DIAGNOSING THE ETHICAL PROBLEM IN FINANCE

BY KRISHNA SHAH
Posted on 23/02/2019

The author draws on 200 interviews with people from financial institutions in the city of London.

From the book Swimming With Sharks: My Journey into the World of the Bankers.

London bridge photo from hot air balloon. Source: Flickr/Daniel Chapma


Some of the ideas expressed in the interview really fascinated me...

Banker's are not monsters - they are human beings.

It's a fact that nearly everyone cares about ethical issue in their day to day activities but ignore them as soon as they enter into the bank. It's just due to their vision that bank should make as much profit as possible with in law, since otherwise it would be immoral.

Therefore, ethic is dedicated by what the law says. If the bank persist on thinking the same way, it's no wonder that they would be getting such bad press.
It's the consortium that divide the market and use part of their excess profits too maintain their privileges. If this comes to be true then competition policies should be reconsidered.

Finance is an honorable activity, the problem is with the way it has grown and the annoying inducement and conflicts of interest that have been created. This will not improve by itself because no one is going to cut off the branch they are sitting on, as Luyendijk skillfully explains.

The biggest issue, he says, are the perverse incentives. “If you are rewarded for undesirable behavior and punished for good behavior, then you can have all the ethics promises you want but people will act on those temptations.”

For example, he suggests that bankers in line for a bonus should also be in line for a malus, with a large vested interest in their business (i.e., big reward for good results, and punishment for bad results), and feeling personal liability when things go wrong for them.

This is all very familiar, at least to those of us working in the field. We have to realize that there are problems related to ideas, institutions, behavior within organizations and, therefore, the rules of the game, such as incentives, and other factors that directly affect people.

The purpose of abstracting a presumed incompatibility of ethics and finance has been strengthened by the recent crisis that erupted in summer 2007.To attempt to escape from this dilemma,the restoration of relevant  ethical principles would be one of the main conditions required in order to avoid the recurrence of past errors.

Assessment of the financial crisis most often consider that the source of the problem stem from economic and financial imbalances and failures.indeed this kind of explanation is relevant and may be agreed as a proximate cause.

The practical and social implication of ethical behavior based on the principles of seeking the"common good"lead to a professional approach aimed at financial institution as well as at their executive leaders and their employees.

In short, there are three areas to address:

1.What’s the deal with finance (and business), what’s it all about and how do you play...
2.How should people behave in order to be good managers or employees, and why...
3.What should the rules, codes, cultures, structures, missions and behaviors be like so the company doesn’t turn into a snake pit...