Anthony Hilton: There is no credit for sound ethics

AW Trinder ran a discount house in the City back when such organisations were at the core of banking, and became something of a legend for his remark: 'I can truthfully say that honesty is the best policy. I’ve tried both.'

Unfortunately, there is scant evidence that it is true.

Outward dishonesty is a flawed strategy, if only because breaking the law carries with it the risk of ending up in jail. But behaving unethically seems to work rather well; witness the quite astonishing profits announced this month by the American investment banks, in spite of the fact that it is now widely believed that – when it suits them – they put themselves first and their customers second.

Professor Avinash Persaud once gave a lecture, while at Gresham College, that emphasised how trends reinforce themselves. A market known for its strong ethics will attract more business, become better used and so become a better, more liquid market. Conversely, if ethics are poor, markets tend to become poorer. This is because once poor ethical behaviour and bad practice become the norm, there is a competitive cost on firms that act ethically, which means few do.

Alistair Ross Goobey, one-time boss of Hermes, Britain’s biggest pension fund manager, made an associated point a few years ago in the Securities Institute’s annual ethics lecture. He said there was a clear price to be paid for a lack of trust (in the financial system) – but admitted that the evidence that good behaviour pays at an individual level was still only anecdotal. It would be good to prove that integrity and good governance have an impact on share ratings, but there is a dearth of academic studies to support this. The reason, according to the academics, is that there are too many other variables affecting share price to be able to isolate a single driver.

In spite of this, most firms try to do the right thing: in the short term, staff want to be associated with decent organisations; in the longer term, business leaders understand that voters have to believe in the integrity of the system if it is to continue to have popular support. Yet it is a tough PR challenge to persuade clients to buy into the message that they should do the right thing, but that they should not expect to get any credit for it.

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