Company ethical issue

It is argued by pundits that corporate or business matters merge completely with ethical aspects of life so that there is no way in which the former can take place outside the existence of the latter. For instance, it is through the merging of business or corporate operations and that of ethics that important matters such as taxation, intellectual property rights, the upholding of corporate social responsibility and the aversion of corporate dishonesty can be realized. On the other hand, there are postulations that business or company operations need not necessarily be tampered with ethical matters.

The movers and shakers of forums supporting this notion have always been sympathizers of the free market capitalism. This paper therefore seeks to bring about discernment on the matter.


There are many businesses and companies that are very susceptible to the dangers of Insider Trading.  Most of these corporate entities include banks, insurance companies and other corporate institution that deal in the buying and selling of shares. Insider Trading portends a version of illegal transactions that involves trading in security, pegged on information that remains classified to the public as a whole.

The danger of this form of undertaking is that it compromises market securities by securing the destruction of investor confidence. Because of this, the act is considered a crime. Examples of companies that have succumbed to this form of dishonesty are the American Exchange and Securities Commission (SEC) and WorldCom and Enron.

Purpose of report

The purpose of this report is to elucidate on the dangers of Insider Trading as a variant of failure to observe business ethics. At the same time, the paper takes to spell out the importance of observing business ethics by sporadically and sparsely spelling out the gains that can be accrued from the practicing of responsible businesses in the trading of security. All the efforts harnessed in this report are geared towards ensuring the inculcation of company ethics in business operations.

Problems to address

The problems being addressed in this report are largely, ethical issues in the operation of a company. More specifically, the paper takes to narrow down its scope on Insider Trading as a form of unethical issues that companies may engage in, and what the corporate vice portends to the victims at the receiving end.

Research information concerning what is insider trading

According to Tittle (2004)[1], in most cases, Insider Trading takes place when one who works in a certain company has access to classified or important information about a corporate entity or a company, with this information having the potency to affect the prices of the company’s stock, or the decisions made by investors. This type of information is always referred to as material information.

Having this type of information is not in itself unlawful, but the manner in which this information is dispensed is what is subject to question. This is because, in most cases, the president, his vice, the board of directors, the accountants and the administrative assistants will always know the volume of sales made by the company, and if the sales are able to fulfill the estimates that the investors provided.

It is to the above effect that leading financial institutions such as WorldCom and Enron found themselves in the wrong side of the law after it became apparent that one of the insiders had already leaked information to potential and putative investors. Consequently, investors who had been forewarned desisted from buying the shares, leaving those outside the possession of this knowledge to succumb to losses as the values of the shares took a plunge (Alexander & Leigh 2006)[2].

History of the issue

The history of the legality of the matter proper starts from 1934 when the 1934 US Security Exchange Act was introduced into the American constitution. In an unprecedented manner, the judicial force on the matter also grew by leaps and bounds as sections 14(e) and 10(b) of this law were entrenched into the US law to clearly and for posterity; spell out on what was allowed and what was not. Up to the present, the force of this law is continuing to grow, given the fact that Insider Trading has in the last decade been blamed on 55% of losses in the corporate and business sectors (Ferrara 2005)[3].

It is on this backdrop that the US senate is presently working hard to ensure that offenders of this criminal offence are punishable by a minimum of ten years imprisonment

Court cases and case studies

Because there are legal injunctions and compunctions that seek to regulate corporate and business issues, and thus proscribing insider buying as a form of illegal transaction, there are laws that stipulate conditions on the same. It is from these conditions being breached that legal issues ensue.

According to Donaldson & Patricia (2005)[4], a classical example of this kind of development that led to a court case is the one involving the SEC. Since sections 14(e) and 10(b) of the 1934 US Security Exchange Act clearly draws the parameters on the manner in which security exchange takes place, the SEC in 1934-35 went to court to elicit a court order that will enable SEC to ask the violators of the Security Exchange Act to relinquish to SEC, their trading profits. It is also true that at this juncture, SEC could also be granted by the courts, the power to demand a penalty that was exceeding the violator’s profits accrued from Insider Trading thrice.

            In addition to the above situation, SEC had the power to push to court, charges against the violators, so that the perpetrators could face criminal penalties. Given the fact that there is an increase in the way the business sector is continuing to see the detrimental aspect of Insider Trading, the American senate is now working on a bill to ensure that shareholders who partake in a corporate felony are punishable by imprisonment up to 10 years (Johnson and Colin 2003)[5].

Information on the ethical issues for the corporation

It is therefore easy to see that the practice of Insider Trading is a matter that is totally evil, given that it is responsible for the creation of winners and losers through corporate nepotism and unfair competition. This means that the practice is totally against the concept of economic egalitarianism, as it does not create equal chances for all.

Recommendations for the corporation

This section basically comprises of the propositions that have been made, especially in businesses or companies that deal in buying and selling of security such as shares. This recommendation section consists of the proposals put across, the policies, the benefits and responsibilities that should be taken up by these companies, businesses or corporate entities.


Based on the above situation, it is needful that any individual in possession of any form of material information be proscribed from taking part in this type of trading. This rule is to be held in effect until this information is made at the disposal of the public at large. To ensure maximum safety, it is needful that the company in point subscribes to the American Supreme Court rulings that the injunction is to extend to even those who may not necessarily have ties with the company. This is because, being in possession of material information automatically makes one an insider, the manner through which the information was accrued, whether through legitimate means or theft, notwithstanding. Policies

            Du & Shang-Jin (2003)[6] postulate that it is needful that companies that deal in buying and selling of shares must create and ratify policies that will extirpate cases of Insider Trading. For instance, it is expedient that these companies police themselves and their own insiders. This is because, the feat will be in the company’s best interest, as far as the company’s corporate image is concerned. On the contrary, waiting for the matter to get to the courts for legal redress is a situation that always has proved to be too costly (Reams 2003)[7]. This is because; no matter how innocent the officers and the executives of the company are after being cleared by SEC, the fact that the company was subjected to external investigations is a situation whose detriment on the corporate image is far reaching.


According to Bainbridge (2000)[8], it is important to note that the benefits that come as a result of observing measures that are instrumental in assuaging cases of Insider Trading are far fetched and too benevolent to be disregarded. In the first place, extirpating Insider Trading naturally cultivates a positive corporate image, an asset that is known to be always in total juxtaposition with the profitability of the company’s dealings (Sharp 2003)[9]. At the same time, eradication of Insider Trading is a feat that is likely to ward off cases of economic inegalitarianism. This situation is likely to win the confidence of investors in shares, as this lot gets the feel of equality, stability and transparency.


It is therefore the duty and responsibility of the company to ensure that every rank and file of the company who is an insider is taught on the importance of not sharing material information with an individual who by no means are insiders (Carmichael 2005)[10]. This should be done so that the insiders the responsibilities that comes along with being an insider. At the same time, it is incumbent upon the company to make everyone of its employees to ensure that every individual in the company understands the conditions that may make them insiders in a temporary sense, and how the same can handle suchlike situations.


It is therefore not hard to see that the cause of business or company ethical matters is too sacrosanct to be ignored or to be trifled with, since the matter is so serious, needing the redress of a court of law.  The matter is made more serious by the fact that contravention of ethical matters by companies or an individual has at times led to imprisonment whose terms exceeded a decade. It is therefore important that in order for economic justice and egalitarianism to be realized, company and business ethical issues must be regarded in high esteem.

Works Cited


Alexander, Barry & Leigh Ffrench. 2006. The Regulation of Insider Trading. San Francisco: Oceana.

Bainbridge, Stephen. 2000. Securities Law and Insider Trading. New York: Foundation Press.

Carmichael, Sheena. 2005. Business Ethics and the Bottom. New York: Demos.

Donaldson Thomas & Patricia Werhane. 2005. A Philosophical Approach to Business Ethics.        Thousand Oaks: Sage.

Du, Julan & Shang-Jin We. 2003. Insider Trading and Market Volatility. Washington,        DC: NBER.

Johnson, Debra. Colin Turner. 2003. International Business: Issues and Themes. New       York: Routledge.

Ferrara, Ralph. 2005. Insider Trading and the Law. Chicago: Law Journal Press.

Reams, Bernard. 2003. Insider Trading and the Law. New York: Hein & Co.

Sharp, David. 2003. Cases in Business Ethics. Thousand Oaks: Sage

Tittle, Peg. 2004. Ethical Issues in Business. Baltimore: Brodview.

[1] Tittle, Peg. Ethical Issues in Business. (Baltimore: Brodview, 2004)[2] Alexander, Barry & Leigh Ffrench. The Regulation of Insider Trading. (San Francisco: Oceana, 2006).

[3] Ferrara, Ralph. Insider Trading and the Law. (Chicago: Law Journal Press, 2005).

[4] Donaldson Thomas & Patricia Werhane. A Philosophical Approach to Business Ethics. (Thousand Oaks: Sage, 2005.

[5] Johnson, Debra. Colin Turner. International Business: Issues and Themes. (New York: Routledge, 2003).

[6] Du, Julan & Shang-Jin We. Insider Trading and Market Volatility. (Washington,         DC: NBER, 2003).

[7] Reams, Bernard. Insider Trading and the Law. (New York: Hein & Co, 2003).[8] Bainbridge, Stephen. Securities Law and Insider Trading. (New York: Foundation Press, 2000)

[9] Sharp, David. Cases in Business Ethics. (Thousand Oaks: Sage, 2003)

 [10] Carmichael, Sheena. Business Ethics and the Bottom. (New York: Demos, 2005).