Gonchar Investment Bank Case Solution

As the vice president (VP) equity sales at Gonchar Investment Bank, Allan Grant has developed profitable agent/principle relationships with its clients since 2001. Grant invests on behalf of its clients, solely as an agent, by matching stock profiles for them and making recommendations that were in the best interest of its clients. However, Gonchar is considering to start trading in the Ukrainian stocks to make profit from the useful reports produced by Grant’s analysts for his clients. The current issue faced by Grant is the conflict of interest that will arise as a result of this policy.

2. Ethical issues

• Individual-level

Being an agent, it is Grant’s legal as well as ethical responsibility to act in the best interest of his clients. Grant receives buy and sell requests from investors globally and finds suitable seller and buyer for them respectively. Furthermore, since Grant’s clients did not understand the Ukrainian market well, they relied on him to provide the best advice. Due to lack of liquidity in the market, one of Grant’s clients often has to buy from another. Since Gonchar and Grant receive commission from both of them, there is a serious potential of Gonchar making money at the expense of its clients by providing dishonest advice (Davis & Stark, 2001).

Furthermore, if Gonchar started trading itself, Grant would have to balance the conflict of interest between his firms’ interests and his clients’ interests which is a serious ethical dilemma for Grant (Davis & Stark, 2001). Grant does not want to be presented as or act as a dishonest broker/agent and is worried that Gonchar’s trading will have a negative impact on his relationship with his clients that he has established with much hardship (Davis & Stark, 2001).

• Organizational level

The main organization-level ethical issue faced by Gonchar pertains to its upcoming trading policy. If Gonchar starts trading itself, it might enter into buying or selling transactions with its clients. However, Gonchar would only buy stock if its price is rising. In this scenario, it is not in the interest of its clients to sell the stock. The conflict of interest dictates that Gonchar might end up buying the stock while misrepresenting information to its client for personal gain and vice versa. Consequently, making money at the expense of its clients.

• Societal level

According to the case, the societal level ethical issues that need to be considered include the lack of transparency and weak law and enforcement environment prevalent in the country.