Seeking Virtue in Finance: Contributing to Society in a Conflicted Industry

249 Pages·2020·1.111 MB·English

by  JC de Swaan

Seeking Virtue in Finance
SincetheGlobalFinancialCrisis,asurgeofinterestintheuseoffinanceas
atooltoaddresssocialandeconomicproblemssuggeststhepotentialfora
generationalshiftinhowthefinanceindustryoperatesandisperceived.JC
de Swaan seeks to channel the forces of well-intentioned finance profes-
sionalstoimprovefinancefromwithinandhelprestoreitsfocusonserving
society.Drawingfrominspiringindividualsinthefield,deSwaanproposes
aframeworkforpursuingaviablecareerinfinancewhilebenefitingsociety
and upholding humanistic values. In doing so, he challenges traditional
conceptsofsuccessintheindustry.Thiswillalsoengagereadersoutsideof
financewho are concernedabout theindustry’s impact on society.
JC DE SWAAN is a lecturer in the economics department at Princeton
University,whereheisaffiliatedwiththeBendheimCenterforFinance,and
apartneratCornwallCapital,aNewYork-basedinvestmentfund.Healso
teachesattheUniversityofCambridgeandisamemberoftheCouncilon
Foreign Relations.
Advance Praise for Seeking Virtue in Finance
“In hisuniqueand importantbook, JC de Swaan applies
Aristotle’svirtueethicstomodernfinance. Theresultisahighly
sophisticated accountof how the financeindustry contributes
bothgoodandilltotheeconomyandsociety. DeSwaanknows
the evidence, and presentsit withcare, objectivity,and moral
purpose –to help makemodern financea force for good inthe
world. Kudos for a major contribution to the debate on
reforming business forthe common good.”
Jeffrey D. Sachs,University Professor atColumbia
University, and Director ofthe United Nations
SustainableDevelopment
SolutionsNetwork
“The words ‘virtue’ and ‘finance’ do not often appear inthe
same sentence – unless there is anegative inbetween them.
Finance has earned its bad name. This remarkablyoriginal
bookpointswould-befinanciersinastarklydifferentdirection.
Through both general principles and specific examples, JC de
Swaanshowshowthetwaincan–andshould–meet, howthe
financial industry can becomemore virtuous and contribute
more to society.EveryWall Street executive should read this
book.”
AlanS.Blinder,GordonS.RentschlerMemorialProfessorof
Economics and PublicAffairs,Princeton University
“JC de Swaan appliesthe conceptof mindfulness to the
untilled field of finance in hisnew book SeekingVirtue in
Finance. DeSwaan deconstructs thecomplexity and opacity of
thefinancialindustry,layingbaretheconflictingandoftenself-
serving incentives that motivatemanyof its professionals.In
doingso,heprovidesavocabularyandframeworkforthenext
generation ofwell-intentioned financial leadersto be able to
better assess and navigatetheir way throughtheindustry and
advance the common good.”
Janet Cowell,CEO,
Girls Who Invest
“I’vebeenwaiting a long time for someone to write this book,
and it couldn’t come ata better time. JC de Swaan examines
how finance careerscanbe more sociallyresponsible and the
industrycan add more value to the world. Hemakes a
convincing casethatpeopleand companiesdon’tneed to be
ruthlessto be successful.”
Adam Grant, New York Times bestselling
author of Originalsand Give and Take,
and host of the chart-toppingTED podcastWorkLife
“Intoday’sworld,ithasbecomealltoocommonforindividuals
to believe that markets and competition areinconsistent with
humanistic values.In Seeking Virtue in Finance, JC deSwaan
demonstrates how finance professionals can successfully
operatewithintheindustrytoimprovethecollectiveinterestsof
society throughmoral character, practicalwisdom, and
moderation.Indoingso,financialprofessionsnotonlymakeus
better off – they makeus better.”
Arthur C. Brooks,author of Love Your Enemies;President
Emeritus, American EnterpriseInstitute; and Professor of
Practice, HarvardKennedySchool, and Faculty Fellow,
Harvard Business School
“Athoughtfulbookataveryappropriatetime. Cantheworlds
of finance also be worlds ofsocietal good? JC de Swaan
explores this idea ina considered but provocative way.
Definitely an important read,especially for leaders of financial
firms andleaders of financial functions – as well as younger
people considering such careers.”
D. Ronald Daniel, formerManaging Partner,
McKinsey & Company

Seeking Virtue in Finance
fl
Contributing to Society in a Con icted Industry
JC de Swaan
Princeton University, New Jersey
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www.cambridge.org
Informationonthistitle:www.cambridge.org/9781108473132
doi:10.1017/9781108561815
©JCdeSwaan2020
Thispublicationisincopyright.Subjecttostatutoryexception
andtotheprovisionsofrelevantcollectivelicensingagreements,
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permissionofCambridgeUniversityPress.
Firstpublished2020
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CONTENTS
Preface page ix
Introduction 1
1
Customer Mandate: Serving Customers’ Interest
Faithfully 25
2
Social Wealth Creation: Contributing to Society
beyond the Customer Mandate 68
3
Humanistic Leadership within the Organization:
Treating Colleagues with Dignity, Empowering
Them, and Fostering a Responsible Culture 139
4
Engaged Citizenship: Contributing Expertise,
Time, and Wealth to the Common Good 164
Conclusion 194
Acknowledgments 201
Notes 205
Index 235

PREFACE
Onemoment[this]herdofgraduatesofthenation’sbestuniversitiesare
youngpeople...withyoungpeople’sidealsandhopestolivea
meaningfullife.Thenexttheyareessentiallyoldpeople,atworkgaming
ratingscompanies,anddesigningsecuritiestofailsotheymightmakea
killingofftheinvestorstheydupeintobuyingthem,andriggingvarious
marketsattheexpenseofthewidersociety,andencouragingallsortsof
peopletodostuffwiththeircapitalandtheircompaniesthattheynever
shoulddo.1
MichaelLewis
This bookis writtenformy students. Manyof themintend topursuea
career in finance but are concerned about being corrupted the minute
theywalkintotheirfirstjob,beitataninvestmentbank,hedgefund,or
otherfinancialinstitution.ThefundamentalquestionIseektoaddressis
how, given the existing structures and set of incentives in the finance
industry,afinanceprofessionalcanpursueaviablecareerwhilebenefit-
ingsocietyandupholdinghumanisticvalues.Todoso,Ishinealighton
remarkable individuals in the industry, to inform what a self-interested
yet virtuous path in finance might look like, and to counter the daily
onslaught of stories about badly behaving, self-serving finance profes-
sionals.TheinsightsIdevelopedfromresearchingtheseissues,debating
themwithmystudents,andwritingthisbookapplyjustasmuchtome,
havingbeeninvolvedintheindustryforsometime,astomyaudience.
I recognize that individual behavior is largely driven by incen-
tives which, in turn, are shaped by market forces and regulation. Yet,
thesurgeofinterestintheuseoffinanceasatooltoaddresssocialand