BUSINESS ETHICS AND OPERATIONAL RISK MANAGEMENT IN MALAYSIAN LOCAL CONVENTIONAL BANKS.

Purpose: This is a conceptual paper that discusses on the importance of business ethics and operational risk management in banks. Design/methodology/approach: The paper review the literatures of business ethics and operational risk management in banks. The paper analyze the factors that lead to operational risk particularly internal frauds, operational risk management, issues related to business ethics, Machiavellianism, the relationship between business ethics and operational risk management in banks, Machiavellianism as the moderator and agency theory and Machiavellianism Intelligence theory as the underpinning theories. Findings: A conceptual framework has been developed based on the literature review and the underpinning theories. Research limitations/implications: The paper only concentrated in the banking industry in managing operational risk that is related to internal fraud. There are other variables that are not taken into consideration such as the quality of banks human resources and the internal control system. Future research can be done on the antecedent and outcome of operational risk management with business ethics as the antecedent of operational risk management and internal fraud as the outcome of operational risk management. Besides, future research on business ethics and operational risk management can be done in other industry such as education, manufacturing or logistic industries. Practical implications: Banks could develop a robust operational risk management base on the dimensions of good business ethics. Machiavellianism variable as the moderator in the conceptual model will assists banks in identifying employees with high or low Machiavellianism personality traits. Originality/value: The proposed conceptual model helps banks to ensure the future risk of internal fraud occurrence can be eliminated. For future recruitment, banks might consider having personality test in identifying those applicants that might demonstrate high or low Machiavellianism when hired as bank employees. [ABSTRACT FROM AUTHOR]