Generational Differences and Ethics: A Interview with Bryan Yackulic from The American College

As someone who is very interested in how leaders can build and maintain an ethical culture based on shared values, one of the challenges that is often raised is how (and IF) this is possible in a work environment comprising multiple generations. In order to get some answers, I talked to Bryan Yackulic, the Assistant Director of the Chartered Leadership Fellow (CLF) program at The American College of Financial Services, who has researched this topic extensively.

It is not uncommon for members of older generations to complain that members of younger generations are not as ethical or committed to doing things the right way. Where do you think that this criticism comes from? Do you think it is true?

The answer is more complicated than a simple yes or no. Research shows that millennials tend be much more transparent in their communications and much more open about their personal values than other generations. They increasingly want to work for companies who share these values, and working for a company with a cause is becoming more important than the paycheck they earn. This can be off-putting, especially with older generations who tend to be more reticent about sharing personal information in the workplace. Millennials tend place great emphasis on corporate social responsibility and are the first generation to grow up alongside it. While the rise of social media has contributed to the perception that millennials are narcissistic and only care about themselves, it has also created an opportunity for millennials to highlight companies who succeed or fail in regards to social responsibility by using social media websites like Twitter. Consumers, irrespective of generation, are increasingly demanding more information about where and how products are made, where profits are going, and what companies are doing to benefit society. As more millennials continue to enter the workforce, the need for companies to be committed to social responsibility is becoming the rule rather than the exception.      

Yackulic makes some great points, especially about the role of social media. As an example, in 2010 an employee from Best Buy, a large electronics retailer, made a series of a videos posted on YouTube in which he spoofed the sales practices and environment at fictional electronics company (which was easily identifiable as Best Buy). The videos went ‘viral’ and provoked an interesting debate as to whether and how the employee should be punished by the organization. A debate, of course, which was played out on social media. In a statement, Best Buy said that, “this is an important situation for us because it involved balancing our social media guidelines with a commitment to creating a supportive environment for our employees.”

It is easy to see how people could (and did) assess the employee’s actions along generational lines. While research shows that older generations value ‘loyalty’ to their workplace, this virtue is not as prized by younger generations (or at least it is not understood in the same way). More on that below…

One of the issues that I have heard mentioned by field leaders is that it is difficult to talk about ‘values’ across the generations since different generations have different interpretations of the terms, such as ‘respect’, ‘loyalty’, etc. How can field leaders conduct helpful conversations about values across generations? Any tips or traps?

Field leaders who are able to better understand the different generations and why each group is a certain way can tailor their communication. Understanding the different preferred communication styles, motivations, and values of each generation will go a long way to help reduce conflict and resistance.

When communicating with Millennials, it is important to understand that they value transparency, and seek to understand the ‘why’ behind the ‘what’. When communicating with these individuals, making sure they understand why things are done a specific way or why they need to follow certain values can be just as important as the values themselves. This can be challenging to leaders who are used to being ‘obeyed’ without much in the way of discussion and do not see ‘persuasion’ as part of their job description. In addition, millennials tend to prefer structure and encourage feedback. Providing examples of how to handle certain situations will help them assimilate to the company values.

It would be a trap to use the same communication style with all generations, or communicate the way you would prefer to be communicated with. It is a mistake to assume that what worked with one group will work for the others, and in order to effectively communicate, a field leader needs to spend time getting to know each individual. Generational conflict has been around since the beginning of time, and is not going anywhere. All leaders need to understand Boomers, Generation X, and Millennials in order to be successful across generations.

Again, Yackulic makes some good points. I am reminded of some of the challenges created by the practice of mentorship. In many organizations, mentorship is translated to mean that, “I am going to tell you exactly how I became successful and then guide you through the process that worked for me.” If successful, effective mentorship along these lines created a series of ‘mini-me’s’ whose behaviors and practices (and successes) mirror those of their leader/mentor.

Of course, the obvious problem with this approach is that there may be individuals who have tremendous capacity for success, but will achieve it in a different way on account of their personality, style and skill set. When we view mentorship as mere ‘replication’ we miss out on the potential of others – and often times the people we miss out on are people of a non-dominant race, gender or age.

But, I think that people often suspect that it is not possible to mentor people with whom they do not share important commonalities of experience or identity characteristics. This is a valid concern, but I think that is mostly unwarranted – successful people know a lot of about success – both in terms of their own experiences and in terms of the experience of others they have observed over the course of their careers. Passing along these insights and offering advice only after asking questions about the values, goals and concerns of their mentee (and then listening in a open way) can be incredibly beneficial to people new in the business. There are many roads to success and a good mentor can help each individual their particular path. Moreover, you will reap the abundant rewards that come from diverse perspectives. More on that below…

(3) Are there are any advantages in terms of creating an ethical business culture from having a multi-generation work environment?

There are several advantages to a multi-generation work environment in regards to ethics, most importantly the diversity of different perspectives. A millennial employee can benefit from learning how and why things are done from a more experienced coworker, just as a boomer can benefit from a millennial challenging the status quo. Gaining insight and recommendations from different generations can help an organization create an ethical culture. Having members of all generations participate in establishing the ethical values and standards will help create buy-in and limit generational problems that may develop if only one group is involved. Ethical values often come from the top of the company, but need to be followed and supported throughout the organization to be effective.

Lastly, in order for values to be upheld an organization needs to support the values in issues of generational conflict. For example, if a value is teamwork, a millennial should not be excluded from participating due to lack of experience.

Thank you to Bryan for sharing his experience and wisdom on this topic. For more information about Bryan, please click here and for more information on CLF Program at The American College, please click here.

Stanford Prison Experiment and Its Lessons for the Workplace

The 1971 Stanford Prison experiment was originally designed to investigate individual behavioral responses to the experience of the prison environment. It is back in the news on account of the release on a new film which dramatizes the events.

A group of college students, all of who volunteered to be a part of the experiment, were divided into two groups – wardens and inmates. The experiment was conducted under the direction of psychologist, Dr. Phillip Zimbardo, who acted as the prison superintendent.  What occurred was an troubling example of how people conform their behavior to their environment. The disturbing result was that each group (including Zimbardo) so thoroughly inhabited their roles, leading to serious psychological consequences, that the study was called off after only 6 days, instead of running the planned two weeks.  You hear Dr. Zimbardo reflect on the lessons he learned while conducting the experiment in a recent TED talk.

I have always been interested in the lessons we can learn from research such as the Stanford Prison experiment and how we can apply these insights to help us improve the ethical culture in our workplaces. Perhaps the most important take-away for me is the reminder that people often perform quite in line with the expectations communicated to them from above – specifically, how they interpret these expectations. We often like to think that individuals (especially ourselves!) would go ‘rogue’ in environments like the one constructed in the 1971 experiment, and hold fast to our ideas about ethical behavior and basic civility. But, unfortunately, many people do not.  We quickly adapt to our environment, adopting shared norms and shared rationalizations.

I tell my undergraduate students that ‘culture matters’ for the person that you ultimately become. Even if you have the strength of character to resist the temptations of ‘going with the crowd’; why make things hard on yourself? Instead of asking about vacation time and opportunities for international travel, new graduates on the job market should pay careful attention to what they can glean about the ‘feel’ of the office and ‘how things are done’ in that organization.

I also tell groups of senior leaders that ‘culture matters’. There is a tendency to believe that ethical behavior is driven by exclusively ethical individuals, and that there is little that the organization can do to promote the ethical culture it seeks besides to hire the right people. While it is certainly important to ‘get the right people on the bus’, it is also important to focus on environments that make it easier, rather than harder for people to do the right thing.

Renewed attention to the results of Zimbardo’s experiment can give us a chance to reflect on the importance of our environment – and what we can do to contribut

How Can We Identify Ethical Behavior at Work?

I hosted an event where the participants were composed of compliance professionals in the financial services industry. As an ‘ice-breaker’ I asked each one to provide me with an example of an action that was an ethical violation, but not a compliance violation. In other words, I wanted examples of actions that could be considered a ‘failure of ethics’, but not a failure of compliance.  It turned out to be a pretty unsuccessful ice-breaker since most people could not come up with a single example.

I thought a lot about their responses (or lack of responses). In particular, I was troubled by the fact that a distinction that seemed obvious to me should not be as equally obvious to others. But, the more I thought about the question, the more I realized that this was actually a more difficult question that I had originally thought. Even had a hard time coming up with a coherent description of the class of actions that I was looking for when I asked the question.

The point of contention came down to, I think, the idea of a “failure of ethics”. What does this even mean? As Joel Feinberg (1961) points out in his excellent article “Supererogation and Rules”, most moral philosophers tend to classify actions into three categories:

  • Actions that you are obligated to perform – typically referred to ‘positive duties’ or ‘positive obligations’. These are the ‘thou shalts’
  • Actions that are permissible, but not morally required
  • Actions that we are obligated not to perform – typically referred to as ‘negative duties’ or ‘negative obligations’. These are the ‘thou shalt nots’

The important point here is that moral actions tend to be classified as duties, with each particular action fitting somewhere in the framework of obligatory, permissible and forbidden actions.

Feinberg goes on to say that there are three classes of duties:

  • Duties of Obedience, which refer to actions that are required by law and other authorities. Adherence to regulatory and organizational rules would fall into this category
  • Role-Specific Duties, which refer to duties and obligations limited to persons holding specific roles. An example may be the duties of a physician to their patient.
  • Voluntary Duties, which refer to the obligations we willingly consent to be put under through the making of a promise. An example may be the promise of a senior leader to mentor a more junior employee.

We can start to see the conceptual challenge that my question posed, as well as the idea of an ‘ethical failure’ as a sort of sticking point.  The reasoning is as follows: if an action is obligatory or prohibited it is likely to be covered by a compliance rule or regulation (this is especially the case in a highly regulated industry like the financial services industry).  If an action is not in the obligatory or prohibited categories, then it is in the ‘permissible’ category and we cannot properly speak of a failure to perform an action that is merely permissible as a failure at all.  In short, since she was under no obligation to perform the action, she cannot be held responsible for failing to do so. Therefore, no compliance failure = no ethical failure.

But, yet, even the executives in the room did not feel fully comfortable with this conclusion. While it may be difficult to think of specific actions, it does seem possible to imagine an individual who fulfills every compliance rule to the letter, and yet still seems to fall short of the ideal standard of behavior or still fails to do as he ought.  We all seem to recognize the distinction between the ‘compliant person’ and the ‘ethical person’. But, it is often hard to articulate precisely what this distinction consists of.  It is in this murky gap that we recognize that our concept of ethics extends beyond the framework of duties provided by some moral philosophers. But what else it includes is something we have to figure out.

What Distinguishes the Compliant from the Ethical Person?

When people are posed this question – there are usually a couple possible answers.

The ethical person, as opposed to the merely compliant person,.…

  • Does the compliant action in the right way. If this is true, the ethical person is distinguished as someone who performs the compliant action in a particular sort of way. In the financial services industry, for example, you can fulfill your obligation to disclose information, but do so in a way that intentionally leaves your listener even more confused.  Some people in business refer to the difference between compliance and ethics as the difference between adhering to the ‘letter of the law’ and abiding by the ‘spirit of the law’. People often talk about ‘gaming’ the rules, such that you violate the intention of the law while remaining safely in its confines.  This has been a particular area of concern in the accounting industry, and has motivated the shift from a rules-based to a principles-based accounting framework.
  • Performing the compliant action for the right motive. Many people (including many philosophers) distinguish between doing the right action for the right reasons (i.e. a moral motive) and doing the right action for the wrong motives, which are usually selfish or deficient in some way. Going back to the earlier example, I could disclose all of the materially relevant information to my client because I respect the autonomy of my client and willingly choose to promote it or because I am fearful that if I caught I will get punished. As Feinberg notes, it is characteristic of all forms of duty that people are held accountable for non-performance. The question is whether someone is motivated by the avoidance of this sanction or by the pursuit of the good.
  • Doing ‘more’ than is required. Many people define ethics as  ‘going beyond’ what is required. Following Feinberg, we can call this the ‘duty-plus’ model of ethics. In this case, ethics is just ‘more’ compliance – and can be expressed in a quantitative sense. Referring again to the example of disclosure. I may not be legally required to disclose my compensation to the client, but I do so anyway. In this example, I am acting ethically because I am disclosing more than I am required to disclose.
  • Performing certain, meritorious actions that are not related to our duties. It is important to distinguish this example from (3). Recall that in (3) we were just doing more of what we should be doing anyway. In this case, the ethical action would take place outside of the realm of our duties, although it could be related to one or more of our duties.  For example, Feinberg gives the example of the physician who travels to a plague-stricken area to help people. Notice that, according to Feinberg’s analysis, if the plague had occurred in the physician’s community, it would have been within his professional duty to stay and serve the sick. What moves the action from the realm of duty to the realm of non-duty is the decision (at considerable personal sacrifice) to travel to a distant community to serve the patients in need of help. In the workplace, actions that fall outside the ‘realm of duty’ could take the form of certain types of organizational citizenship behavior, which is defined as the performance of certain tasks outside of the description of one’s job duties. Of course, the challenge is that it hard to find actions that fall outside of the realm of duty when duties (whether moral or professional) are so broadly defined and seem to encompass so much.

The difficulty comes from, as Feinberg notes, the fact that people (especially philosophers!) tend to want to stuff all moral actions into a duty-like box. I think that this is particularly true in the workplace, where there is an emphasis on finding metrics that can measure behavior in a way that allows for comparative analysis and simplified decision making.  It is easier to count compliant (and non-compliant acts) than to do hard thinking about individuals’ commitments and values and how they manifest these commitments and values in their daily business practice.  I think that this is the reason that the executives had a hard time coming up with the difference between compliance and ethics.   Describing the workplace, Feinberg notes,

“Gross derelictions of duty render an employee liable to sacking; derelictions subject him to demerits on his work record analogous to the liabilities or debits on his bank account when he is overdrawn. Similarly, under some rules, employees and other office holders can store up assets on their accounts to guard against unexpected expenditures of credit. A truly worthy office-holder never goes into the red; he keeps a meritorious work record. The most deserving of all, through the diligent accumulation of ‘surplus’ credits become liable to rewards and promotions.” (282)

So, which one of the definitions of the ethical person mentioned above are correct? I think that they are all worthwhile. Most of us believe that the ‘means’ used to pursue ‘ends’, in this case, the end of compliant actions, are relevant in the assessment of the ethical character of the action. And most people want to distinguish between actions done from a moral motive and actions done from a selfish one. Most recognize people who ‘go above and beyond’ as doing additional good, and this is valued if it is done for the right reasons. For example, if the increased disclosure flows from a desire to educate the client rather than a desire for increased protection (a sort of CYA) in a litigious environment.

But, the most important distinguisher of ethical action is simply that it is a different sort of action. It moves from the ‘realm of duty’ into the ‘realm of virtues and values’. Instead of being guided by the fulfillment of rules, it is guided by the manifestation of principles; such as kindness, loyalty, compassion, gratitude, justice and honesty. It is not required in the sense that its absence will be punished or sanctioned, but it is required in a different way, as Feinberg would say, acting in accordance with these virtues is something that we ‘ought’ to do.  And we ‘ought’ to do so because of the sort of beings that we are (namely, those capable of empathy and imagination) and the sort of beings who are affected by our actions (namely, those who are possessed of dignity and worth).  This ‘ought’ cannot be captured by rules and it cannot be measured quantitatively, which is probably one of the reasons that it is so easily dismissed. But, we recognize it by its absence and we rightly withhold the appellation ‘moral’ from anyone who lacks these behaviors even if they have never broken a rule.

But, of course, here is the difficulty – where it always occurs – right where the ‘rubber meets the road’. In a business environment, which is governed by duties and rules, how do you promote the sort of behaviors we have been discussing? How you create space for and how do you appropriately value these sorts of virtue-based behaviors? This will be the subject of my next posting.

Preventing Fraud

In my last post, I discussed how we could use the Fraud Triangle to account for corrupt behavior among practitioners in the financial services industry. One of the principal take-aways from this analysis was the conclusion that certain aspects of the structure of the financial services (pressure to produce, variable compensation, trust of clients, knowledge asymmetry between clients and practitioners and access to money) may make instances of fraud more likely or at least more understandable when they do in fact occur.

But, it is important not to fall into the trap (often attributed to academics) of elegantly describing a problem without offering anything in the way of a solution. Let’s think about a solution in terms of the three legs of the Fraud Triangle (1) Pressure (2) Opportunity (3) Rationalization that we discussed in the last post.

RELIEVE THE PRESSURE

Recall that the pressure was caused by the presence of an ‘unshareable problem’, and so one of the best ways to relieve pressure is to to try to make more problems ‘shareable’. A couple of thoughts on this point:

  • Promote cooper-tition. I really like the word ‘cooper-tition’ (although credit for the term needs to go to Dr. Bob Johnson, the President and CEO of The American College). Some sales leaders believe that they can achieve stronger results by encouraging a sort of hyper-competition between representatives and employees. Not only does this increase the pressure to succeed, but it can also isolate individuals by transforming people who could be natural allies (insofar as they understand the unique challenges of building and maintaining successful business) into adversaries by making the work environment a zero-sum game, in which the gains of one person come at the expense of someone else.
  • Know your people. Many people who choose to enter the financial services industry are driven, results-oriented and self-motivated individuals.   However, as John Donne famously said, ‘no man is an island’. Everyone needs a network of people with whom they can share their problems and anxieties. As a sales leader, it is important to identify (as much as possible) those individuals who have a good network and those individuals who do not, and to watch the people in the later group a little more closely.
  • Use examples to illustrate that it is possible to come back from failure. While I was in graduate school, I had a part-time job teaching prep classes for the GRE and GMAT standardized tests. High test scores on both exams were a job requirement, and I did well on both exams. However, my first experience of test taking was not so good. My dad dropped me off the test site, and I sat down, opened up the test booklet (this was in the days of actual pen and paper test booklets) and completely froze. I was only there for about 10 minutes before I walked out without having completed one section of the exam. I had never ‘choaked’ on an exam before and have not done so since, but it was a searingly humbling experience for me. I shared this experience with all of my students to show that it was possible to ‘come back’ with hard work and preparation – and that sometimes people just have a bad day. Encourage your leaders and top producers to share stories of their failure and come back. There is an expression that ‘one swallow does not make summer’, which means that one sign does not indicate the presence of the event. The idea is that one failure does not mean that you will never succeed – sometimes one failure is just one failure.

DIMINISH OPPORTUNITY

  • Establish strong internal controls. We can recall that one the factors that increased the opportunity for practitioners within the financial services industry to commit fraud was the proximity to money. Only foolish leaders create temptations for their personnel by establishing weak internal controls. There are many people who would not dream of stealing your wallet from your suit coat pocket or your watch from your wrist, but who may be tempted to pilfer a wallet found on the street before returning it to its rightful owner. Part of a strong ethical culture means that leaders impose policies that make it easier to do the right thing, and this means making it harder for people to engage in fraud.
  • Increase the feeling of professionalism. Another factor that increases the opportunity for fraud among members of the financial services profession is the trust that clients place in them. This trust can decrease the vigilance of clients (they simply assume that the practitioner is looking out for their best interests) and increase their vulnerability to exploitation. It is important that leaders emphasize that practitioners need to be worthy of the trust that is placed in them by their clients. This can be at least partially accomplished by encouraging the adoption of professional values – and this means talking frequently about professional values – integrity, objectivity, fairness, diligence and confidentiality – and how you apply them in your daily practice. A second way to increase the feeling of professionalism is to tell stories about the impact (both for the good and for the bad) that financial practitioners can have on their lives on their clients. Make sure that your ‘green peas’ understand precisely what is stake as a result of their work, and emphasize that they have both a sacred trust and professional duty to do their very best for the client every time.
  • Educate clients. It can be very tempting to be the ‘smartest person’ in the room. We have seen that a third factor that increases the opportunity for fraud in the financial services industry is the knowledge asymmetry between clients and financial services practitioners. This ‘information gap’ can create opportunities for practitioners to exploit clients, who are not sufficiently well informed to protect their interests. The best way to counteract this temptation is for leaders to create a culture that supports a robust program of client education. Make sure that your training and development programs emphasize the skills necessary to identify the level of current client knowledge, clearly explain complex concepts and to assess the level of client comprehension. It is not enough to get the client into the right product or the right strategy, the client needs to be able to understand and articulate why this product or strategy is the right step for her.

DIMINISH THE FORCE AND POWER OF RATIONALIZATIONS

  • Treat people fai As we saw in the previous post, employees often rationalize fraudulent behavior as a means of ‘evening the score’ in response to perceived unfair treatment by the employer. It can be tempting, especially in tough economic times, to cut costs by removing actual or perceived benefits from employees. Sometimes this is necessary and appropriate, but it is important to be wary of unintended costs. And it is important to note that the perception of unfair treatment does not only involve financial or material benefits. Someone once told me a story about when he worked the overnight shift at a large shipping facility. Bells structured the workers’ time and ‘unscheduled’ breaks to use the facilities or get a drink of water were not prohibited, but were discouraged. Management responded to a series of thefts by asking floor managers to randomly pat people down before and after leaving the bathroom in order to make sure that they were not hiding stolen merchandise. This was not only humiliating, it was also unnecessary because while the thefts were serious and costly to the organization, it was clear that only a small number of people were actually involved. Employees responded to the perceived loss of their dignity and autonomy by engaging in acts of fraud and deviance. They felt no guilt about these acts, according to my student, because they were convinced that the company ‘deserved it’ for their unfair and arbitrary policies.
  • Prevent a ‘Cheating Culture”: There is very little that is more demoralizing to people who follow the rules seeing people break them with impunity. A powerful justifier of fraudulent behavior is the feeling that ‘everyone is doing it’ and that by acting ethically, you are only getting the ‘sucker’s payoff’. There could not have been anything more disheartening than wanting to be a professional cyclist in the early 2000s without using performance-enhancing drugs. Research shows that organizational acknowledgement and punishment of deviant behavior is less important in terms of the rehabilitation of the actual offender and often more important in terms of the message it sends to the rest of the organization.
  • Expose Rationalizations: As we saw in the previous blog post, rationalizations are usually not very sound – often we say them to others we realize this and are embarrassed by their flimsiness. Leaders should take examples of bad behavior and its rationalizations and discuss them with their team. The examples do not need to be from business (unfortunately, there are plenty of examples from the realms of government, politics, entertainment and sports to choose from). Ask your team to think about why the people involved acted as they did and try to imagine what rationalizations they may have used to justify their behavior. This sort of exercise also reinforces the valuable lesson to both leaders and employees that fraudulent behavior usually does not happen in a vacuum, but within a larger context of the cultural of the organization.

It is obviously impossible to prevent fraud completely. There will always be individuals committed to exploiting the opportunities for unethical behavior that are available to financial services practitioners – but this certainly does not mean that we are without tools to fight the good fight.

Preventing Fraud

In my last post, I discussed how we could use the Fraud Triangle to account for corrupt behavior among practitioners in the financial services industry. One of the principal take-aways from this analysis was the conclusion that certain aspects of the structure of the financial services (pressure to produce, variable compensation, trust of clients, knowledge asymmetry between clients and practitioners and access to money) may make instances of fraud more likely or at least more understandable when they do in fact occur.

But, it is important not to fall into the trap (often attributed to academics) of elegantly describing a problem without offering anything in the way of a solution. Let’s think about a solution in terms of the three legs of the Fraud Triangle (1) Pressure (2) Opportunity (3) Rationalization that we discussed in the last post.

RELIEVE THE PRESSURE

Recall that the pressure was caused by the presence of an ‘unshareable problem’, and so one of the best ways to relieve pressure is to to try to make more problems ‘shareable’. A couple of thoughts on this point:

  • Promote cooper-tition. I really like the word ‘cooper-tition’ (although credit for the term needs to go to Dr. Bob Johnson, the President and CEO of The American College). Some sales leaders believe that they can achieve stronger results by encouraging a sort of hyper-competition between representatives and employees. Not only does this increase the pressure to succeed, but it can also isolate individuals by transforming people who could be natural allies (insofar as they understand the unique challenges of building and maintaining successful business) into adversaries by making the work environment a zero-sum game, in which the gains of one person come at the expense of someone else.

 

  • Know your people. Many people who choose to enter the financial services industry are driven, results-oriented and self-motivated individuals.   However, as John Donne famously said, ‘no man is an island’. Everyone needs a network of people with whom they can share their problems and anxieties. As a sales leader, it is important to identify (as much as possible) those individuals who have a good network and those individuals who do not, and to watch the people in the later group a little more closely.

 

  • Use examples to illustrate that it is possible to come back from failure. While I was in graduate school, I had a part-time job teaching prep classes for the GRE and GMAT standardized tests. High test scores on both exams were a job requirement, and I did well on both exams. However, my first experience of test taking was not so good. My dad dropped me off the test site, and I sat down, opened up the test booklet (this was in the days of actual pen and paper test booklets) and completely froze. I was only there for about 10 minutes before I walked out without having completed one section of the exam. I had never ‘choaked’ on an exam before and have not done so since, but it was a searingly humbling experience for me. I shared this experience with all of my students to show that it was possible to ‘come back’ with hard work and preparation – and that sometimes people just have a bad day. Encourage your leaders and top producers to share stories of their failure and come back. There is an expression that ‘one swallow does not make summer’, which means that one sign does not indicate the presence of the event. The idea is that one failure does not mean that you will never succeed – sometimes one failure is just one failure.

DIMINISH OPPORTUNITY

  • Establish strong internal controls. We can recall that one the factors that increased the opportunity for practitioners within the financial services industry to commit fraud was the proximity to money. Only foolish leaders create temptations for their personnel by establishing weak internal controls. There are many people who would not dream of stealing your wallet from your suit coat pocket or your watch from your wrist, but who may be tempted to pilfer a wallet found on the street before returning it to its rightful owner. Part of a strong ethical culture means that leaders impose policies that make it easier to do the right thing, and this means making it harder for people to engage in fraud.

 

  • Increase the feeling of professionalism. Another factor that increases the opportunity for fraud among members of the financial services profession is the trust that clients place in them. This trust can decrease the vigilance of clients (they simply assume that the practitioner is looking out for their best interests) and increase their vulnerability to exploitation. It is important that leaders emphasize that practitioners need to be worthy of the trust that is placed in them by their clients. This can be at least partially accomplished by encouraging the adoption of professional values – and this means talking frequently about professional values – integrity, objectivity, fairness, diligence and confidentiality – and how you apply them in your daily practice. A second way to increase the feeling of professionalism is to tell stories about the impact (both for the good and for the bad) that financial practitioners can have on their lives on their clients. Make sure that your ‘green peas’ understand precisely what is stake as a result of their work, and emphasize that they have both a sacred trust and professional duty to do their very best for the client every time.

 

  • Educate clients. It can be very tempting to be the ‘smartest person’ in the room. We have seen that a third factor that increases the opportunity for fraud in the financial services industry is the knowledge asymmetry between clients and financial services practitioners. This ‘information gap’ can create opportunities for practitioners to exploit clients, who are not sufficiently well informed to protect their interests. The best way to counteract this temptation is for leaders to create a culture that supports a robust program of client education. Make sure that your training and development programs emphasize the skills necessary to identify the level of current client knowledge, clearly explain complex concepts and to assess the level of client comprehension. It is not enough to get the client into the right product or the right strategy, the client needs to be able to understand and articulate why this product or strategy is the right step for her.

DIMINISH THE FORCE AND POWER OF RATIONALIZATIONS

  • Treat people fai As we saw in the previous post, employees often rationalize fraudulent behavior as a means of ‘evening the score’ in response to perceived unfair treatment by the employer. It can be tempting, especially in tough economic times, to cut costs by removing actual or perceived benefits from employees. Sometimes this is necessary and appropriate, but it is important to be wary of unintended costs. And it is important to note that the perception of unfair treatment does not only involve financial or material benefits. Someone once told me a story about when he worked the overnight shift at a large shipping facility. Bells structured the workers’ time and ‘unscheduled’ breaks to use the facilities or get a drink of water were not prohibited, but were discouraged. Management responded to a series of thefts by asking floor managers to randomly pat people down before and after leaving the bathroom in order to make sure that they were not hiding stolen merchandise. This was not only humiliating, it was also unnecessary because while the thefts were serious and costly to the organization, it was clear that only a small number of people were actually involved. Employees responded to the perceived loss of their dignity and autonomy by engaging in acts of fraud and deviance. They felt no guilt about these acts, according to my student, because they were convinced that the company ‘deserved it’ for their unfair and arbitrary policies.

 

  • Prevent a ‘Cheating Culture”: There is very little that is more demoralizing to people who follow the rules seeing people break them with impunity. A powerful justifier of fraudulent behavior is the feeling that ‘everyone is doing it’ and that by acting ethically, you are only getting the ‘sucker’s payoff’. There could not have been anything more disheartening than wanting to be a professional cyclist in the early 2000s without using performance-enhancing drugs. Research shows that organizational acknowledgement and punishment of deviant behavior is less important in terms of the rehabilitation of the actual offender and often more important in terms of the message it sends to the rest of the organization.

 

  • Expose Rationalizations: As we saw in the previous blog post, rationalizations are usually not very sound – often we say them to others we realize this and are embarrassed by their flimsiness. Leaders should take examples of bad behavior and its rationalizations and discuss them with their team. The examples do not need to be from business (unfortunately, there are plenty of examples from the realms of government, politics, entertainment and sports to choose from). Ask your team to think about why the people involved acted as they did and try to imagine what rationalizations they may have used to justify their behavior. This sort of exercise also reinforces the valuable lesson to both leaders and employees that fraudulent behavior usually does not happen in a vacuum, but within a larger context of the cultural of the organization.

It is obviously impossible to prevent fraud completely. There will always be individuals committed to exploiting the opportunities for unethical behavior that are available to financial services practitioners – but this certainly does not mean that we are without tools to fight the good fight.

 

 

The Fraud Triangle and the Financial Services Industry

A member of the Center for Ethics Advisory Board recently sent me an excellent link to a TED talk on the Fraud Triangle on YouTube. While the Fraud Triangle is well-known concept in the accounting industry, I have not seen it used to describe acts of fraud in the financial services industry and I thought it would be interesting to take a closer look. What I discovered is that looking at the Fraud Triangle as an explanatory tool can help to account for the incidences of fraud in our industry that many practitioners and commentators have witnessed.

Donald Cressey, a criminologist, identified the concept of the Fraud Triangle while doing research on prisoners serving time for white-collar offenses in the 1940s.  While financial markets and financial products have evolved since the 1940s, it is clear that Cressey’s concept is still relevant (after all, human nature does not seem change much).

Cressey’s Fraud Triangle has, unsurprisingly, three components:

  • Pressure
  • Opportunity
  • Rationalization

Let’s talk about each leg of the stool and see how they can inform our understanding of fraud in financial services industry.

Pressure

Cressey’s original article referred to financial pressure that is generated from what he refers to as ‘non-sharable’ problem.  Steven Dellaportas provides a good definition of what this means:

“A non-sharable problem occurs when an individual is confronted with a problem or personal crisis and is unable to share their problem with friends or colleagues because of the shame the offender associates with the behaviour, and the consequently effects of legal or social sanctions when the behavior is discovered. Financial distress, loss of status, admission of fault or poor judgment, have the potential to create a non-shareable problems begetting an individual to secretly resolve their problems by stealing to avoid losing face.” (Dellaportas, 2013, p. 30)

The first point to note that is that whether a problem is deemed, ‘non-sharable’ is relative to a certain person. There are some people who would feel comfortable and sharing their financial or business troubles with their spouse or other family members or confessing their feelings of inadequacy to a friend or religious figure.  When we bring other people into the picture, ‘non-sharable’ problems, become ‘shared’ or at least ‘witnessed’ – at which point it is possible to seek input from others regarding possible solutions.

The financial services industry, particularly in some aspects, places tremendous pressure on people to be productive. Success is often solely defined in terms of ‘hitting the numbers’ and individual achievement (or lack of achievement) is often very public. There are some people who find this sort of pressure tremendously motivating and translate it into a drive to produce excellent value to their organization, excellent service to their clients and handsome benefits for themselves and their families.

But not everyone thrives under such pressure, and this is true even if they did at one time or even if they believe that they do thrive. While they are willing to reap the benefits of success, they desperately fear the consequences of failure. They are unwilling to accept or remain stoic in the face of their lack of achievement. This can constitute a ‘non-sharable’ problem as they struggle with ‘losing face’ in front of their colleagues and friends.  Often, their identity is so wrapped in their professional success that they have little to fall back on when this identity is under threat.

Many academics writing on the Fraud Triangle focus their attention on individuals working for large corporations or operating as an external auditor. But I think an argument could be made that a different sort of pressure applies to individual producers in the financial services industry.  Unless you are the member of a C-Suite, pressure is not usually the direct result of your failure to perform.  The accountant at Arthur Anderson who was pressed to collude in the financial shenanigans at Enron was not responsible for Enron’s failed business strategy; but the individual selling unsuitable products or recruiting unsuitable individuals to meet production goals is trying to cover-up a personal failure to perform. The great strength of the financial services industry is its rewards for individual success, but this can create tremendous pressure, pressure that falls solely on the individual.

Opportunity

Cressey’s original article focused on opportunity, which is defined as the perception that a control weakness is present and the likelihood of being caught is remote (Dorminey et. al. 2012, p. 558).

Financial services practitioners have an excess of opportunity to commit fraudulent acts, both towards the organization and towards their clients.  Steven Dellaportas, an accounting professor in Australia, wrote a fascinating article on a research project he did where he interviewed several accountants who were currently in prison for various white-collar crimes. He concludes that these professionals relied on the trust of their clients (whether individuals or organizations) as well as their superior technical knowledge to perpetrate corrupt acts. In finance literature,  the ‘agency problem’ refers to a situation in which individuals lack the knowledge to assess whether their principals are acting in their best interests.  The ‘agency problem’ wherever there is an asymmetry of knowledge between the parties; it is found in the legal profession, the medical profession and the engineering profession, to name a few.  I once had a friend who somehow got a job teaching Latin to a group of high-school students. Unbeknownst to them, his Latin was not as advanced as he led them to believe and he was only a day ahead of them in the textbook. But, as is often the case, in hiring an expert, we don’t know what they don’t know. Of course, the consequences are significantly more severe when you are receiving bad legal or financial advice then when you are receiving an incomplete explanation of the Latin gerundive. Moreover, people often trust their expert advisor simply because they picked him or her.  We all want to believe that we are good judges of character and have confidence in our abilities to select the right experts.  Finally, financial services practitioners actually often handle money (whether in physical or virtual form). It is these three factors; knowledge asymmetry, client trust and proximity of money that can increase the opportunities for financial services professionals to commit fraud.

Rationalizations

The last leg of Cressey’s stool focused on rationalizations. The basic idea is that most people have a lot invested in the idea of themselves as an ethical person. But, this self-concept becomes hard to maintain when I am performing a corrupt act.  The way to resolve this tension is through rationalizations, that is, people who commit fraud need to find a way to mitigate the corruptness of their own actions.

In an interesting article, Anand et al. (2005) describe three categories of rationalizations:

  • Denial of Responsibility
  • Denial on Injury
  • Denial of Victim

Anand and his co-authors define denial of responsibility as follows:

“Denial of responsibility is a rationalizing tactic where individuals convince themselves that they are participating in corrupt acts because of circumstances – they have no real choice. The circumstances may involve a coercive system, dire financial straits, peer pressure, ‘everyone does it’ reasoning and so on.” (Anand et. al, 2005, p. 11)

The idea that motivates this type of rationalization since I was somehow compelled to perform these actions, they were not fully free. Therefore I cannot be held morally (or legally) responsible for them. This idea is reflected in the criminal code as well, people often receive a diminished or mitigated sentence for crimes of passion.

And of course, there is a long continuum of what we can call ‘fully autonomous actions’, defined as those actions that are free from any outside influence and completely coerced actions, defined as those actions in which your actions are physically compelled against your will. However, most of the time, the argument offered by the rationalizers simply does not hold weight. While there may have been some pressure involved, it usually is incorrect to say that the individual involved had no choice.

And this leads us to an important point about rationalizations, they do not need to be particularly good arguments, they merely need to be good enough to resolve the cognitive dissonance.  This is one of the reasons that rationalizations often seem so flimsy when exposed to public view.

Denial of Injury

Denial of injury essentially refers to the idea that if no one was harmed by an action, then the action isn’t really wrong. I talked about this in an earlier blog post under the ‘no harm, no foul’ rule and made the case it was inadequate as an ethical standard. First, simply because you cannot immediately identify the harm does not mean that no harm has occurred or that no harm will occur.   Second, if you believe that sort of actions you take affect the development of your moral character, as we talked about in this recent blog post, then corrupt or vicious actions can amount to profoundly harmful consequences for yourself.

As researchers on the fraud triangle point out, this rationalization is often used when employees engage in corrupt actions against their organization. In the financial services industry, an example may be the ‘gaming’ of incentive contests in order to receive the rewards without providing the intended value to the organization. The employee may reason that no one is really harmed by his action, since, “one more plane ticket certainly won’t bankrupt the company.”

Denial of Victim

This rationalization is different than denial of injury, but they are closely related. The driving idea behind “denial of victim” rationalizations is that while the action may be wrong when directed at certain individuals, it is perfectly appropriate when directed at other individuals. So, for example, while it would be wrong to steal from a peasant, it is morally acceptable (and even praise-worthy) to steal from the rich, as in the Robin Hood mythology.  In this example, the wealthy individuals whose property was the subject of Robin Hood’s raids were not understood as victims – and therefore, no harm was done.

The ‘denial of victim’ cluster of rationalizations can take multiple forms, as in the Robin Hood example, in which members of the nobility were not seen as victims because they were not seriously harmed by the by the small deprivation of the good, small relative to the vast extent of their wealth. Another a second form is that people are not victims because they somehow deserve the treatment they get because of a previous bad act. For example, many people believed that it was not wrong to illegally downloading music because they reason that they are just paying back injustice for injustice given the sky-high prices for legally sold CDs and DVDs.  Additionally, perpetrators may deny people are victims because of a personal characteristic of the victim group. In this case, perpetrators of unjust acts reason that their victims were careless or greedy, stupid or naïve, and therefore, deserve the injustice they receive.  As researchers note, this belief (which originally operates only as rationalization) over time can come to be firmly embraced by the perpetrator making it easier to continue to perform corrupt actions.

The take-away is that, according to the model of the Fraud Triangle, there are several factors within the financial services industry that may increase the instances of fraud that make fraud more likely:

  • The inherent pressure of the sales-environment as well as the compensation structure in the financial services industry may increase the instances of ‘unshareable problems’, and as we will discuss in the next post, the hyper-competitive environment in many financial services field offices can make it difficult for people to share their problems with their leaders, thus rendering ‘shareable problems’ into ‘unshareable ones’.
  • Like accountants and other professionals, the knowledge asymmetry between practitioners and their clients as well as the level of trust most clients have in their financial advisors, coupled with the ready access to money, creates more opportunity for financial services professionals than may be found in other industries. While financial services companies strive for rigorous internal controls, their effectiveness may be diminished by the lack of geographical proximity.
  • Finally, it is easy to see ripe opportunities for rationalization at two different levels; client relationships and organization. Organizational relationships always have the potential to be fraught with mistrust – and these feelings (and misunderstandings) can be exacerbated when the home office of the organization is located at a geographical distance.

We have taken the important step of thinking about the factors that may exacerbate the likelihood of fraud in our industry. In the next post, we will look at ways this fraud can be prevented.

Market Virtues and Vices

In June 2014, the Chancellor of the Exchequer and the Bank of England announced the formation of the “Fair and Effective Markets Review” (Review). The impetus for the formation of this committee was to respond to:

“The scale of misconduct seen in recent years [that] has both damaged public trust and impaired the effectiveness of these important markets. The lack of firm governance and controls, acceptable standards of market practice and a culture of impunity all contributed to a process of ‘ethical drift’, leading to huge fines, reputational damage, diversion of management resources and the reining in of productive risk taking.”

On June 10, 2015 the Review released its Final Report, which was designed to provide an analysis of the root cause of the recent misconduct, evaluate the impact of recent reforms and make recommendations to fill the gaps in the current regulatory structure. Specifically, the purpose of these recommendations is, “to enhance the fairness of FICC markets while also boosting their overall effectiveness, by increasing confidence and reducing risk premia.”

Particularly interesting are the specific recommendations in regards to holding one of the four principles of the Report: holding individuals accountable for their own conduct. The Review recommends that International Organization of Securities Commissions (IOSCO) develop a set of common standards that apply in all Fixed Income Clearing Corporation (FICC) markets, increase breadth of criminal sanctions for market abuse (as well as increasing the severity of punishment for market abuse) and mandate qualification standards and disclosure requirements to better prevent ‘bad actors’ from being undetected when they change jobs.

What is troubling about these recommendations is the near total focus on deterrence as a way of preventing undesirable behavior. It seems that the way to actually increase public confidence in the financial services industry is to raise the level of ethical behavior. As we saw in a recent blog post, it is not at all clear that increased deterrence, in the form of broader and deeper punishment, is the best (or only) way to achieve this goal.

Of course, the challenge is that many believe that success in business requires people to set aside their ethical principles.  Many people believe, especially in light of the recent financial crisis, that there is no incentive for acting ethically in today’s markets and all sorts of upside to acting badly.  It is precisely this perception that the Review set out to debunk. As the Chancellor of the Exchequer remarked:

The public rightly asks why that after so many scandals, and such a cost to the country, so few individuals have faced punishment in the courts. The Governor and I agree: individuals who fraudulently manipulate markets and commit financial crime should be treated like the criminals that they are – and they will be. For let us be clear: there is no trade-off between high standards of conduct and competitiveness. Far from it.”

The question whether it is possible to act ethically and be successful, to which the Chancellor alluded in the quotation above, is hotly debated. It is perhaps unsurprising that I fall on the side that the only truly sustainable path to success is through consistent ethical behavior. However, there is another question that is equally important, but which does not get as much attention.

There is a philosophical tradition in ethics, virtue ethics, which focuses its attention on the development and maintenance of moral character. Virtue ethics has a long history, dating back to the Greek philosopher Aristotle (385 -322 BCE), but continues to have many contemporary philosophical advocates.  For many, including me, virtue ethics offers an attractive alternative to the rule-governed ethical theories offered by Immanuel Kant and John Stuart Mill.

As all-too-brief and simplistic introduction, Aristotle’s theory of virtue ethics posits that all human persons have a function (just like the human heart or a hammer) and this function is to reason.  It is through the proper use of this function that we are able to achieve our end (or telos) as human persons, namely, eudaimonia (happiness, which is better understood as flourishing). The moral virtues are the  behavior traits that enable us to reason well by controlling and directing our emotions and passions to their proper end are called the moral virtues. An advantage of the Aristotelian approach is that it provides us with a powerful incentive to act ethically, namely, it is the best and surest way to achieve eudaimonia, that uniquely human form of happiness.

However, besides the ultimate end of eudaimonia, individuals can use their reason to pursue a multiplicity of activities, each with its own telos.  The virtues specific to these activities are determined by its their specific ends.   For example, the telos of medicine is the health of the human body and there is a particular set of virtues (both moral and intellectual) that enable the physician to achieve this end in an excellent manner.

However, many philosophers, including Aristotle, would not view participation in the market as a practice or an activity itself. The belief is that economic activity is only valued for the good it can produce and that there is something shameful and sort of ‘grubby’ about people who spend time thinking about money or making money.

It seems to me that it is hard to talk about ethical behavior in business if there is nothing virtuous about business activity. If participation in economic exchange is only a means to an end (and something that you should probably hold your nose when doing!) then how is it possible to talk about business ethics in a meaningful way? This questions leads to some additional questions; is it possible to participate in the market in a way that is ethically elevating, insofar as it contributes to the development of our moral character rather than diminishes it? Can an individual  be both morally (and materially) enriched by participating in economic markets?

Well-known economists Robert Sugden and Luigino Bruni raise just these sorts of questions in their article “Reclaiming Virtue Ethics for Economics” (2013). They begin by asking a question:

“What is the characteristic end or purpose or raison d’etre of the market? How would you describe, in the simplest and most general terms, what markets do that is valuable? If you had to write a mission statement for the market, what would it say?” (Bruni and Sugden, 2013, p. 152)

Bruni and Sugden find the answer in the liberal economic tradition itself, arguing that the telos of the market is the mutual benefit or gains through trade or voluntary transactions.

“We suggest that the common core of these understandings of markets is that markets facilitate mutually beneficial voluntary transactions. Such transactions can be seen as valuable because individuals want to make them, because they create wealth and because the opportunity to make them is a form of freedom.  We therefore propose to treat mutual benefit as the telos of the market.” (Bruni and Sugden, 2013, p. 153)

Bruni and Sugden adopt an Aristotelian understanding of the virtues.  Since the activity of economic exchange has an end in itself, it is possible to identify a set of virtues that enable an individual to achieve the telos of economic activity, the creation of mutual benefit, in an excellent manner.  Bruni and Sugden list eight ‘market virtues’ that enable their possessors to excellently achieve the end of mutual benefit. I have taken the list and expanded it to include what I think would be a corresponding set of market vices. Since Aristotle defines virtue as a mean between excess and deficiency, vices are those behaviors that deviate from the mean by going too far or not far enough.

Market Virtue Description Market Vice
Universality “The disposition to make mutually beneficial transactions with others on terms of equality, whoever those others may be,” (154). Excess: Injustice (giving people more than is their due), which manifests in various forms of favoritism and patronage.
Deficiency: Injustice (giving people less than their due), which manifests in inappropriately excluding people from benefits of market transactions, i.e. various forms of discrimination
Enterprise (sellers) and Alertness (buyers) Enterprise requires, “Discovering and anticipating what other people want and are willing to pay for is a crucial component of entrepreneurship…Successful entrepreneurship requires empathy and imagination,” (154).  Regarding alertness, it is a virtue for consumers to have the, “inclination to shop around, to compare prices, and to experiment with new products and suppliers,” (154). Excess: Arrogance (overvaluing your own opinion and undervaluing the opinion of others)
Deficiency: Complacency (in terms of lacking the appropriate appreciation for the value of money or taking responsibility for one’s choices).
Respect for the Tastes of Trading Partners The respect for the preferences of the trading partner requires that sellers take these preferences seriously and not act in a paternalistic manner, giving them only what the seller believes is in their best interest (155). Excess: Arrogance (see above) and Injustice (not giving people the respect they are owed).
Deficiency: Servileness (giving the consumer too much or acting in a groveling manner, i.e. treating the customer well comes to mean giving the customer everything they want at the expense of other stakeholders).
Trust and Trustworthiness The disposition to have reasonable confidence in other people and the disposition to maintain those traits necessary for others to trust in you. Excess: Overly suspicious (which can also be a form of arrogance and injustice).
Deficiency: Lack of judgment or discernment
Acceptance of competition Disposition towards fair play, as Bruni and Sugden describe it, “a virtuous trader will not be motivated to seek to be protected by barriers to entry, or to ask potential trading partners to trade for reasons other than price of quality. Nor will a virtuous trader be inclined to make agreements with other traders on the same side of the market to restrict supply or demand or to partition the market and then not compete,” (156). Excess: Injustice and Greed
Deficiency: Servileness or Excessive Humility (not valuing yourself or your organization appropriately)
Self-Help Disposition to appropriately value the opinion of others and work to meet their needs. “Thus, it is a market virtue to accept without complaint that others will be motivated to satisfy your wants, or to provide your with opportunities for self-realization, only if you offer something that they are willing to accept in return…A person who upholds the virtue of self-help will avoid asking others to reward her for producing goods that those others do not value,” (157). Excess: Arrogance
Deficiency: Servileness or Excessive Humility (inappropriately catering to market demands without a sense of other goods, i.e. health, safety)
Non-rivalry Disposition to see others as potential collaborators rather than as threats to one’s gains, as well as a disposition to focus on one’s own strengths, rather than on others’ weaknesses. Excess: Envy
Deficiency: Excessive Humility
Stoicism about Reward Disposition to react appropriately to the role of luck and timing in market interactions, as well as a disposition to retain equanimity in the face of both rewards and losses Excess: Envy and Anger
Deficiency: Despair

Looking at our table, we are able to come up with a pretty robust list of vices:

  1. Injustice
  2. Arrogance
  3. Complacency
  4. Servileness
  5. Overly Suspicious
  6. Lack of wisdom/Poor judgment
  7. Greed
  8. Excessive humility
  9. Envy
  10. Anger
  11. Despair

Just a cursory review of these ‘market vices’ reveals that when you think about the ethical failings of the individuals and institutions involved in recent market scandals, this seems to be a pretty good diagnostic tool. I think that Bruni and Sugden may be on to a very good point.

This leads me to a final point; these are not good character traits for human persons in general. One of the most compelling arguments that Aristotle makes is that the virtues and vices that compose our character are built through are actions, that is, we create our own characters through the actions that we choose.  As we develop virtues and vices, our dispositions shift accordingly, therefore, it is easier for a virtuous person to perform virtuous actions and for a vicious person to perform vicious actions. Our virtues and vices are reinforcing. More importantly, all actions count. As I used to tell my undergraduate students, “What happens in Cancun on Spring Break does not stay in Cancun. Spring Break is not a free zone. Your decisions there will affect who you are and what sort of person you become.”

And the same is true in business, perhaps even more so, because your work life will extend much longer than your Cancun vacation.  It would certainly be demoralizing if an activity in which most of us spend a large portion of our time contributing nothing to our moral character and development, or only contributed in a negative way.  It would be hard for the conclusion to be that we were required to act ethically in business without the possibility that we can be ethical people while doing so.

Returning to the Review, the Report does provide an interesting definition of fair markets:

“Fair FICC markets are those which, (i) have clear, proportionate and consistently applied standards of market practice, (ii) are transparent enough to allow users to verify that those standards are consistently applied, (iii) provide open access (either directly or through an open, competitive and well-regulated system of intermediation); (iv) allow market participants to compete on the basis of merit, and (v) provide confidence that participants will behave with integrity.”

It is notable how the terms used in this definition align so well with the market virtues listed by Bruni and Sugden. I would add that it seems a case can be made for the fact that fair markets will be most completely and effectively undermined by the presence of the market vices that I derived from the virtues. It will be important to make these virtues and vices a part of the conversation if we are going to see any real change.