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Where is virtue on Wall Street? Princeton lecturer JC de Swaan, who is also a partner at the investment firm Cornwall Capital, sought to find out. His book, Seeking Virtue in Finance, is his answer. (Yes, virtue is found on Wall Street.)
I spoke to de Swaan via video call. I asked what he learned in his research about the virtue relevant to fiduciary leaders seeking to advance fiduciary principles.
De Swaan applies the notion of virtue defined by Aristotle. He characterizes finance professionals with virtue as those who, “seek to be successful but embed as a fundamental aspect of their definition of success contributing to the common good rather than extracting from it.”
De Swaan has taught ethics in finance for over a decade. Two of his earliest memories really stick with him. One is a common worry of students who want to work in finance: being corrupted the moment they walk into their first job on Wall Street.
A student in his first Princeton class asked why there was so much focus on unethical behavior and none on, “laudable decisions and inspiring stories.” de Swaan agreed she had a point. The book idea germinated. Research soon began.
De Swaan looked for examples of ambitious and successful individuals who were able to balance their self-interest with ways to contribute to society. “These people are the anti-thesis to the ‘grab what you can when you can’ view that has dominated the industry of late,” he said. “I set out to look for the literature and could not find it. There was little written.”
He explains that finance is in a category by itself. In terms of trust, finance may be the worst. In the surveys of the reputations of industries, finance is at the bottom. Medicine and finance both are well-compensated and involve interesting work. The difference, de Swaan points out, is that young professionals enter medicine to help people.
To counter this negative narrative, de Swaan spent five years identifying and researching finance individuals and firms whose conduct illustrates virtue. He identified 60 such individuals to emulate. From this exploration, he created a framework of four pillars that can, at minimum, “make finance professionals mindful of what markers of a virtuous, responsible approach to finance might be.”
These four pillars are the chapters of his book. They are:
Serving customers interest faithfully
This pillar ranks highest because, “It embodies the core mandate of financial professionals.” Further, “conscientious finance professionals have traditionally aspired foremost to be good fiduciaries.” What readers find in this chapter is research revealing ways financial institutions take advantage of their customers and, “the extent to which breaches in the relationship of trust with customers are rife in the industry.” de Swaan explains, “We contrast these behaviors with models of distinctive customer-oriented conduct.”
Social wealth creation: Contributing to society beyond the customer mandate
This pillar asks bluntly if finance pros, “benefit anyone besides themselves and their customers.” The concern here is that finance generally is not aware of the impact of its activities on society much less if there is a tension between the two. An example cited: the work of investment banks to help obfuscate the indebtedness of Greece and Italy in reports it the EU.
Humanistic leadership within the organization: Treating colleagues with dignity empowering them and fostering a responsible culture
Again, de Swaan is direct when he asks how to think about a manager who excels in the first two pillars and then, “conducts himself as a tyrant at work … manipulates, harasses and humiliates colleagues, to paint an extreme picture.” Among others, John Whitehead at Goldman Sachs and Warren Hellman at Hellman & Friedman are cited for instilling positive cultures in their firms.
Engaged citizenship: Contributing expertise, time and wealth to the common good
This pillar addresses the extent to which finance managers leverage their assets and strengths outside their finance roles and industry and, “act as responsible engaged citizens.” de Swaan immediately points out two obvious (and self-serving) motivations for doing so. First, he says, “their compensation appears unhinged relative to many other professions,” and then follows with the actions of, “large segments of the industry is widely perceived to have set the stage for the global financial crisis.”
de Swaan has no illusions about the mountain he is climbing. He says the finance industry is too often, “cloaked in complexity and opacity, skewed by information asymmetry and rife with conflicts.” With enormous short-term incentives and goals, the pressures can make seeking virtue a faint hope. de Swaan notes that, “well-meaning individuals can unwittingly slip into self-serving mode.”
de Swaan calls his book a small step forward. He writes that his goal is “modest:” to influence the behavior of those finance professionals he describes as well-intentioned, neither greedy nor altruistic, “yet keen to succeed while upholding their values and contributing to society…I suspect this is a large group within the industry.”
de Swaan may be right that this is a large group. The question of next steps remains: how can virtue in finance grow from individuals acting alone? The (unpopular) best answer may be evident in the origins of professions: individuals acting together.
Knut A. Rostad, MBA, is the co-founder and president of the Institute for the Fiduciary Standard, a nonprofit formed in 2011 to advance the fiduciary standard through research, education and advocacy.
Read more articles by Knut Rostad
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
