Some interesting research this week providing new perspectives on ethics in the financial sector.
Is ethical finance the answer to the ills of the UK financial market post crisis?
The 2008 financial crisis exposed the dark side of the financial sector in the UK. It brought attention to the contaminated culture of the business, which accommodated the systemic malpractices that largely contributed to the financial turmoil of 2008. In the wake of the crisis there seems to be a wide consensus that this contaminated culture can no longer be accepted and needs to change.
This article examines the ills of the UK financial market, more specifically the cultural contamination problem, which was uncovered by the 2008 financial crisis, in order to explore its genesis and the suitable solutions for it. In this regard, the article analyses the ethical finance sector from theoretical and practical perspectives in order to assess its role in addressing the cultural contamination problem of the UK financial market.
Read this Open Access article for free online
Abdul Karim Aldohni. 2018. Is Ethical Finance the Answer to the Ills of the UK Financial Market? A Post-Crisis Analysis.
Journal of Business Ethics, 151(1), 265–278.
Ethics versus Ethos in US and UK Megabanking
Company law in the US and UK fails to acknowledge that authorities’ propensity to rescue giant banks from the consequences of insolvency creates an implicit contract that assigns taxpayers a coerced and badly structured equity stake in too-big-to-fail institutions.
The entrenched managerial norm of maximizing stockholder value abuses this stake. It does so by lending an undeserved moral legitimacy to efforts by TBTF managers to take on dangerous levels of tail risk because their bank’s deep downside is effectively eliminated by the prospect of unlimited taxpayer support. Conventional tools of prudential regulation constrain but do not de-legitimate this behaviour.
To accomplish that end, this paper calls for: (1) a formal recognition of the fiduciary duties and dividends that TBTF firms owe to taxpayers and (2) criminalizing aggressive pursuit of safety-net subsidies as a form of public endangerment.
Edward J. Kane. 2018. Ethics versus Ethos in US and UK Megabanking.
Journal of Financial Services Research, 53(2-3), 211–226.
Cryptocurrencies and business ethics
Cryptocurrencies such as Bitcoin, SETLcoin, Ether, Solar Coin, or Liberty Reserve exist since 2009. Because of their decentralized control, they are often considered a threat or alternative to the conventional centralised banking system. While the technological implication of some such currencies, especially of Bitcoin, has attracted much attention, so far there is little discussion about the entire field of cryptocurrencies and very little academic literature addressing its ethical significance.
In this article, the authors thus address the impact of “blockchain technology” on the nature of financial transactions from a business ethics perspective. The authors begin with a survey on relevant literature from neighbouring disciplines. Next, the authors work towards a 3 × 3 framework for current debates on the ethics of cryptocurrencies (see Table 1): the authors combine the micro, meso, and macro levels of business and society with assessments of the potential ethical impact of cryptocurrencies as morally beneficial, detrimental, and ambiguous.
In addition, the authors highlight possible avenues for future research, such as the changing roles of the miners and regulators, the prosocial use of cryptocurrencies, the antisocial use for shadow banking and transactions in the ‘dark net’ and cryptocurrencies’ effect on inflation and deflation.
Claus Dierksmeier and Peter Seele. 2018. Cryptocurrencies and Business Ethics.
Journal of Business Ethics, 152(1), 1–14.
On the price of morals in markets: Swedish AP-Funds and the Norwegian Government Pension Fund
This study empirically analyses the exclusion of companies from investors’ investment universe due to a company’s business model (sector-based exclusion) or due to a company’s violations of international norms (norm-based exclusion).
The authors conduct a time-series analysis of the performance implications of the exclusion decisions of two leading Nordic investors, Norway’s Government Pension Fund-Global (GPFG) and Sweden’s AP-funds.
The authors find that their portfolios of excluded companies do not generate an abnormal return relative to the funds’ benchmark index. While the exclusion portfolios show higher risk than the respective benchmark, this difference is only statistically significant for the case of GPFG.
These findings suggest that the exclusion of the companies generally does not harm funds’ performance. The authors interpret these findings as indicative that with exclusionary screening, as practiced by the sample funds, asset owners can meet the ethical objectives of their beneficiaries without compromising financial returns.
Read this Open Access article for free online
Andreas G. F. Hoepner and Lisa Schopohl. 2018. On the price of morals in markets: Swedish AP-Funds and the Norwegian Government Pension Fund.
Journal of Business Ethics, 151(3), 665–692.
Sarbanes–Oxley Section 406 code of ethics for senior financial officers and firm behaviour
Sarbanes–Oxley Section 406 requires a code of ethics for top financial and accounting officers in public companies. The objective of this research is to discover the impact of a financial code of ethics on firm behaviour.
The authors performed a longitudinal tracking of firm adoption of a financial code of ethics starting in 2005. The authors checked these companies’ codes again in 2011 to confirm their continued implementation. Financial restatements were used as a dependent variable to measure improved financial reporting after the adoption of the financial codes.
The results confirm that the adoption of a financial code of ethics improves the integrity of financial reporting.
Saurabh Ahluwalia, O. C. Ferrell, Linda Ferrell and Terri L. Rittenburg. 2018. Sarbanes–Oxley Section 406 Code of Ethics for senior financial officers and firm behavior.
Journal of Business Ethics, 151(3), 693–705.
Harnessing the social in the new world of finance
In the wake of successive crises, novel politics and ethics are emerging around attempts to institute a ‘new’ world of finance in the name of social relations. Financial start-ups and development organisations, often working alongside established financial institutions, are experimenting with the ‘social’ in order to create markets and scale up their activities.
At the same time, people continue to advance social claims in finance out of concern for others. This article examines the rise, politics and ethics of this experimentation in what the authors call ‘relational finance’. The argument is that by rendering the social dimensions of finance explicit, contemporary relational finance makes sociality available for marketisation and politicisation.
The authors illustrate this claim with three examples of mobilisations of the social in everyday lending and borrowing: social collateral, social lending and social debt. Relational finance, the authors conclude, is far from an unproblematic ‘alternative’ but retains ethical and political potential.
Lauren Tooker and Chris Clarke. 2018. Experiments in Relational Finance: Harnessing the Social in Everyday Debt and Credit.
Theory, Culture & Society, 35(3), 57-76.