THE moral investment banker: A true story


I continually try to put original thought into what I produce in this blog but when I stumbled upon this lecture (Doing good by doing well: Re-defining moral capitalism) from a senior Banker I thought I must have lost my mind completely! A banker…spouting this “stuff” that I recognised and could even has written myself (or at least cobbled it together from previous blogs on the subject matter).Ken Costa

Ethics, morals and faith…what’s not to love about this guy!?

Professor Kenneth Costa is, amongst other things, the Chairman of Lazard International, the UK Investment Bank and Prof. of Commerce at Gresham College.

Another interesting article by Prof Costa appeared in Wall Street Journal, in December last year. It contains useful information for ANYONE who has any intention to assume the mantle of “leader”

For Leadership, Read Stewardship

Stewardship has three elements.

First, influence. The steward manages networks of resources and information to effect change. The steward may take the initiative, but it only works if influence is a two-way street.

Second, affluence. Good stewardship is rewarded by material affluence. With it comes moral affluence—a richness of spirit flowing from a constructive reciprocity between the present and the future, the leader and the followers, the self and the still, quiet voice of conscience.

Third, confluence. Leadership has to bring people together, not as a common-denominator consensus, but in a way that enables us to grow as people.

As usual I intended to only transcribe a portion to provide a flavour and leave you to your own devices but it flowed so well and made so much sense that I just kept going but please follow the link for the full version.

Doing good by doing well: Re-defining moral capitalism

‘At their worst’, Stephen Green, HSBC Chairman, reminds us ‘ [markets] are unjust, abusive, destructive and crisis-prone.’

There is no doubt that capitalism has overstretched itself in the way Green describes. The immediate reasons are clear:

• the pricing of assets all but ignored the risks inherent in them;

• greed overtook performance;

• individuals went before communities;

• markets became servants not masters;

• the short-term usurped the long-term, and the lines between debt and equity became blurred.

Banks created credit and products but were not prepared to share the moral consequences of their actions. The culture of ‘pass the parcel’ meant that blame was shifted, with some even trading against the interests of the firm if that’s what made them money.

Credit was created at times ex nihilo, out of nothing, with nothing to back it up. These institutions assumed that they could be creators of enormous amounts of credit without bearing the responsibility for their financial creations. The credit function was given to the syndicate desk, and the financial creators thought they could in this way syndicate their moral obligations.

In need of a principle – ‘The Golden Rule’

I want to argue that the recovery of the moral and human spirit in capitalism is inextricably connected to the recovery of The Golden Rule.

‘Do unto others as you would have them do unto you’.

That phrasing, its most famous, comes from The King James translation of Jesus’ words in the Sermon on the Mount. But this ethic of reciprocity also appears in a wide range of world cultures and religions: ancient Judaism, India, Greece and China. Plato’s Socrates said: ‘One should never do wrong in return, nor mistreat any man, no matter how one has been mistreated by him.’ (Crito, 49c)

And in the Enlightenment, famously, Immanuel Kant made a secularised version of The Golden Rule the central principle of the moral system he developed.

 

No one would deny that in general the system wouldn’t work if everybody lied about everything. This was Kant’s point – ‘there could properly be no promises at all, since it would be futile to profess a will for future action to others.’

But in the crisis people did lie. People did misrepresent. They did deceive. Why? Because – at an individual level, in the short term, in one’s own case – deceit better advanced personal interests. It was better not to describe accurately the risks in a sub-prime mortgage. Put the other way round, in reality The Golden Rule required and requires sacrifice.

This allows me to be more precise about what I mean by the ‘moral spirit’.

‘Ethics is the remainder of a debt never contracted’, wrote the French philosopher Emmanuel Levinas intriguingly. ‘I am recalled to a responsibility never contracted, inscribed in the face of an Other.’ Rediscovering the moral spirit, then, is remembering who I am dealing with. Remembering that, fundamentally, what I owe someone I do business with goes far above and way beyond simply what I have agreed to. In a globalised economy especially, there is an invisible, ever-present partner whose voice needs to be heard. We must go beyond contract to conscience.

It is imperative to re-connect markets with the values and morality of the practitioners. We need to think ‘new’. We need to think ‘we’. Recovering the moral spirit is remembering that what I owe to all partners – visible and invisible – is in virtue of our shared humanity.

 

In need of a worldview – Our shared humanity

Recovering what I have called the moral or human spirit – providing the means for implementing The Golden Rule – also requires an overarching story that enables us to make complex moral judgements. In short, a world-view.

Phillips and Brown argue that ‘A world-view is, first of all, an explanation and interpretation of the world and second, an application of this view to life. In simpler terms, our world-view is a view of the world and a view for the world.’ (Making Sense of Your World, pp.32).

A world-view is at heart a story through which we view reality. The theologian, Tom Wright, argues that world-views comprise the following components:

1. World-views provide the stories through which human beings view reality. Our way of seeing the world is a story that answers fundamental questions to do with existence, identity and the future;

2. These stories can give answers to the questions: Who are we? Where are we? What’s wrong? What’s the solution?

3. The stories that express the world-view, and the answers that it provides are expressed in cultural symbols;

4. World-views include practice, a way of living and being in the world. The ethicist Stanley Hauerwas argues that ‘ethics is first a way of seeing before it is a matter of doing. The ethical task is not to tell you what is right or wrong but rather to train you to see.’

Every human being who has ever lived has a world-view, from the Pope to Richard Dawkins to Bill Gates to George Soros – answers to the big questions and associated ways of living in the world. At the root of the recent debt crisis was a fundamentally flawed world-view of our economic transactions.

How was it flawed? We lost sight of the market’s purpose, the fact that it exists as a framework to enable people to flourish.

 

Practical Applications: Four steps

So, in looking at how we can reshape commerce in a post-crisis world, it is obvious that regulation is not enough. We need values, an ethical dimension and a moral spirit. We need to reshape capitalism to reflect its original intention.

Allow me to set out some ideas and proposals for strengthening the moral quality of capitalism.

Again, an easy answer is regulation and we are seeing more of that, but regulation governs the details rather than the morals. As Adam Smith understood, what matters is how people live their lives, especially when they can affect millions of others as in financial markets.

I believe that there are four practical ways in which we can work to re-establish our world-view: Example, education, engagement and enterprise.

Firstly, example. Values are both caught and taught. A lot can be done by personal example, by people in leadership positions. They need to live by values of honesty, integrity, transparency and the highest standards of personal behaviour. But older people can learn from younger people too. They can learn from each other. Senior management need to anoint the culture carriers in their organisations, those people imbued with the moral and human spirit.

Secondly, education. We cannot assume that new entrants to the job market come with a refined sense of right and wrong. A priority must be engendering a culture of business ethics in tomorrow’s generation of leaders. Schools, universities and firms can positively encourage ethical behaviour. Courses on ethics, which feature in business schools and the graduate programmes of major banks and law firms, are a step in the right direction. It would help us to shift from an ‘I’ to a ‘we’ culture.

Companies should have ethics committees on a par with the audit, remuneration or risk committee (perhaps including distinguished outsides such as religious leaders, lawyers and academics).

Thirdly, engagement. The best companies will want to forge and maintain links with other stakeholders and society in a spirit of partnership. In spite of the recession, they will wish to support programmes of community and social responsibility. This can involve lending out their staff for pro bono work and providing advice to charities.

We must think about stepping up our levels of charitable endeavour. Archbishop Rowan Williams asked a very piercing question when he said that the key question we must ask ourselves is ‘For whom do we make our wealth?’ The British Jewish philanthropist, Sir Moses Montefiore, who lived in the Victorian era, said, ‘we are worth what we are willing to share with others.’

All this can help build a culture of ‘philanthrocapitalism’, to borrow the title of a recent book by Matthew Bishop and Michael Green. The point here is to recognise, as Warren Buffet, one of the world’s richest men, has pointed out, that individuals cannot accumulate wealth without help from society at large.

A moral capitalism needs to address the challenge of sustainability. Climate change threatens the future of our planet. Business can and must be part of the solution, especially by creating and marketing new environmental technologies.

In addition, the projected growth in global population to around 9 billion by the middle of the century, risks exacerbating the problem of extreme poverty. Market systems and globalisation have already helped to lift millions of people out of poverty in the likes of Mexico, India and China. The market economy is the best mechanism to make poverty history.

The tooth and claw capitalist model which supposedly suits a free market might have operated in a previous era, but it cannot in a globalised world. Globalisation has established our interconnectedness with communities cross the world. Globalisation has highlighted the fact that in making decisions there is a silent partner who is deeply affected by the decisions we take. To coin a phrase, we’re all in this together. We have a responsibility to act justly, love mercy and to walk humbly.

Fourthly, enterprise. At the heart of the market economy embedded in the Judeo-Christian world-view is enterprise. Enterprise and risk run together. The market economy without incentives or reward will not fulfil its key objective to create substantial wealth for the majority of people. Risk takers therefore need to be rewarded. Results and rewards should be correlated. But the key moral failure of the debate on rewards is the failure to contextualise these rewards within the society in which they are accumulated. It is not right to disregard the political, economic or social milieu in favour of a simple corporate profit and loss account.

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