Department of Philosophy

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Browsing Department of Philosophy by Author "Bezuidenhout, Stephan"

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    An explanation for the emerging shift from compliance culture to ethical culture in the financial industry
    (Stellenbosch : Stellenbosch University, 2022-12) Bezuidenhout, Stephan; Rossouw, Deon; Stellenbosch University. Faculty of Arts and Social Sciences. Dept. of Philosophy.
    ENGLISH ABSTRACT: Financial services are an important and influential sector of every economy, contributing significantly to global economic activity. A stable and sustainable financial sector is, therefore, critical for global economic growth and socio-economic development. To explain the emerging shift from a compliance culture to an ethical culture in financial services, the study begins with a literature review of the corporate scandals involving Enron and WorldCom. Although Enron and WorldCom were not in the financial services sector and certainly not the first corporate failures, they marked the beginning of a period of significant regulatory reform by supervisors and regulators in response to ongoing systemic and corporate failures. The study continues its literature review of how, despite regulatory efforts to prevent future scandals and losses through reforms, the financial services sector’s conduct has remained largely unchanged. Financial institutions' sole focus on profit, distorted incentives for bankers, and regulators' restrictive and narrow approach to reforms have all contributed to the state of the sector. In order to deal with the restrictive reforms, the study reviews how financial institutions developed sophisticated compliance programmes designed to mitigate the risk of regulatory sanction and reputational harm. The compliance culture that evolved within these institutions proved ineffective, resulting in significant unintended consequences and an inability to adequately address poor governance and prevent corporate failures in a sustainable way. The study examines these inefficiencies, their effects, and how regulators proposed addressing the compliance culture's 'dark side'. The study further explains the motivations for the emerging shift from a compliance culture to an ethical culture against the background of how regulators and industry groups have started to call on the financial services industry to reconsider its approach and embrace an ethical culture. The study finds that regulatory frameworks alone are insufficient to address the sector's unethical practices, and approaches that promote ethical behaviour of financial institutions are necessary. In conclusion, this study considers the advantages for organisations that make the transformation to an ethical culture.