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Tom Morris


Interview With a Philosopher: A Conversation With Keith Wyma and Tobin Senefeld on Goldman Sachs

Posted: 03/21/2012 2:45 pm

If Aristotle ran Goldman Sachs, what sort of press do you think the company would be getting these days? How would employees, past and present, describe their culture?

I recently had the chance to read a terrific new book manuscript on what ethics really means for Wall Street and all financial services professionals. It may be the single best book on business ethics I've ever come across. The great irony is that before the authors Keith Wyma and Tobin Senefeld finished it, they discovered that their publisher was not "too big to fail." The press closed its doors, and this gem of a book is now looking for a new home. Its title is Streetsmart Ethics, with the subtitle, "Connecting What's Right with What's Smart on Wall Street." The book provides us with important new knowledge distilled from an ancient point of view deriving from Aristotle that will help to fill a longstanding gap between knowing what's right and doing it, especially in the world of financial services. This perspective is exactly what we need for reinvigorating ethical cultures at all of our financial services firms who may have experienced difficulties in the recent past either because of the actions of a few rogue individuals, or due to more pervasive pressures.

Keith is Associate Professor of Philosophy at Whitworth University, and Tobin, after years in financial services, is now teaching at Andersen University, while he continues to work in financial endeavors.

In light of the recent public scandal created by former Goldman Sachs manager Greg Smith, with his very public Op Ed letter in the New York Times about what he claims is a coarse and predatory culture of client-bashing and greed at Goldman, traditionally one of our top, premier financial firms, I decided to talk to the authors of this new, great, temporarily homeless book, Street Smart Ethics, and ask their opinions, not about Goldman per se, but about the general problem Smith and all of us are concerned about.

Tom: Hi guys. Thanks for being with me today. Let me just ask, right off the bat: what strikes you as significant in Smith's open letter and the vigorous reaction to it? I don't want to ask you about Goldman specifically, but about the sorts of charges he makes more generally.

Keith and Tobin: Thanks for inviting us to the party, Tom. We want to emphasize that we have no direct experience in the culture of Goldman Sachs, so we certainly can't comment on whether Smith's allegations are true. However, given the number of supportive emails he's apparently received from Goldman clients, Smith's portrayal clearly struck a nerve in perceptions of the firm. And it resonates with many people's worries about this whole central sector of our economy. So it's worth exploring. In fact, we find several striking points in his Op Ed letter. Some are key ethical concerns of the financial professions themselves, and some are areas where Smith's characterization falls short of what's fully at stake, here, ethically speaking.

Tom: All right, fair enough. So tell us what you see.

Keith and Tobin: Well, first, if you look at Smith's complaints, you can see he's identified two of the most ethically challenging aspects of finance: (1) Maintaining suitability between clients and their investments; and (2) resisting conflicts of interest between the firm and the clients. Both of these concerns are in the professional codes of the field, of course, but they're also both notoriously difficult. A big part of the problem lies in the fact that the financial professional's own interests seem opposed to the client's in cases like the ones Smith mentions, such as executing trades on the firm's "axes" to get clients into securities that don't fit them or aren't profitable, but that the firm is holding and wants to drop. Since the professional's interests are tied to the firm's in obvious ways, if a firm promotes such trades, it places the professional in tension. Because these issues are of paramount importance, we treat them both in our book, as well as insider trading and churning, as we address the central problems of the investment professions.

That brings up the second striking aspect: what Smith doesn't address that's really at the root of the problems. The tension, described above, worsens because Wall Street attracts the ambitious, the self-motivated and the aggressive individual. It has to--the nature of the work environment demands those qualities. Wall Street professionals, then, can be counted on to possess a strong sense of pragmatic self-interest. Unfortunately, current ethical approaches and teaching--both generally, and certainly on Wall Street--often seem at odds with self-interest. A gap appears between what's right in ethics and what's smart in pursuing a healthy individual self-concern. The ethical guidelines and advice currently available to financial professionals badly and irreparably fail to close that gap. That puts these folks, and their corporate cultures, into an explosive situation, and we more and more frequently see such explosions ignite, like in Smith's allegations.

Tom: Say some more about this.

Keith and Tobin: Ok. Smith makes a classically Adam Smithian argument that Goldman Sachs' actions and priorities aren't conducive to the firm's long-term interest. And that may be true, but even so, it misses the point that the actions still seem highly beneficial to the firm's members now by producing a better bottom line, and all the accompanying status and bonuses. Greg Smith still thinks in the old-school ethical approaches that don't address the connection between individual self-interest and doing the right thing.

Throughout the world of business now, we need to address this problem head-on. No one finds it easy to act ethically when feeling like a chump or fool for doing it. Weighty temptations and shaky moral justifications do not make for a stable ethical life. The daily news constantly reminds us--with stories like Greg Smith's and the falling public trust in Wall Street--of how great the need is to shore up that profession's moral foundations. So, what those struggling with ethical difficulties in this profession need is a whole new approach to thinking about and justifying ethical standards.

Tom: That's what I found so exciting about your book. It completely reorients our business thinking about ethics, and strips away the classroom and textbook approaches to ethical choice that seem to collapse easily in the real world of pressure, quick decisions, and practical matters of self-interest. You bring us back to what for most people is a completely new perspective on what ethics is all about, and it's a perspective that even most philosophers had long abandoned because they didn't understand its unique power to root ethics at the core of personal and institutional growth, as well as to bridge the motivation gap between knowing and doing.

Keith and Tobin: That's exactly what we offer in Streetsmart Ethics. We work from some of the most recent cutting-edge developments in ethical theory, developments that overturn long established paradigms for thinking about ethics, and propose that Wall Street's most sensible corrective is to understand its ethical standards in light of their impact on personal (and corporate) virtues. To make that proposal, we then have to educate people once more about what the concept of a virtue is, as understood in the ancient world, and by such a seminal thinker as Aristotle.

Tom: Give us a quick definition. What is a virtue? In Latin, the word virtu meant "prowess" or "strength." The Greek arête is often translated either as "virtue" or as "excellence."

Keith and Tobin: Exactly. A virtue is a morally valuable character disposition that, in itself, is beneficial to the individual who possesses it. It's a form of personal strength. Virtues are analogous to physical health or physiological strength: the conditions in which our bodies function at peak capacity. Similarly, virtues are character conditions that enable us to function well in our mental and social capacities. And just as health and strength can be acquired and developed by physical exercise, virtues are gained and maintained by performing morally right actions. Virtues are also always blocked or undermined by doing the wrong things.

By focusing on virtue, rather than on rules, or on possibly anticipated external consequences of actions, our approach speaks persuasively to self-interest--neither demanding its removal, nor vaguely threatening it with speculative long-term negative consequences, but offering it the possibility of fulfillment through recognition of better satisfactions than unethical actions offer, and a subsequent re-direction of ambition and aspiration. In short, this virtue ethic makes a direct and stable connection between what's right and what's smart--it passes the streetsmarts test.

Tom: This is one of the things that I find so innovative in your book. Most people seem to view ethics as all about staying out of trouble. You present it in the proper, much deeper perspective. It's all about creating strength.

Keith and Tobin: Precisely. We can't withstand moral temptations reliably as individuals, or create firmly moral cultures in our companies, without identifying a clear connection between what's right and what's smart--a way to bridge the gap between ethical standards and self-interest. Then, when tempting situations arise, our ethical motivation is stronger, and we can act ethically without feeling like chumps, because we realize our own interests are actually being better served through doing what's right. The virtue ethic we present decisively closes the gap between what's smart and what's right, drawing on the actual experiences and ethical dilemmas of real world financial advisors. We're convinced we can demonstrate its case convincingly, and with it defuse the explosive conflict between ethics and self-interest in the culture of Wall Street. It's this perspective that we're eager to bring to the investment world because it could help transform individual mindsets and the corporate cultures of firms like Goldman Sachs, while bringing the work of Wall Street back to its essential functions and true greatness.

Tom This deeper perspective on ethics that you call us back to will help us regain our bearings on the relationship between individual character and institutional culture. With its use, we can understand anew how right builds might, and we'll be more likely to avoid some of the ethical failings that have threatened the heart of capitalism in recent days.

There's so much more to be said. But thanks for giving us a snippet of the perspective from your great book. I hope you find the right publisher soon!

Keith and Tobin: Thanks, Tom!


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