APMC FINANCIAL GLOBAL RELEASE NOVEMBER 2010 EDITION

2010

The Morals of Money—How to Build a Sustainable Economy and Financial Sector
by: APMC FIN RESEARCH DESK

Economic Growth and Sustainability
The credit crisis of 2007–2008 and the subsequent economic recession were the direct consequence of serious ethical failures. Banks lent money that they didn’t have to borrowers who wanted goods and services they couldn’t afford or didn’t actually need. Human greed and fear were the fundamental drivers of the crisis. Unfortunately, however, the crisis is certain to be repeated, unless or until human beings learn to exercise greater restraint, courage, humanity, and judgment. The ethical failures that lay behind the crisis go to the heart of modern economic theory. If we want economic growth, we must also accept economic decline. We inhabit a closed planetary ecosystem with finite resources. While solar radiation, wind energy, and gravity offer virtually unlimited energy resources, fossil fuels, fresh water, fertile soil, a benign climate, and biodiversity are either limited or fragile. In 1950, there were two billion human beings on the planet. In 2008, the world’s human population had risen to nearly seven billion, and the United Nations estimates it will have risen to nine billion by 2050. Many more people want better material lifestyles. But if we accept that our planet has a limited and fragile ecosystem, how can it support this constant and infinite economic growth? I know it is not a particularly popular view, but perhaps the philosophy of perpetual economic growth has more in common with the cancer cell—a terminal disease—than it does with sustainable organisms. Only a minority of economists, such as Herman Daly, Juan Martinez- Alier, and Robert Constanza, acknowledge that the economics of infinite growth is essentially suicidal. Amongst politicians, only the Green movement accepts the alternative that Daly describes as ―steady state‖ economics. Current accounting standards are another part of the problem. These are only capable of accurately describing 20% to 25% of the full economic value of any enterprise. The alternative of ―triple bottom line‖ accounting standards is beginning to address this issue, but we are still left with a massive void—our failure to measure the value of human relationships, with all stakeholders, that are the core fundamentals of all human activity.

Restoring Trust
So what does all this mean for financial services firms and for financial services centers? Quite simply, it depends on whether or not these arguments are persuasive or not. But, given that ―trust‖ is the greatest asset a financial services firm or center can possess, I recommend that prudence, restraint, fairness, and other moral values should once again become the foundation stone for those who look after other people’s money. How is trust restored? Well, firstly it is going to take time. Patience here, as with most things in life, is a virtue. But having worked closely with a number of enlightened financial services firms, professional bodies, and regulators since 2003, I would like to share with you this is not just wishful thinking, but the

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When things go wrong. • what we mean by doing the right thing. and. But the test measures not just our overall ethics score compared with others. which was supported by Cass Business School. The response of government and regulators to wrong-doing has been to add ever-increasing volumes of rules and regulations that tell us what’s right and how to behave. and honesty to the choices we make. but blame the system or the market. there are regulators. compliance officers. The experience is both meaningful and memorable for participants because it gives them the opportunity and the permission to think and speak constructively about issues that go to the core of who they are as human beings. Instead of bothering with this. 2 APMC(GLOBAL FACULTY FOR FINANCE AND PROJECT MANAGEMENT) www. Moral DNA In 2008. We can no longer be trusted to know what is right or. if things do go wrong. these people include politicians. • how we build a culture of integrity. This part of our conscience appears to be almost fully developed by the time we are in our teens. we constructed and published the ethicability® Moral DNA Test to understand how people prefer to make moral decisions. and commentators. a decision-making framework which is road-tested with relevant and realistic business dilemmas. we have explored: • why we do right and wrong. the response of governments and regulators is to treat us like children and try to change behaviors by devising even more rules and regulations. they don’t blame themselves. principled conscience means character or virtue. HR executives. This often comes as a relief to those who feel that we have created a world today where other people have taken it upon themselves to tell us what’s right. But the test results clearly demonstrated that this only serves to increase the risk of more wrong-doing. of course. indeed. Then. • how we decide what’s right. it also describes how we make moral choices based on three moral dimensions: Rule compliance. lawyers. fear. Don’t think— just do as you’re told—or else. Rule compliance means obedience and is the first conscience we develop as young children. but not least. journalists. they will simply check if it’s okay with compliance or HR.pmconsultings.000 people from 162 countries completed the test. social conscience. and last.000 senior executives from over 100 different private. to do it. bosses.APMC FINANCIAL GLOBAL RELEASE NOVEMBER 2010 EDITION 2010 evidence of my experiences and insights. some brain physiology. Between July and August 2008 over 20. Social conscience means altruism and is based on the idea that doing the right thing is doing what’s best for others. and The Times in London. At work. This journey of exploration offers insights into over 2. indicating greed. the concept of moral leadership. and principled conscience. and how they behave within their organizations or communities. In the media. as it means people take less personal responsibility for their actions.500 years of moral philosophy. fairness. public sector. about 50 years of behavioral and social psychology.net . PricewaterhouseCoopers. This appears not to develop fully until we are in our late 50s. and not-for-profit organizations. or moral immaturity. Doing the right thing is about making decisions based on how we apply principles such as courage. Those who work in financial services scored lower than average. instead of trusting us as moral adults to work it out for ourselves. Finally. I would contend that regulation alone is no substitute for moral character and moral leadership. Together. We have to be told. I have worked with over 6.

Yet the other assumptions we make are that human beings have unlimited wants. This planet that we all share is a closed ecosystem with finite resources. in 1994. 3 APMC(GLOBAL FACULTY FOR FINANCE AND PROJECT MANAGEMENT) www. that we can all strive for what we want rather than what we need. customers. and processes to tell us what’s right. if the transgression is newsworthy enough to get the attention of politicians. son of philosopher Bertrand Russell. a subsidiary of Adecco.pmconsultings. and a shared approach and framework to ethical decisions.net . We need to re-discover the philosophy of ―homo sapiens. or political—they are ethical challenges that demand a more mature response. and then had stints as a social worker and executive coach before becoming chief executive of the City recruiters Jonathan Wren. we are rewarded. a director of the Centre for Applied and Professional Ethics. His ethicability® framework has been used or endorsed by organizations including HSBC. But if we do the wrong thing—and get caught—then we are punished. Tomorrow’s Company. the personal example of their leaders. He is the cofounder of the Soul Gym at Worth Abbey. suppliers. the world’s largest recruitment firm. He worked for Midland Bank (now HSBC) in the City between 1979 and 1981. that growth is good. and has specialized in ethics since 2002.‖ We need to find the wisdom to confront this awful truth. The challenges that we face today in business are not economic. A great customer proposition is not delivered in the form of complex rules and procedures. Roger studied philosophy at Royal Holloway College. they ought to be trusted to discuss it and work it out for themselves. Roger is interested in astronomy and lives in Sevenoaks. social. and others. founded on a moral financial sector where trust is the ultimate reserve currency. Adapted from: Roger Steare Introduction Roger Steare is a corporate philosopher and visiting professor of organizational ethics at Cass Business School. a Benedictine monastery in West Sussex. structures. and the Institute of Business Ethics. shareholders. He left to found Roger Steare Consulting in 1998. ―Homo economicus‖ is riddled with malignant growths. appraisals and rewards.APMC FINANCIAL GLOBAL RELEASE NOVEMBER 2010 EDITION 2010 If we do the right thing. London University. This economic philosophy of growth for its own sake is as bankrupt as the philosophy of the cancer cell. It is my experience that in order to do the right thing in any organization. and then deploy our intelligence to find a new and sustainable model of moral capitalism. it is delivered by mature adults who really do care about other people and the quality of goods and services they buy. we will get even more rules. But the greatest challenge of all will be to confront the brutal truth that our current assumptions about economics are fundamentally flawed. Moral grown-ups in business don’t need others to tell them what’s right. through training. This approach should permeate every human aspect of business from recruitment. and a Fellow of the Royal Society for the Arts. in which people will able to resolve together the inevitable challenges and conflicts which are faced in every endeavor They will be guided by the values of the organization. And. Kent. City University. where he was tutored by Lord Conrad Russell. people have to have the following: a clear and moral purpose • a clear set of moral values that guide behavior • leaders who set a personal example consistent with these values • a living community of employees. London.

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