based on societal norms. Even though many principles may
different differ some degree across the globe, some value such as
fairness, honesty and reciprocity are universals norms. As such,
many of these have been codified into law.
Unfortunately, the distinction between ethic and law not always
understood by the general public, because an action can be
completely legal but ethically questionable.
Strategy and Business Ethics
13

14. To go beyond the minimum acceptable standard codified in law,
many organizations have explicit codes of conduct. These
codes go above and beyond the law in detailing how the
organization expects an employee to behave and to
represent the company in business dealings. Codes of
conduct allow an organization to overcome moral hazards and
adverse selections as they attempt to resonate with employees’
deeper values of justice, fairness, honesty, integrity, and
reciprocity.

Strategy and Business Ethics
14

15. The oath explicitly
recognizes the role of
business in society and
its responsibilities
beyond shareholders. It
also holds managers to a
high ethical standard
based on more or less
universally accepted
principles in order to
create value
responsibility and
ethically.
15

16. ●The recognition that effective corporate governance and solid
business ethics are critical to gaining and sustaining competitive
advantage.
●A variety of corporate governance mechanisms can be effective in
addressing the principal-agent problem. The strategist must help
employees to “walk the talk”l leading by ethical, so it has a stronger
effect on employee behavior than words alone
●The strategist needs to look beyond shareholders and apply a
stakeholder perspective to ensure long-term survival and success of
the firm. Fairness and transparency is critical to maintaining good
relationship between shareholders and stakeholder
●The key for continued professionalization of management are the
large number of glaring ethical lapses over the last decade or so
makes it clear that organizational core values and code of conduct
Implication
for the
Strategist
16

17. ●The ethical pursuit of competitive advantages
lays the foundation for long-term superior
performance.
●Law and ethics are not synonymous; obeying the
law is the minimum that society expects of a
corporation and its managers.
●A manager’s actions can be completely legal, but
ethically questionable.
●Some argue that management need an accepted
code of conduct that holds members to a high
professional standard and imposes
consequences for misconduct
Explanation of the
relationship between
strategy and business
ethics
17

18. Case
Analysis
and
Solutions04
18

19. Given repeated failures
at UBS, who is to blame?
The CEO? The board of
directors? The
supervising managers?
The individuals directly
involved? Who should
be held accountable? Is
it sufficient just to fine
the bank?


19
Since all the unethical scandals have been
happen repeatedly, all of the people who are
involved should be blamed.
The individuals should understand every
actions they did, the supervising managers
should know since all the actions made by the
subordinates comes from the supervisor, the
board of directors should have been aware of
the issues going on within the company as well,
as they are overseeing the business actions as
a whole, the CEO should be blamed because
allowing unethically actions occur repeatedly
and destroy the company’s reputation. All in all,
everyone in the company who have any
sort of knowledge regarding the business
practice should be blamed.

20. Given repeated failures
at UBS, who is to blame?
The CEO? The board of
directors? The
supervising managers?
The individuals directly
involved? Who should
be held accountable? Is
it sufficient just to fine
the bank?


20
The leader of the company which is the CEO
should be accountable, because ethical
leadership is critical, and strategic leaders set
the tone for the ethical climate within the
organization. Employees just take cues from
the environment on how to act.

No, it is not sufficient to just fine the bank, later
UBS will make more revenue to cover the fine.
Individual punishment should be conducted to
create deterrent effect so that the others will
not have gut to do any failure.

21. Given the information
provided in this MiniCase,
do you think that the
11-year jail sentence for
Tom Hayes was too harsh?
Did he serve as a
scapegoat? Note: The
average jail sentence
served for a person
convicted of murder is 17
years in England and Wales.



21
Tom Hayes’ Point of View:
●Hayes feels that he is the scapegoat
for the failure of senior management.
●Hayes denied that his actions were
wrong because he only did consistent
actions like what his seniors had done
at the place where he worked who
was aware of these actions.
●Hayes was never told that the action
he did was wrong.
●From prison through his letter, Tom
Hayes stated that he was actually
being held in solitary confinement
away from other inmates which shows
that the authorities did this to protect
him.

22. 22
Prosecutor’s Point of View:


●Hayes is the mastermind behind the
corrupt circle of traders and brokers
globally with a personal motivation to
make his appearance stronger.
●Hayes has been considered one of
the most talented traders in the
banking industry for the previous
several years.
●Hayes’ jail sentence was reduced to
11 years following an appeal in 2015.

23. 23
Tom Hayes’ scandal related to Agency Theory...
According to agency theory, in this case UBS has a
legal contact relationship in which the bank, if the
bank has a conflict that arises, then this will be
handled in the realm of law, as was the case with
the scandal that happened to Tom Hayes who had
a work contract at UBS and when he had a
problem. then this problem must be resolved
through legal channels.
Principal agent problems can also occur in
organizational hierarchies. In the case of Tom Hayes,
which follows Hom Hayes’ perspective, he serves as
a scapegoat for the failure of senior management.
He denied that his actions were wrong because he
argued that he only did consistent actions like what
his seniors did and the senior management was
aware of what he was doing. Tom Hayes was also
never told that the action he was taking was a
mistake.
In the case of Tom Hayes, it can be concluded that the confinement of Tom Hayes for 11 years was too harsh, and it
was not fair. If there is a conflict that requires processing the conflict into the realm of law, this should not only be
shown to Tom Hayes but also apply to his seniors, because employees generally will take guidance from their
environment on how to act, including seniors. Over time, it can be seen that Tom Hayes has indeed become a
scapegoat, which is proven by the recognition of UBS. UBS pleaded guilty to allegations that UBS traders (including
Hayes) manipulated LIBOR (page 526).

24. What can UBS do to
avoid ethics failures and
to repair its damaged
reputation?


24
To improve the damaged reputation
from UBS, the company must
improve in terms of its company
culture by implementing good
corporate governance, and
improving the company's
relationship with customers and
government or stakeholders.

25. 25
Principles of GCG
Fairness Implement fair business and aligning all aspects in fulfilling the rights
of stakeholders under the agreement and applicable law.
TransparencyThere must be disclosure of information within the company including
openness in decision making
AccountabilityThere is clarity of business, functions, and implementation of
responsibilities within the company so that the company's operations
can run effectively
ResponsibilityEnsuring the conformity of company management with applicable laws
and regulations, as well as enforcing bank management that is free
from unethical issues
IndependencyProfessional management of the bank without the influence / pressure
from any party

26. 26
Improving the
company’s
relationship with
stakeholders


●Rebrand the company, to create a new company image
●Removing secret accounts with potential for money laundering,
in order to avoid violations of laws.
●Their top level management should take ethics courses to try
and prevent a prolonged issue with lawsuits.
●Clear the employee with potential fraud issues.
●Provide transparency in company reporting, to avoid possible
fraud. Doing this will create investor confidence in what UBS is
doing behind the scenes and hopefully that will help with their
reputation.
●To foster ethical behavior in employees, boards must be clear in
their ethical expectations, and top management must create an
organizational structure, culture, and control system that values
and encourages desired behavior. Furthermore, a company’s
formal and informal cultures must be aligned, and executive
behavior must be in sync with the formally stated vision and
values. Employees will quickly see through any duplicity. Actions
by executives speak louder than words in vision statements.

27. Conclusion
and
Recommendation05
27

28. ●To have a sustainable business, a company should pursue its strategic
goals successfully and legally.
●UBS has been proven violating corporate governance by not obeying
the law and breaking the business ethics.
●Ethical environment of company begins from the leader, since strategic
leaders set the tone for the ethical climate within the organization.
Employees just take cues from the environment on how to act.

Conclusion
28

29. 29
Recommendation
1
UBS must establish minimum
standards on how to expect
an employee to behave and
represent the bank in
business affairs which is
outlined in a code of ethics
that must be enforced firmly
and disciplined by all UBS
employees both upper and
lower levels who
simultaneously carry out the
principles of reward and
penalties for employees who
violate.
2
UBS needs to design clear
and firm work assignments,
incentives, work contracts,
and control mechanisms to
minimize opportunism by
employees (agents).

3
UBS must immediately
improve its organizational
management to uphold
respect, integrity, fairness, and
openness to all business
transactions that will serve as
company guidelines in
compliance with applicable
laws and regulations that all
UBS employees must follow.

30. Lesson
Learned06
30

31. Lesson
Learned


Conducting unethical business has an impact
on company reputation which will have an
impact on the condition of the company’s
relationship with stakeholders.
31
It is important for companies to ensure that
operations in the company run according to
applicable laws and don’t do unethical things.
As Porter’s argue “the strategic actions will
lead to a larger pie of revenues and profits
that can be distributed among a company’s
stakeholders”, including maintaining
company reputation by implementing ethical
business.

32. 32
THANK YOU