Running head: GROUP CASE STUDY PROJECT
BUSI 472-B02 Group Case Study Project
Group 2
Liberty University
GROUP CASE STUDY PROJECT
I. Understanding Moral Standards
Understanding Moral Standards
Moral Standards Defined
Before anyone can discuss how Citi Bank handles customers and the business of banking
it is important to define what exactly moral standards are. Hosmer defines moral standards in a
two-part definition. The first explains how as an individual we use intuitive judgement of proper
versus improper actions that we all make, often on a daily basis that might be involved in or
affected by the decisions or actions (Hosmer, L., 2011). The second portion discusses how an
individual will continue their analysis by looking at the moral impact by looking at the benefits
or harms of the decision (Hosmer, L., 2011).
Moral Obligations of Banks
Due to the extremely high trust factor required between customers and the banking
institutions it is important the moral standards banks use be at the highest level. Customers
depend heavily on the banks doing the right things with their money. Customers depend on the
money they entrust to banks for feeding their families, paying bills, and caring for them when it
comes to retiring. Banks are a business just like other business in that they are open to make
money, but he ethical principles that banks follow ought to be of a higher order than those
followed by any other businesses (Das, M., 2012).
Citibank’s Moral Mindset
Citibank has taken several steps to ensure they don’t lose the public trust when it comes
to business and dealing with the community. They implemented mission statements, code of
conduct regulations, and designed a corporate governance policy that makes it very clear their
expectations of their executives and employees.
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Citibank’s mission statement states, “To serve as a trusted partner to our clients by
responsibly providing financial services that enable growth and economic progress
(Citibank.com). It goes further to say they use a three-step process for their colleagues to ask.
They are always in their client’s interest, economic value, and are systematically responsible.
Citibank created a very thorough and complete code of conduct that gives specific
guidelines of how the CEO Mike Corbat expects his employees from the top to the bottom to act.
This sets a high standard by leading from the front and work by the standards he has set.
The corporate governance Citibank has created states as of January 2018, “Citigroup Inc.
(“Citi”) aspires to the highest standards of corporate governance and ethical conduct: doing what
we say; reporting results with accuracy and transparency; and maintaining full compliance with
the laws, rules and regulations that govern Citi’s businesses (Citibank.com).
The guidelines set rules and regulations on how the company will conduct its day to day
governance of the company and when and where it is appropriate to make changes.
II. Recognizing Moral Impacts
Recognizing Moral Impacts
Moral Impact is “the relative outcomes that people think about when they first begin to
consider a morally controversial decision or action” (Hosmer, 2011, p.5, para.4). The decision at
hand is whether the $100 million bonus should be paid to Mr. Hall this year. Since Citigroup has
been subsidized, essentially by U.S. taxpayers, there are numerous people that would be affected
by the outcome of this decision. To make this decision, we will evaluate the benefits, harms,
rights, and wrongs associated with paying the $100 million bonus to Mr. Hall.
Mr. Hall’s benefits to receiving the bonus are straight forward. A bonus, by
definition, is “something in addition to what is expected or strictly due: such as money or an
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equivalent given in addition to an employee's usual compensation” (Bonus, n.d.). Therefore, Mr.
Hall would receive $100 million in addition to his annual salary. This incentive has the potential
to boost employee morale, at least during the final months of the year, benefitting the
organization. According to the article entitled Bank Bonuses and Bailouts: Discussion, “bonus
payments could be crucial to the retention of valuable human capital” (Castiglionesi, 2014,
p.292, para.3). Further benefit to Citigroup is the improved employee morale translating into a
stronger reputation in the job seeker community, producing an upsurge in employment interest
with Citigroup.
Directly, Mr. Hall would not be harmed by receiving the bonus. Citigroup’s
decision to pay out Mr. Hall’s bonus, rather than reinvest the money in Citigroup, puts the
organization at risk for further “bail outs” and even bankruptcy. According the article entitled
The Credit Crisis and the Moral Responsibility of Professionals in Finance states that
organizations are to, “take up the responsibility to moderate the bonuses of bank managers so
that their income (i.e., fixed salary, bonus, stock options and exit rewards) is proportional to the
value added to the banks in the long run” (Graafland, & Van De Ven., 2011, p.617, para.1). The
ignorance of this responsibility would eventually affect Mr. Hall as he could then lose his job.
Other employees within Citigroup, whose tax dollars are used by the government to provide
subsidies and credit pledges, will also be affected as the government “bailouts” come through tax
increases. Of course, all employees would be affected if Citigroup were to file bankruptcy and
lay off workers.
Citigroup has the right to decide whether to pay the $100 million to Mr. Hall as a
bonus or to reinvest that profit into the organization. Paying the bonus to Mr. Hall would be
Citigroup exercising their financial rights. Citi’s leadership standards promise’s that the
organization enables economic value and positive social impact for clients, companies,
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governments, and communities. It also states that the organization, “Puts clients first by
anticipating, understanding, and exceeding their expectations and needs. Acts as a trusted partner
to clients by delivering superior advice, products and services.” (A Citi of Leaders, 2017).
Citigroup’s customers rights are being reduced. As Citigroup states on their
website, “putting the clients' and Citi's interests ahead of individual or team interests” (A Citi of
Leaders, 2017). Citigroup’s decision to Give Mr. Hall the bonus is not upholding their statement
to customers that they are putting clients and Citi’s interests ahead of an individual’s interests.
III. Complete Moral Problem
Define Complete Moral Problem
The company in which Mr. Hall works for was subsidized with a cash payment of $45
billion and had a credit pledge of $335 billion, which were paid for by United States taxpayers.
Mr. Hall has a valid contract and helped earn a profit for his company. He is set to receive a $100
million bonus. The moral problem for Citigroup and Mr. Hall is if the $100 million bonus should
be paid to Mr. Hall.
“A moral problem is, therefore, something (potentially) arising in every decision, but to
the extent that we recognize a generalizable class of actions whose results we find
unsatisfactory” (Morris, 2004). While it is important to remember that Mr. Hall is under a valid
contract and did help the company earn a substantial profit, Mr. Hall earned the bonus. While it
may seem wrong in the eyes of many, he did not do any wrong and had a valid contract. The
moral problem is that Citigroup did not specify how the money would be handled or dispensed,
leading to some employees, such as Mr. Hall, to receive million dollar bonuses. Nor was there
any communication between Citigroup and management. Citigroup should have set up guidelines
and framework for how the cash payment of $45 billion and the credit pledge of $335 billion was
spent and how it would be paid back. The framework and guidelines would have prevented any
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wrongful handling of the tax payer’s money and would have stopped any bonuses that were over
the top for a business heading towards bankruptcy.
IV. Economic Outcomes
Determine the Economic Outcomes
“Economic outcomes in moral analysis refers to the net balance of benefits over costs for
the full society, given that the values of these benefits and costs are determined by all of the
people within that society, acting through open and free markets.” (Hosmer, 2011, p. 8) The topic
at hand is weather a $100 million bonus should be paid to Mr. Hall the year of 2008, during a
year of severe economic downturn. In this case, the issue of a ridiculous sum of money which
should be paid to a single solitary business executive while the rest of the entire country is in the
throes another “Great Depression” seems to be absolutely absurd. Compounding these issues is
the Citigroup company stock market valuation dropped from $240 billion in 2007 to just over $6
billion in 2008. Additionally, the “U.S. Treasury was forced to add an additional $45 billion of
Troubled Asset Relief Program (TARP) to Citigroup reserves, as well as the Federal Deposit
Insurance Corporation (FDIC) had to pledge to cover over 90% of all future losses of Citigroup
$335 billion portfolio” (Hosmer, 2011, p. 8)
Citigroup had been subsidized and essentially meant this was now on the backs of the tax
payers. The fact the economic impacts would have global impacts should speak to the severity of
the situation. This being said, an age-old debate of whether or not United States workers are paid
adequately to sustain a reasonable standard of living. One of the solutions would be to implement
a living wage, “which is an accurate and specific to a local economy but more computationally
complex then a one-size-fits-all minimum wage. When considered economically, a living wage
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has the potential to increase business and production costs as well as lower profits and job loss.
From ethical viewpoints articulated specifically in Catholic social thought, sustainable wages
enhance human dignity by supporting human agency, encouraging creativity, and permitting
contributions to the common good.” (J., 2017, para. 1) This concept holds a twofold effect, one,
the tax payers may have potentially earned more than $50,000 per household income mentioned
in the text, as well as the Business Executive in question, Mr. Hall would also have received
wages more suitable to the booming economy of 2007. Furthermore, Mr. Hall would have also
been effected more “appropriately” by the economic downturn of 2008.
Pareto Optimality
The concept discussed above is a term known as “Pareto Optimality: The underlying
belief is that people, through output product markets, express their preferences for the goods and
services they most want to buy, and through input factor markets, express their preferences for
the capital (money), labor (time), and land (raw materials) they most want to sell.” (Hosmer,
2011, p. 8) In the discussed case the concern would be of capital, or money and in this case the
massive Citigroup corporation worth $240 billion in 2007 and $6 billion in 2008 respectively.
Additionally, the economic ramifications were in fact the millions of families were essentially
losing their homes. This is also in light of a rather substantial $100 million bonus paid to Mr.
Hall would have had a substantial effect on the company and the potential prevention of a vast
number of homes for the general society.
Input and Output markets
The importance within the realm of competition concerning the relationship between
input and output costs cannot overstated. An article written concerning business students and
ethical and economic impacts “stresses the importance of using ethical-economic dilemmas in
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business ethics and their importance in real-world application. (Lasakova & Buclova, 2014, para.
2). Essentially a company buys at a low cost and sells at a high cost, this concept increases
revenue and profit. Consequently, with the economic slump in 2008 the idea of selling anything
at all paled in comparison to even the ability to retain families’ individual homes.
The Analytical Method
By definition, the analytical method can be expressed by “three easily understood
dictums: (1) more is better than less, (2) specifically, more is better than less when that “more”
consists of what people really want.” (Hosmer, 2011, p. 8) (3) in essence, the “more” can be
produced as efficiently as possible. In this case, the “more” in question would be more capital, or
money, for which, Mr. Hall still would love to receive is ridiculous $100 million bonus. The
entire model, the only thing Mr. Hall has going for him is the simple fact that this was a “clause”
within his employment contract. This being said, nothing else with this module would ethically
allow Mr. Hall to receive and retain the said bonus in question. The “more” for society, would
essentially be to first, keep their jobs and wages, and secondly to retain their homes for their
families to continue living in.
Responsibility
As Christians’ it is easy to have an internal guiding compass and moral and ethical “true
North” so to speak. We receive all the guidance we may ever need from a single book, the Holy
Bible. However, as human beings, we are still susceptible to the influences of sins and the world.
In an article concerning Christian responsibility within society is an “attempt to set down useful
biblical principles that could assist in the regard of love thy neighbor (including the enemy!), a
biblical sense of justice and of care, as well as a strong reliance on God-given human dignity of
each person, all of which provide a strong basis to address the difficult question of economic
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justice in a democratic society.” (P., 2012, p. 2) Furthermore, “the reformed humanistic
traditions, the meta-ethical questions asked about the uniqueness of the Christian morality and
the way in which to draw others to develop a creditable version of responsibility to ethics.” (P.,
2012, p. 6) In this light, it is pretty simple to understand, at least from a Christian standpoint, that
this decision was wrong. Lastly, the simple fact we are reading about this case in the text book
itself should put up a flag for ethical misalignment.
According to the textbook, “The concept of the greatest possible economic benefit at the
least possible economic cost, which is the “more is better than less” argument or the Pareto
Optimality Theory, is considered to be a valid means of morally evaluating the benefits and
harms of a moral problem as long as three considerations are met: (1) all market must be
competitive, (2) all customers and all suppliers must be informed, and (3) all costs be included.”
(Hosmer, 2011, p. 8) Technically, by definition of the text book, we cannot even use this analysis
theory, because all three criteria are not met. However, this being said, we will explain why all
three criteria are not met.
Firstly, all market must be competitive, without competitive markets, the preferences of
the members of society cannot be assessed. This being said, members did not have options.
Because of the economic crisis and the intercession on behalf of the FDIC, there were strict
guidelines on consolidation and debt relief for home owners, there were no other options.
Secondly, all customers and all suppliers must be informed. As the stock market slumped, many
did not know the reasons or the outcomes, I certainly did not. Furthermore, having been
subsidized to the public U.S. tax payers, this effects every single person within the entire country
essentially. Additionally, the bonuses were never previously mentioned according to the text and
the “those profits, while never disclosed to Citigroup, were said by people who were familiar
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with the situation to normally be very large; they also said that 2008 was not an exception to that
rule.” (Hosmer, 2011, p. 16) Lastly, all costs must be included. The single fact alone that
“nothing was said about executive bonuses” (Hosmer, 2011, p. 16), this meant the bonuses were
not included within the discussion to address these financial downfalls. This situation clearly
does not demonstrate that all costs were included. Lastly, a final note of importance is the
mention of the “Vikram Pandit, the chief executive officer, accepted a salary of just $1.00 per
year until the crisis eased.” (Hosmer, 2011, p. 16) shows this entire scenario was pretty unethical,
which paints a pretty accurate picture of at least some degree of guilt in my opinion.
V. Legal Requirements
Legal Requirements
Each business must follow legal requirements in order to make sure they are doing fair
and properly. According to Law Insider, Legal requirements can be defined as, “any present or
future requirement imposed upon the Company or any of its Subsidiaries by any law, statute,
rule, regulation, directive, order, decree or guideline (or any interpretation thereof by courts or of
administrative bodies) of the United States of America, or any state, or other political subdivision
thereof, or by any board, governmental or administrative agency, central bank or monetary
authority of the United States of America or any other jurisdiction in which the Company owns
property or conducts its business, or any political subdivision of any of the foregoing” (Law
Insider, n.d). This is used to make sure that any business owner or company is aware of the rules
and regulations it takes to run a business.
Citigroup has many legal requirements it must follow in order to be a successful
company. Their current mission statement is, “to serve as a trusted partner to our clients by
responsibly providing financial services that enable growth and economic progress” (About Us
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2016). This company has a legal requirement to enable trust and confidence of its stakeholders,
CEOs, and other top managers in a transparent manner. This is to ensure that business is done in
a fair and genuine manner.
There are many consequences that can result if a company is found breaking their legal
requirements. The main consequence that can result is the distrust from the company which
results in the loss of their customers. There are also many criminal and civil penalties that can
result when these legal requirements are broken. These can range from employee lawsuits, bad
publicity, criminal penalties and even civil penalties. Companies, such as Citigroup, must stay
diligent and attuned to their employees, workplace safety, and prohibited behaviors. When it
comes to following our legal requirements, companies must keep in mind what the Bible says
about following the rules. Romans 13:1 states, “Let every person be subject to the governing
authorities. For there is no authority except from God, and those that exist have been instituted
by God.” Mr. Hall had a valid contract in place but if Citigroup decides to give Mr. Hall the
bonus, then they are not following their mission statement and therefore are violating their legal
requirements.
VI. Evaluating Ethical Duties
Evaluating Ethical Duties
In any business, the burden of a financial crisis can happen, and, in some cases, banks can
operate through a program that the government produced called “Troubled Asset Relief
Program,” (TARP) researched by Stolz & Wedow (2013). There are banks not excluding Citi
Bank, who did not turn down the bail-out monies, Citi Bank with the assumption that added
functions to the government and the tax payers wherewith their tax money is what funded the
program (TARP). Those very tasks incorporate responsibilities to the American people and the
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entire community, for the basis to use the assurance money to assist Citi Bank in avoiding
bankruptcy and to aid their consumers in keeping their homes. This program also helped in the
encompassing the idea of ethical business resolution, by offering and permitting new loans,
improving credit lines, helping with mortgages, and opening checking accounts according to
Freeman, (2014).
There were some controversial misunderstandings when it came to down to handling the
money and properly be dispensed. Citi Bank could not and should have been a clearer on how
the money going to go forth, but instead, there was the “secretive unit” a bonus that Andrew
stipulated was owed (Hosmer, p.31, 2011). Hall was to be recompensed at $100 million-dollar
bonus which would challenge the responsibility that Citi Bank to reimburse the government back
the funds. The management clarity was not put into play by Citi Bank, who did make their point
efficient or clear about the money, the plan on using it, and the fairness of the other corporations
involved the market. To give someone in management position, that large amount of money is a
sure setup for it to be misused being that the money was given by the American people their tax
dollars. This shows negativity and will have a tremendous bad impression on getting future
customers, generating a bad vibe of trustworthiness for Citi Bank on how managing their bank
accounts to the point of persuading a negative deal with other organizations.
Even though there was a gap put into management salaries, Citi Bank failed on
communicating the disbursement of bonuses (Vij, 2005). When it comes to business, ethical
standards is an essence in any workplace for it to be successful. There was an investigation study
uncovered how the “operations’ key shareholders are aware of how the influence of operations’
behavior of ethics in addition to how it grows, in development, and the existence,” (“Belak &
Pevec, 2012”). When companies fail to keep their word, and uphold the basic ethical standard
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behavior like Citi Bank, there will be numerous effects directed towards the morals of
employees, consumers, institution successful enactment, and the entire public.
VII. Finding Moral Solutions
Finding Moral Solutions
The law as a Collective Moral Standard
When a government makes a law, or creates regulation for companies or even society it is
taken as a universal standard that that is the correct and moral thing to do. When a rule of law
becomes a moral issue is when a person does not agree with the law made and whether someone
is willing to follow those rules even when they disagree (Hosmer, L., 2011). If they do, then a
standard of morals is set and there is a guide to follow for managerial decisions. However, if they
don’t then it must be found somewhere else.
In order to have a relationship between legal requirements and moral standards three
things must be considered. Considerable overlap, negative injunctions, and lengthy delays. In an
overlap, it is important that the written law and moral standards as a society much have some
type of sibilance or it will create a serious dilemma for a person. Law has a tendency to be
looked at as a negative when moral issues lean more towards positive. Finally, laws tend to be
behind when it compares to the moral standards of society (Hosmer, L. 2011).
Trust, Commitment, and Effort
Citibank has gone to great stakes to create all three moral actions of trust, commitment,
and effort. Mission statements harp very heavy on trust of the customer and commitment to the
customer. Citibank’s code of conduct demonstrates clearly that the CEO dedicates the company
to trust, commitment, and effort to the customer.
Problems with Business Ethics
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According to Andrew Stark, author of What’s the Matter with Business Ethics, managers
base decisions on factors other than simply what is right or wrong. The two main mindsets
managers believe are, first behaving ethically can cost a company dearly, and doing good is not
always in the company’s best interest (Stark, A., 2014). Managers see ethics and interests as
fighting issues at times and it makes decisions hard to make at times.
Citibank’s Solutions
Citibank has addressed issues such as legal and moral overlap, to handle customers
concerns of trust, and the expectations morally of what managers and employees should do.
Citibank’s code of conduct had set up guidelines of moral standards for executives to follow.
Protections have been created such as anonymous ethics hotline and whistleblower protections in
order to show transparency and openness (Citibank.com).
Citibank has gone forward and created several resources that will help executives and
other company professionals several guidelines and policies to help them with both what is
expected of them and how the company wants them to react. Resources like the code of ethics
for financial professionals and the corporate governance sets those standards and expectations.
Assigned work
Understanding Moral Standards-John
Recognizing Moral Impacts-Diana
Define Complete Moral Problem-Rebekah
Economic Outcomes-Richard (Team Leader)
Legal Requirements-Erin
Evaluate Ethical Duties-Thomas
Finding Moral Solution-John
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BUSI 472 DETERMINE ECONOMIC OUTCOMES
References
About Citi. (n.d.). Retrieved May 31, 2018, from https://www.citigroup.com/citi/about/
About Us (2016). Retrieved May 30, 2018, from https://www.citigroup.com
A Citi of Leaders. (2017). Retrieved from https://www.citigroup.com/citi/investor/code-of-
conduct/#Speaking-Up-and-Seeking-Help-Escalating-Ethical
Belak, J., & Pevec Rozman, M. (2012). Business ethics from Aristotle, kant and mill's
perspective. Kybernetes, 41(10), 1607-1624. doi:10.1108/03684921211276783
Bell, B., & Van Reenen, J. (2013). Bankers and Their Bonuses. The Economic Journal,
124(574), 1-21. doi:https://doi-org.ezproxy.liberty.edu/10.1111/ecoj.12101
Bonus. (n.d.). Retrieved June 1, 2018, from https://www.merriam-webster.com/dictionary/bonus
Castiglionesi, F. (2014). Bank bonuses and bailouts: Discussion. Journal of Money, Credit, and
Banking, 46, 289-293.
Das, M. R. (2012, November 18). Ethical principles that banks need to follow. Retrieved May
31, 2018, from https://www.thehindubusinessline.com/money-and-banking/Ethical-
principles-that-banks-need-to-follow/article20529555.ece
Freeman, R. E. (2014). Management Ethics: Placing Ethics at the Core of Good
Management. Business Ethics Quarterly, 24(1), 142-143. doi:10.5840/beq20142413
Graafland, J. J., & van de Ven, B.,W. (2011). The credit crisis and the moral responsibility of
professionals in finance. Journal of Business Ethics, 103(4), 605-619.
doi:http://dx.doi.org.ezproxy.liberty.edu/10.1007/s10551-011-0883-0
Hosmer, L. T. (2011). The Ethics of Management: A Multidisciplinary Approach (7th ed.). New
York, NY: McGraw-Hill.
J., K. A. (2017). The economic and ethical implications of living wages. Religions, 8, 74.
http://dx.doi.org/doi:http://dx.doi.org.ezproxy.liberty.edu/10.3390/rel8040074
Lasakova, A., & Buclova, Z. (2014). Ethical-Economic Dilemmas in Business Education.
Business, Management and Education, 12(2).
http://dx.doi.org/doi:10.3846/bme.2014.238 ETHICAL-ECONOMIC DILEMMAS IN
BUSINESS..
Law Insider (n.d.). Retrieved May 29, 2018, from https://www.lawinsider.com/dictionary/legal-
requirement
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Lee, C. Comput Econ (2018). https://doi-org.ezproxy.liberty.edu/10.1007/s10614-018-9801-1
Morris, D. (2004). Defining a Moral Problem in Business Ethics. Journal of Business Ethics,
49(4), 347-357. Retrieved from http://www.jstor.org/stable/25123181
P., N. J. (2012). Virtue and responsibility: Economic-ethical perspectives in the work of etienne
de villiers. Verbum Et Ecclesia, 33(2), 1-6. Retrieved from
http://ezproxy.liberty.edu/login?url=https://search-proquest-
com.ezproxy.liberty.edu/docview/1313181499?accountid=12085
Stark, A. (2014, August 01). What's the Matter with Business Ethics? Retrieved from
https://hbr.org/1993/05/whats-the-matter-with-business-ethics
Stolz, S., & Wedow, M. (2013). Keeping banks afloat: public lifelines during the financial
crisis. International Economics & Economic Policy, 10(1), 81-126. doi:10.1007/s10368-
013-0231-1
Teunisse, H. (2016, February 26). Quora- What are Moral Standards. Retrieved May 31, 2018,
from https://www.quora.com/What are Moral Standards
Vij, M. (2005). Managing Gap: A case study approach to asset-liability management of
banks. Vision (09722629), 9(1), 49-58.
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