Sunday, November 16, 2014

Bank of America: Lies to Shareholders (2014)

Bank of America logo

Since becoming incorporated in 1998, Bank of America has emerged as one of the biggest financial institutions in the world. Providing numerous different services to both individuals and businesses, Bank of America now operates in over forty countries and four different continents across the globe. On a national scale, Bank of America has more than 5,500 banking centers and 16,300 automatic teller machines in thirty-two different states.
In August 2014, Bank of America was ordered to pay $16.65 billion dollars from when they knowingly marketed and sold toxic loans. It was not only Bank of America that was being unethical however. CountryWide Financial and Merrill Lynch were two other major financial companies that also were key contributors in the downfall of the economic status and the real estate crash in 2008. In fact, both of these companies were purchased by Bank of America in the time surrounding these controversies. Recently, Bank of America has stated that they should not be responsible for the losses generated by these two other companies, especially before they were under the control of Bank of America. In any other circumstance, Bank of America may have had a valid argument, however the CEO at the time, Kenneth Lewis, was well aware of the financial states and the recent dark histories of both companies before he ultimately decided to go through with the acquisitions anyway. To make matters worse, Lewis – who was also the chairman for the board of directors – lied to all of the shareholders and covered up the fact that both of these companies had been involved in highly unethical and illegal business dealings and they were both close to bankruptcy.

Bank of America CEO, Kenneth Lewis,
force to resign after lying to shareholders

Stakeholders are anyone who is directly affected by the corporation such as investors, employees, customers, and suppliers. Recently, companies have started to view stakeholders as anyone within a community or anyone who could potentially be affected by a company’s decisions. For a large global corporation such as Bank of America, it is easy to see how large the group of possible stakeholders actually is. Bank of America operates in over forty different countries. In the United States alone, Bank of America has only 5,500 banking centers and over 16,300 Automatic Teller Machines. The amount of influence that Bank of America has in this country alone shows how many decisions can either be beneficial or extremely detrimental to the communities they serve in. The decisions of Bank of America has in the end effected the entire world, this was more than apparent when they were tagged as one of the biggest causes of the economic recession that effected almost the entire world. Also, the decisions by the bank has led to layoffs of employees, and distrust from supplies, customers, and potential investors.

The individualism theory developed by Milton Friedman, states that businesses should act within the law, but within the limits of the law should do everything in their power to maximize profits. In essence, there is no need to be socially responsible, and monetary practices regarding social responsibility (whether geared towards customers or employees) are in themselves unethical because they steal from and take away from the company maximizing their profits.
In the case of Bank of America, the individualism theory can be interpreted or viewed as the main driving factor behind the decisions. Going back to the original acquisitions of both CountryWide and Merrill Lynch, one could make the argument that the business was acting ethically because they were acting with their own self business interest in mind. They knew and were hoping that these two acquisitions would position the bank to be one of the strongest financial institutions in the world. However, one could also argue that based on the information, Bank of America concealed concerning their two new companies, that it was unethical and a poor business decision. This argument appears to be an extremely valid one given the apparent end result of the acquisitions, specifically looking at them today. Both CountryWide and Merrill Lynch have cost Bank of America billions of dollars due to fines and penalties. CountryWide alone has costs Bank of America over $40 billion since they were purchased in 2009. Perhaps more detrimental to Bank of America are the intangibles such as the public opinion and loss of respect from their shareholders. In many eyes, Bank of America was the main cause and contributing factor in the 2008 economic crisis. This is the case even though Bank of America themselves are only responsible for 4% of the $245 billion securities that have defaulted – with CountryWide playing a much larger role.
Contrywide Financial logo, a contributing
company to the real estate crash in 2008

In the case of Bank of America’s recent fine of $16.65 billion, the bank is requesting to not pay all of it because they should not be responsible for the companies losses and actions. Even with being fined nearly $17 billion, Bank of America will have to pay significantly less. Based on the current issues, Bank of America will pay $10 billion in cash while the other nearly seven billion will come from customers and taxpayers – and this is something that all individualists would agree on. While some may view Bank of America’s plan of action in repaying fines and debts extremely morally wrong, an individualists would view this as a great business plan. By phrasing this as a mortgage relief to consumers, Bank of America is able to mark-up prices and increase interest rates. Also, Bank of America will be able to write off this $7 billion as tax write-offs. This causes the burden to shift back to consumers and tax payers, the ones who were ultimately affected by the banks decisions in the first place. This specifically can be looked at as strictly an individualist concept. Bank of America is making business decision that helps to improve the businesses bottom-line. By slightly increasing rates, most consumers may not even realize the cause or reasons except for simple business practices. Also, the every day consumer does not know that Bank of America is writing most of their fines off as tax write-offs, so the likelihood that they receive any negative feedback or opinions is extremely unlikely.

The utilitarianism ethics model strives to maximize happiness and minimize pain in all living things. Due to the fact that these decisions are rarely black and white, a cost-benefit analysis is commonly used to make decisions. Unlike the views in individualism, utilitarianism does not focus on one individual or the cost or benefit to a single company, but rather to the possible benefits or consequences to every single being that may be effected by the decisions. Also, because happiness is the only measure of success, it is a long-term goal instead of a short-term business decision. Many time research is compiled about possible groups affected, and if the potential effects are on a relatively small group of people, the focus is on the stakeholders rather than the shareholders that are focused on in other ethical theories.
In Bank of America’s case, applying the utilitarian theory can be extremely difficult because it appears that there may be no winner, and no possibility of a winner. When Bank of America originally made the acquisition of Merrill Lynch and CountryWide Financial it appeard that they were following the utilitarian model, or at the very least had the potential to. Bank of America could have acquired the two firms and tried to turn their previous mistakes around. However, Bank of America did the opposite and continue to lie and cover up the dark pasts of each of the companies. While the new hearing and fines handed down to Bank of America have the potential to be extremely detrimental to the company, there are a few different avenues they can take to potentially reduce the possible negative consequences they may cause in the future and attempt to reduce the negative impacts their actions have already caused. The way to do this it would appear, is to deal with the fine that was handed down to them. According to the practices of utilitarian’s, under this theory Bank of America should try to improve the happiness of all the stakeholders, which for such a large company can be an extremely difficult and have a global impact. All of the $16.65 billion should come from within all three of the companies – in order to spread out the negative costs. Those at Merrill Lynch and CountryWide should also contribute a little to Bank of America corporation since they are all together now. Bank of America should handle the situation internally and not put the problems back on the consumers. The result of this could possibly result in more economic problems down the road.

“Always act in a way that respect and honor individuals and their choices. Don’t lie, cheat, manipulate or harm others to get your way. Rather, use informed and rational consent from all parties” (Salazar, 20). 
The previous quote shows the basic principles to live by in the ethical theories of Kantianism. Kantianism is based on the principles of good will, that is decisions are made with sound reasons with nothing but good intentions in mind.
Like previously stated in the analysis of utilitarian’s, Bank of America had the ability to act under Kantian guidelines with the purchase of both CountryWide and Merrill Lynch. Bank of America could have tried to position themselves in a way that made them be the good guys. Even if they were aware of the other two firms pasts, they could have acquired the other two firms with the intention of saving the companies. This would be acting in good will because they would have had the intentions of promoting and helping the well-being of the company, their employees, customers, and anyone else positively or negatively affected in the community. Through acquiring the other two firms, Bank of America was acting selfishly. They did not act with good intentions to anyone but themselves, and it came back to haunt everyone involved for years. By lying and concealing information, Bank of America was aiding and most importantly participating in many of these unethical and illegal actions. They lost tough and because they did not act with good intentions the companies and employees failed and it kick started the economic crisis of 2008, which still effects the United States today. 
Bank of America headquarters in Charlotte, NC
Recently, Bank of America has continued to act in ways that Kantian’s would not agree with. While they have agreed to pay money (without having a choice) and they have noticeably tried to change the way they do business, they are not acting in selfless good-will practices. An individual who follows Kant’s model would try to pay all of the money up front by the use of normal business practices. By the current agreements and practices, Bank of America is putting much of the problems back on the consumer. Bank of America is charging higher rates and that effects their consumers and businesses even more. It is as if the consumers are paying a fine for being lied to and cheated in the past. By using these fines as tax write-offs, Bank of America also is acting extremely selfish. They are putting more tax burdens on the consumers. They are not donating money or putting it into a good cause for the reason that is considered a good cause, rather they are allocating their money and resources solely to save money down the road, no matter the external possible effects.

Virtue Theory
Virtue theory examines an individuals’ character rather than the actions and individual decisions. Positive character traits are known as virtues, the ones we will examine are honesty, justice, care, and compassion. These, and all, virtues are not the basis of separate individual actions, but instead they should govern all the actions of the business and even show a glimpse of a persons individual values and lifestyle. The opposite of virtues are an individuals’ vices. The effect of possessing vices such as greed, dishonesty, and selfishness can lead to the lack of trust, failed business opportunities, and even legal implications including fines or jail time.
Back in 2008, Bank of America and Kenneth Lewis were controlled ball the vices mentioned: greed, dishonesty, and selfishness. After acquiring CountryWide and then Merrill Lynch, Lewis along with the others leading Bank of America lied to the shareholders about the acquisition including the history of the firms, and the future impacts on Bank of America these actions were justified by Lewis because he knew that the acquisitions would not be approved or generally accepted if the shareholders were told the truth and if Lewis acted with honesty, care, or compassion. Just like stated above, the vices that controlled the leaders of Bank of America led to fines and ultimately resulted in Lewis being forced to resign.

Justified Ethics Evaluation
So far under new CEO Brian Moynihan, Bank of America has tried to change their reputation by the way they are conducting business. While there is still a long way to go, Moynihan has consciously tried to change the way he conducts the business by adding more virtues and eliminating the vices that have hovered over the company for the past few decades. Moynihan hopes that his continued improvements will lead to a better bank and a more powerful corporation, the same goals that Lewis had but with an extremely different approach. A giant hurdle that faces Moynihan right now during the process of repaying the fines and the previous wrongdoings of the bank. In order to do this the CEO needs to continue to act with virtues in mind, specifically justice, care, and compassion. It is understandable why Moynihan has the argument that his company should not be responsible for all the wrong doings of the two firms that were bought, especially since Bank of America was not under his control at this point. The fact of the matter is though that no matter who was controlling the company, Bank of America was aware of the allegations and illegal practices and they still went along with the buyouts. While it may not be fair to Moynihan to be put in this situation, he was the one that was appointed to handle the situation and reverse the wrongdoings of the company’s dark past.
The major fault of Moynihan to this point, is his desires and abilities to spread out the costs to consumers and the communities in which his company serves. Through the practices of rate increases and tax write-offs, Moynihan is showing a similarly selfish side that plagued the company six years ago. Moynihan should show some compassion to the communities that were negatively affected. In order to do this he needs to care and show some justice that was lacking in the three companies previously. In this case, showing compassion means to pay for all the fines internally, without trying to receive any additional funding from the government like they have gotten, and without using these fines as a tax write-off. If Moynihan continues serve his vices and penalize the community, he will soon lose the respect and trust he has strived to restore in the company. He also is causing harm to his own company because he is negatively impacting the communities in which he serves. If the company continues on this trend, they will start to push away potential customers because due to the harm of community and the population, they may not have the resources in which Bank of America is requiring and the economic instability within these communities will continue.

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