This special issue of Business Ethics Quarterly on ethics in finance was planned before the high profile scandals at Enron, WorldCom, Global Crossing, Tyco, and Arthur Andersen, among other firms. Although these unfortunate events make this special issue especially timely, the subject matter of finance ethics has long been in need of scholarly attention. It is ironic that business ethics as an academic field owes its existence in part to the insider trading and junk bond scandals of the 1980s, and yet business ethics scholars have devoted comparatively little attention to financial topics. Now that another wave of ethical failures in finance is upon us, it is appropriate to present this collection of the best work on finance ethics.

From a theoretical point of view, finance is a unique field for ethical exploration. The central activity of finance is financial contracting, in which parties make agreements with regard to the assets that they control. An individual who rents a home, leases a car, buys an insurance policy, invests in a mutual fund, or saves for retirement is entering into a contract with someone who promises something in return. In making these contracts, individuals are assumed by finance theorists to be entirely self-interested and opportunistic, which is to say that they will renege on their promises if they can do so safely. The response of rational contractors, therefore, is to build in safeguards to ensure compliance with the agreements made.

What does socially responsible investing (SRI) accomplish for investors and for society? Proponents of SRI claim that the practice yields competitive portfolio returns for investors, while at the same time achieving better outcomes for society at large. Skeptics view SRI as ineffective at best and ill-conceived marketing hype at worst. My objective in this paper is to apply mainstream finance research findings to the question of whether SRI may be expected to lead to superior social outcomes. I conclude that under the perfect markets assumptions underlying most finance theory, SRI will not affect social outcomes. However, given well documented imperfections in equity markets, the claim that SRI “makes a difference” to society is a reasonable one that is consistent with current theoretical and empirical research in finance.

While a ubiquitous phenomenon, initial public offerings (IPOs) have received no attention in the ethics literature. We provide an overview of a series of potential conflicts of interest that pervade the IPO process. We also report the results of an empirical assessment of IPOs and those elements that may inform a substantive moral hazard faced by key players in the period prior to and just after an IPO.

Over the last two decades, institutional investing has rocked the world of corporate governance in a transformation that has begun to be reflected in the finance, legal, and management literatures. Traditional players have seen their roles change and bases of power shift, and new actors have entered the governance equation. These transitions have entailed an ethical upheaval that is only beginning to be addressed in the business ethics literature.

This paper attempts to facilitate research in this area by integrating various literatures into an examination of a series of business ethics issues related to pension fund activism and portfolio management, fund staffing, and employee compensation. The primary intent of this project is to encourage increased business ethics research in the area of institutional investing in general and pension fund management in particular.

In this paper the co-responsibility of the North for the development of the South, the chance of an authentic development and Rawls’s maximin rule are indicated as the ethical perspectives from which the financial integration of developing countries will be evaluated. It follows a brief economic analysis of possible problems of high inflows of portfolio investments for developing countries. They become more vulnerable to financial and monetary crises and their domestic banking systems are weakened by a higher risk of devaluation. This will lead to an outline of the goals for reshaping the financial integration: among others limitation of capital inflows, strengthening of the domestic banking system and further development of the country’s particular economic style. Finally some regulations of external financial relations and the proposal of a cooperative monetary arrangement between the South and the North are discussed as possible measures to improve this integration.

Scholars have developed many theories of international strategy and many theories of international ethics. Separating strategy and ethics in this way, though, perpetuates a perception that profit and ethics are mutually exclusive. Accordingly, I offer a framework that links international strategy and international ethics. I suggest that at an abstract level the strategic concepts of integration and responsiveness and the ethical concepts of justice and caring are concerned with the same theoretical quandaries. Therefore, in any situation there are behaviors that are both integrative and just and/or both responsive and caring, and these behaviors are both strategic and ethical. To demonstrate the potential descriptive and prescriptive value of the framework, I descend the ladders of abstraction associated with these concepts and apply the framework to two business situations.

It has been suggested that a new form of moral responsibility, labeled “social products liability,” is relevant to business ethics. In particular, this kind of responsibility might justify recent legal claims against firearm manufacturers. This paper argues that, as it has been presented, social products liability must rest upon utilitarian considerations or on a deeper, more complete theory of moral responsibility. In the first case, a new form of responsibility seems unnecessary, since liability could be directly apportioned on utilitarian grounds. In the second case, proponents of social products liability face the tasks of presenting the more complete theory and then anchoring social products liability to it.

This 2001 Presidential Address critically examines the mission of SBE and how it can be fulfilled. I begin with Brother Leo Ryan’s 1994 Presidential Address, in which he asked how the SBE mission can be accomplished given the growing number of organizations that focus on business ethics. I take up his challenge by focusing on one objective of our stated mission: To help develop ethical business organizations. I examine two ways we might promote this objective: the Moral Market Model advocated by John Boatright in his 1998 Presidential Address and the Market of Morality model advocated by Thomas Dunfee in his 1996 Presidential Address. I argue both views are limited because they focus only on market institutions. I conclude with an example of how breast cancer awareness among African-American women was increased by relying on a multi-institutional approach: organizations (beauty parlors), individuals (hairdressers, who distributed the information), personal relationships, culture, and educational and health care institutions. The question remains: Who are our hairdressers?