Ethics and Finance Finding a Moral Compass in Business Today

• Author: Daniel Hardy
• Position: Division Chief IMF Monetary and Capital Markets Department
• Pages: 52

Page 52

Avinash D. Persaud and John Plender: Longtail Publishing Limited, London, 2007, 215 pp., £19.95 (paper).

FINANCIAL markets are often taken to be places in which unbridled self-interest dominates and the participants recognize just one value-money. Each investor wants the best rate of return, each bank wants the highest return on equity, and analysts and traders want the biggest bonus-and everybody will do whatever it takes to get there. Yet financial markets, like society itself, rely on shared ethical standards. Written rules and their enforcement are necessary although, by and large, people and institutions voluntarily constrain themselves. Even when there is little chance of being caught, people do not do certain things they feel are unethical.

Persaud and Plender have written a practical guide to encourage investors and other market participants to abide by ethical standards and to recognize where ethical conflicts may arise. They pointedly avoid philosophical abstractions, arguing simply that ethical behavior is both important in itself and essential for the functioning of markets. They also suggest that ethical behavior is in the interest of the financial institutions and individuals involved. Although the trade-off between being ethical and making money can seem acute in the short term, it will look much less acute if a longer-term perspective is taken-one in which containing reputational risk and maintaining a level of trust among market participants are important.

"Regulators and market participants need to be aware of the risk of regulations replacing ethics."

In various chapters, Persaud and Plender address the specific ethical conflicts that may arise in areas such as investor protection, speculation, and accounting, and discuss the roles of independent directors, auditors, and regulators. The authors concentrate on ethics in financial markets and do not address issues relating, for example, to the treatment of employees. They illustrate their points by citing well-known recent examples of unethical behavior in financial markets and include both executive summaries and structured questions that financial market participants should periodically ask themselves-a first for this kind of book. Indeed, reading between the lines, the authors seem to say that many instances of unethical behavior could have been avoided if the perpetrators had ever stopped to think for a moment. The authors' main concern and clearest message...