Excerpt of Speech from Fundraiser
Dr. Tan Bhala delivered the talk on July 2011
The Three Levels of Ethics in Finance
I got the idea of nurturing a start-up, in the form of a financial ethics institute, at the beginning of the 21st century. I was leaving Wall Street and entering my MA/Ph.D. program in philosophy. The focus of the institute would be ethics in finance. The mission combined two of my great interests: finance, a field in which I enjoyed working for over two decades and moral philosophy, a study of which I had always wanted to undertake.
The idea of a finance and ethics institute was given extra impetus at two junctures in time. At the first point in 2008, I was giving a finance ethics lecture to undergraduate juniors who were finance majors. I described a hypothetical:
You are working on the sales and trading desk of an investment bank. The head of the desk tells you to set up a date with a high-class call girl in Thailand for a top five, revenue-generating client. This client lives and works in the US for a large, well-known investment management company. He travels to Asia frequently to research companies for possible investments. He regularly asks for this service when he travels to Asia. What do you do?
Over eighty percent of the students said they would hire the call girl. None of the women in the class would do the hiring. Here are the rationalizations for acquiescing to the task:
I have huge student loans and cannot afford to lose the job.
The economy is awful. I cannot afford to lose the job.
Sometimes, these call girls are working voluntarily for good money. They prefer this work to working in hot factories, chained to their chairs.
If I do not hire the call girl, someone else from another investment bank will anyway.
Most of the students did not think there was a way out of this moral problem but to act immorally. They wrongly believed that moral reasoning and discussion were not on the table. There is a place for ethical discussions in financial practice. Only if everyone thinks otherwise, does ethical practice suffer. Therefore, it is up to each of us to be morally conscious and to speak up when we feel there is a potential or actual ethical infraction.
Moral issues come up daily in financial practice; the majority of them do not involve enabling salacious acts. Do you agree to give investors top of the range revenue forecasts that are possible but highly improbable, to appeal to their greed and get them to invest? Should you attend a meeting that deliberately excludes the women in your group? Should you lie when told to?
These daily moral issues may seem prosaic. As such, students and practitioners are not taught how to resolve them as ethically as possible within the given contexts.
The second experience that pushed me to start the institute occurred when colleagues and I were reviewing a Hong Kong initial public offering (IPO) of a Chinese railroad company. The company was raising money to build tracks that would link Tibet to the rest of China. I asked if it was ethical to invest money in a company that would possibly contribute to maybe, the cultural genocide of Tibet. Surprisingly, the young stock analysts in the group were keen to explore the question. They had not thought ethical issues could be raised and discussed in the setting of a relentlessly performance driven investment institution. I was heartened to see their interest.
These two stories epitomize the work of the Institute.
On one level, the Institute attempts to provide guidance on resolving daily, prosaic issues with a moral dimension that most encounter in financial work.
On another level, the Institute researches and writes on macro issues that have significant moral problems or dilemmas embedded in them. In these cases, the Institute analyzes and answers enquiries such as, what are the ethics of executive compensation, what are the moral advantages to Islamic finance, and is insider trading ethical. The analytical tools employed are chosen from the canon of moral philosophy.
Finally, at the highest level, the Institute aspires to be the thinking space for new theories and practices that might synthesize ethics with finance. The current models of finance are showing their and limitations and flaws. Finance needs new paradigms. These new models constitute Big Think Stuff (BTS) and the Institute hopes to generate BTS in good measure.
Ultimately, I would like Seven Pillars Institute to be the first place people turn to for opinions, policy prescriptions, and answers to questions at all three levels.
Thank you for helping us in our first steps towards this goal.
A report and photographs of the fundraiser can be seen in our Newsletter Summer 2011