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What Sporting Scandals Can Teach Us About Ethics and Professionalism

January 2016

Ethics?

• Ethics : an area of study that deals with ideas about what is good and bad behavior ; a branch of philosophy dealing with what is morally right or wrong

• Professionalism and Ethics within our profession: defined by professional standards; for example, ARA Code of Conduct or Code of Conduct for Actuaries.

• But there are areas that are unclear…….

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Difference between laws and ethics

• 1. Ethics are rules of conduct. Laws are rules developed by governments in order to provide balance in society and protection to its citizens.2. Ethics comes from people’s awareness of what is right and wrong. Laws are enforced by governments to its people.3. Ethics are moral codes which every person must conform to. Laws are codifications of ethics meant to regulate society.4. Ethics does not carry any punishment to anyone who violates it. The law will punish anyone who happens to violate it.5. Ethics come from within a person’s moral values. Laws are made with ethics as a guiding principle.Read more: Difference Between Law and Ethics | Difference Between | Law vs Ethicshttp://www.differencebetween.net/miscellaneous/politics/difference-between-law-and-ethics/#ixzz3vqJ0QT90

SCANDAL #1

Who is this?

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George O’Leary Resignation

Resume padding

Falsified football accomplishments

Did not earn a Master’s degree as stated on resume

"George O'Leary-1-cropped" by Chris Gent from Orlando, Fla., USA

Reviewing resumes

John has applied to be an account manager at your TPA firm. On his resume, he indicates that he has MEP experience. You talk to one of your current employees who used to work with John; she says that he knows very little about MEPs. He reviewed some ADP tests for a MEP, but did not have any assigned to him. Does this cause concern regarding his truthfulness?

Credentials

Mary has applied to work for you. On her resume, she indicates that she is a QKA. Which of the following would cause you to doubt her truthfulness?• She is not a QKA, but passed all of the exams and has

the necessary experience. She never applied because her employer would not pay her dues.

• She is not a QKA, but passed all of the exams. She has not applied because she does not have the necessary experience.

• She was a QKA, but let her credential lapse because she did not pay her dues.

• She is a QKA, but her membership has been suspended for two years due to a disciplinary matter.

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Advertising

• What is the difference between positive spinning in marketing and being untruthful?

• Where is the line?

Advertising

A TPA firm advertises that it has an actuary and attorney on staff, but in actuality they outsource both of these functions. Is this puffing or dishonest?

SCANDAL #2

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Pete Rose

• Admits to betting on baseball

• Admits to betting on Reds to win while manager

• Agrees to permanent ineligibility from baseball

• Barred from Hall of Fame

So what’s the problem?

Alex Karras and Paul Hornung admitted to betting on football and both suspended a year. Both currently in the Football Hall of Fame.

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• When we act unethically, we harm the integrity of our entire professions.

• E.g. - actuary in the 90’s: “Ok, what contribution/FAS liability do you want?”

• Now we have PPA and ASC 715 and ASOP 27 and 35, etc...

SCANDAL #3

THE DISGRACE OF GIJON OR NICHTANGRIFFSPAKT (NON-AGGRESSION PACT) VON GIJÓN –WORLD CUP 1982

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ROUND 1 OF THE WC: WEST GERMANY, AUSTRIA, CHILE, ALGERIA

• Algeria stuns W. Germany in 1st game in one of the greatest upsets in WC history.

• In the last game of the round, W. Germany plays Austria. If W. Germany wins by one or two goals, both W. Germany and Austria go through to round 2. Any other result and one of the two would be eliminated.

• W. Germany scores after 10 minutes.

• Game descends into farce, neither team making any attempt to score, players flamboyantly missing, no tackles, etc.

• As a result of this , rules are changed for the last two games in the round to be played at the same time.

COMPARISON 1

• You are one of two outside actuaries providing 3rd party services to a firm, or to two competing firms.

• Over a drink at a conference with that actuary and a second colleague, you “casually” mention to the other colleague at the table that you are intending to raise your fees by 20% .

• The other actuary does the same thing.• Problem?

COMPARISON 2

• You are asked to prepare an RFP on behalf of a client and are engaged to review the RFP responses.

• You are friends with the current provider who has been asked to respond.

• You mention to your friend that they will need to drop their fee by 20% to be considered.

• Problem?

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SCANDAL #4

DeflateGate

• Balls deflated.

• Did he know? Should he have known?

"Tom Brady 2011" by Jeffrey Beall - Own work. Licensed under CC BY-SA 3.0 via Commons -https://commons.wikimedia.org/wiki/File:Tom_Brady_2011.JPG#/media/File:Tom_Brady_2011.JPG

DeflateGate

• If our staff is “deflating balls” do we have adequate processes and procedures to know?

– Overriding required steps

– Personalities that are too accommodating to clients

– Not enough training

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DeflateGate

• Are we willfully or negligently failing to see problems?

– High turnover

– Not paying attention at all/ no review or audit of work

– Client complaints

DeflateGate

• If accused of wrongdoing, in determining our guilt, will our reputation matter?

– Patriots are a very successful team – sour grapes?

– If we have a reputation for being aggressive will that impact how accusations are arbitrated?

SCANDAL #5

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FIFA• 14 indicted, 7

arrested in May 2015

• Wire fraud, racketeering and money laundering

• Bribery used in selection process for 2010 FIFA World Cup host.

• FIFA decided on Russia for 2018 and Qatar for 2022 before bid process.

"Baur au Lac ZH" by Adrian Michael - Own work. Licensed under CC BY-SA 3.0 via Commons

FIFA

""FIFA 20150604" by Albinfo - Own work. Licensed under CC0 via Commons

How do we make the right decisions when there is a lot of money on the line?

Offsetting revenue sharing

A wholesaler asks you to quote your gross fee schedule and to offset by the revenue sharing provided by the recordkeeper. If in any year, the revenue sharing exceeds your fees, you can keep the excess. If in any year, the revenue sharing is less, you bill the client. In year one, the revenue sharing is projected to be $20,000 in excess of your fees. Thereafter there will be about $1000 bill to the client. Issues?

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Just go through me

• An advisor comes to you and asks you to bid on a large, profitable case. If you bid, you are very likely to win the case. His only requirement is that he be listed as the primary contact and that no one from your firm ever contact the client directly. This is not your usual business model and you are concerned about things getting lost in the translation. Do you bid?

Two plans

• You are asked to bid on two plans. One is very large and one is very small. The advisor asks you to price them on a basis points model and for both plans to be priced at the same number of basis points. This is not your usual model.

• Issues?

Assumptions

• You are the wholesaler for a recordkeeper. Your pricing depends on the percentage of assets that go to a particular fund. If less than assumed go to that fund, the pricing in the second year will be higher. How do you choose that assumption?

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SCANDAL #6

Track and Field

• No U.S. city has ever hosted the World Outdoor Track and Field Championship.

• My home town Eugene, OR, aka “Track Town USA” bid for the 2019 championship- lost to Doha, Qatar in a 15/12 vote.

• In April of 2015, the IAAF announces that the 2021 Championship will go to Eugene after a no-bid process (not without precedent – the 2007 worlds went to Osaka, Japan in a no-bid process also).

• But now it gets interesting….

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How does this look?

• Event will be held at U of O’s historic Hayward Field. U of O is heavily supported by Nike.

• U of O’s former track coach Vin Lananna now has a university position of associate athletic director of Olympic development.

• Lananna incorporates the nonprofit TrackTown USA and becomes its paid, full-time president. One of the group’s major tasks is to bring the 2019 IAAF World Championships to Eugene.

• 2014: Nike signs exclusive, $20 million yearly sponsorship with USA Track & Field through 2040, ensuring U.S. athletes will wear the Nike swoosh at meets for decades.

• 2014: In February, Lananna meets with Nike CEO Mark Parker at company offices in Portland.

• 2014: In an August email, Lananna tells his boss, UO Athletic Director Rob Mullens: “Nike has made a strong commitment for Hayward.”

• 2015: Lananna quietly contacts the IAAF and in April lands the 2021 World Championships for Hayward Field in a quick 23-1 vote.

• IAAF is led by Sebastian Coe. He has been a Nike employee for 30 years. While IAAF president he is under contract as special advisor to Nike earning $150,000 a year.

• IAAF is embroiled in a scandal of cover ups to hide systematic doping of Russian athletes.

• IAAF comes under scrutiny.• IAAF denies any influence of Nike in the decision to aware

the worlds to Eugene. Sebastian Coe gives up his Nike position.

Let’s make a deal!

• You are asked to bid on a plan. It’d be your biggest client.

• Client tells you in a phone conversation that their daughter needs a job.

• You hire the daughter.

• You get hired by the client.

• Issues?

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SCANDAL # 7

Chicago Black Sox

• 1919 World Series

• Chicago White Sox lost to Cincinnati Reds

• 8 White Sox players accused of losing games in exchange for money from gamblers

• Players banned for life from baseball

"1919 blacksox" by Unknown - http://www.outtheplay.com/production-rights.html. Licensed under Public Domain via Commons

Snitching

• Do we have an obligation to report other professionals when we “know” that they have done something wrong or are doing something wrong?

– Illegal

– Against Code of Conduct/ASOPs

– Different by profession

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Left on the copier

You accidently see a co-worker’s expense report on the copier. In a quick glance you can see that you co-worker is inflating their expenses and falsifying receipts. What do you do?

Questions?