The ethics of finance and business
Submitting Institution
Heythrop CollegeUnit of Assessment
Theology and Religious StudiesSummary Impact Type
SocietalResearch Subject Area(s)
Mathematical Sciences: Statistics
Economics: Applied Economics
Commerce, Management, Tourism and Services: Banking, Finance and Investment
Summary of the impact
This case study looks at the impact on the international finance industry
and big business of research conducted at Heythrop College by Catherine
Cowley. Cowley's work is transforming the ethical framework with which
some of the most powerful corporations in the world operate and how they
understand their role in society, as well as influencing the direction and
content of the public debate over the ethics of finance and business.
Underpinning research
The research underpinning this case study was conducted by Dr Catherine
Cowley, who was employed by Heythrop College throughout the project,
before becoming an Emeritus Research Fellow in 2011. The findings were the
culmination of several years of observation of the financial markets, but
more specifically of work carried out in 2004-5.
In the monograph that presented the findings, Cowley critiqued standard
business ethics and mainstream economics, demonstrating that these
prevented an adequate understanding of the particular features of the
finance sector. The first half of the book set out a framework for
understanding business and markets, the individual and common good,
especially in the light of insights from Catholic social teaching. In the
second half, following an examination of the nature and philosophy of
money, Cowley presented a framework for examining the finance sector as a
specific and distinctive sector of the economy. She examined the ethical
implications of the use of derivatives, risk and cross-border capital
flows for the finance sector itself and for the wider economy, and
criticised the regulatory framework used by the Financial Services
Authority, particularly as this was related to the individual financial
practitioner through the Approved Persons regime.
In particular, she argued that the ways in which risk measurement,
distribution and evaluation were carried out, and the models used for that
assessment, were fundamentally flawed. Giving a number of examples, she
argued that risk was not dispersed through the system as the sector and
mainstream economics claimed. Through the examination of the use of
derivatives and the sector's volatility models, she argued that the whole
financial system could be destabilised and suggested some corrective
measures. Having looked at the systemic elements, she then focussed on the
individual financial practitioner, both from the point of view of
regulation by the FSA and by an examination of the employment and
remuneration practices of the sector, including the use of bonuses. She
highlighted areas where current assumptions and practices left the
individual financial institution and the sector as a whole vulnerable to
behaviour which was either unethical or at least lacking in judgement.
A further piece of research carried out in 2006 extended the analysis of
risk within the finance sector. In it, Cowley argued that the sector could
undermine the necessary conditions for its own success by destabilizing
currencies and markets. She correctly identified in advance that the use
of credit derivatives in the US sub-prime mortgage market would bring
about systemic failure.
The financial crash in 2008 demonstrated that the findings of the
research were correct — the distribution of risk was flawed, FSA
regulation was inadequate, the whole financial system was open to
destabilisation, and systemic failure resulted from practices in the US
sub-prime mortgage market.
References to the research
The Value of Money: Ethics and the World of Finance (London:
T&T Clark, 2006)
`Public Goods and Economic Risks', in Values in Public Life: Aspects
of the Common Good, ed. by Patrick Riordan (Munster: Lit Verlag,
2007), pp. 173-187
Details of the impact
Impact from the research was primarily generated by working directly with
leading financiers and business leaders in two projects (the first leading
into the second), instigated by the Archbishop of Westminster and
president of the Catholic Bishops' Conference of England and Wales,
Vincent Nichols.
The ethics of finance
The first project began in October 2009. Cowley was involved by the
Archbishop in a private seminar of leading international financiers, viz.
the Chairmen of Barclays Bank, Lloyds TSB, Roundtable Investment Partners,
HSBC Holdings, the Treasury Select Committee, and Marshall Wace; the
Presidents of the CBI, PPF Partners Ltd, and Schroders; the CEO of Tudor
Capital UK, the Global Head of Healthcare JP Morgan, the Director of
Rothschild's, and senior representatives of McKinsey & Co, Goldman
Sachs International, Deloitte, Schroders, Syntel, and Bain & Co. Also
present were a former Chief of the Defence Staff, an Auxiliary Bishop in
Westminster, the Vice- President and Assistant General Secretary of the
Catholic Bishops' Conference, and Professor Stefano Zamagni, adviser to
the Pontifical Council for Justice and Peace on the papal encyclical Caritas
in Veritate.
The meeting was convened to discuss the implications of Caritas in
Veritate, which seeks to place economic and financial activity in
the broadest context of human flourishing and fulfilment. The encyclical
outlines a vision for how `integral human development' can be promoted
through economic development and the opportunities afforded by
technological change. Cowley was consulted in the preparatory note that
raised questions for discussion, which drew heavily on her research into
the ethics of financial markets, in particular, her analyses of (i) the
relationship between the nature of derivatives, the use of risk assessment
models and remuneration packages, and (ii) the relationship between market
assumptions, the nature of the regulatory framework and the nature of
moral decision-making. The purpose of the preparatory note and the
discussions that followed, in which Cowley participated fully, was to help
senior personnel to reflect on how these relationships operate and how
behaviours might be modified.
The financiers were very positive about the first seminar, and requested
a second seminar, convened in March 2010. They identified the need for a
clear statement of their responsibilities as financial leaders and for a
more philosophical statement of the underlying issues. Both were produced,
with Cowley's involvement. The Assistant General Secretary of the Catholic
Bishops' Conference drafted a letter, in consultation with Cowley, which
was published in the Financial Times on 28 September 2010,
entitled `Financial leaders pledge excellence and integrity'. It was
promoted by key participants from the seminars, and attracted significant
support from other City leaders who co-signed. Archbishop Nichols comments
that Cowley's `detailed knowledge of both the Church's social teaching and
the financial economy enabled her to act as a vital interpreter. She has
greatly helped to shape and focus the work we have done to ensure that it
is fully grounded in the reality of the market economy and the practical
decisions of business leaders. At the same she has helped our secular
audience to understand and engage with the moral and ethical challenge of
CST [Catholic social teaching].'
The project was taken up by the Lord Mayor of the City, Nick Anstee, at a
conference at Mansion House on 4 October 2010, at which the Financial
Times letter was a focus for reference and discussion. Archbishop
Nichols spoke at the conference, and his talk was informed by previous
discussion with Cowley. The next Lord Mayor of the City, Michael Bear,
took the work forward in a project entitled `Trust and Values in the
City', leading to a symposium in July 2011, a further conference in
October 2011, a report on the conference, and the establishing of several
further initiatives, including the City Values Forum and the Integrity
Resources website. The Financial Times letter and the conference
of October 2010 were identified as the origin of these development in a
press release from the City of London Corporation on 27 October (`City
institutions respond to demands for greater ethical accountability', note
1).
To further extend the reach of impact, Cowley also engaged extensively
with the media, including a 30-minute television interview for HARDTalk
broadcast on BBC News and BBC World News on 9 September 2009; The
Greed Imperative, a 30-minute programme written and presented by
Cowley and broadcast on Radio 4 on 23 May and 28 June 2010; a four-page
feature interview in the monthly journal Islamic Banker in
February 2010; and numerous appearances on Radio 4 and World Service panel
discussions on the ethics of finance, including flagship programmes such
as `Beyond Belief', `The Sunday Programme', `The Moral Maze', and `Front
Row'.
Blueprint for Better Business
The second project was initiated in 2012, when Cowley was involved in
wider discussions hosted by Archbishop Nichols, not confined to the
financial sector, but on the purpose of business. These discussions
involved a working group that included senior representatives from
JPMorgan, KPMG, private equity firms, a former Permanent Secretary for
Tax, and Cowley. This work led to an initiative called `Blueprint for
Better Business?', with members of the working group becoming the `core
group' running the initiative. The Archbishop comments that Cowley `plays
a key role as a member of the core group guiding this initiative'. The aim
is to turn the insights of Catholic social teaching and the tradition of
virtue ethics into a body of knowledge that can be accessed by business
leaders in a practical way. Cowley was involved in drafting and critiquing
all the documents produced in creating the initiative, including a 20-page
document `Better Business' prepared for the conference, a Framework of
Principles, and Archbishop Nichols's speech at the public launch. This
work drew heavily on Cowley's research in the application of Catholic
social teaching to business ethics in the first half of her monograph. She
continues to assist in drafting and refining documents, ensuring that they
both remain true to the tradition of Catholic social teaching and yet use
everyday language and provide clear and actionable principles that those
of all faiths and none can readily adopt.
The initiative was publicly launched at a conference on 18 September
2012, at which the CEOs of McKinseys, Vodafone, and Unilever addressed an
audience of 200 business executives, mostly from `the next generation' of
CEOs — those on leadership development programmes in the top 20- 30
companies internationally. After the conference, a number of work streams
commenced, with funding raised and staff hired to co-ordinate. Cowley
leads the group working with institutional investors. The work has
included meetings with the CEO of Hermes Capital and other international
players on how investors can encourage companies to embrace the principles
outlined in the Framework as a practical way to enhance long term value,
influence the allocation of capital and encourage seeking both a financial
return and a return to society. This was followed, in spring 2013, by work
with two of the largest asset managers in the world on how institutional
investors can bring about change by changing the metrics demanded from
fund managers. The group also introduced an interfaith dimension to its
work by organising a meeting involving Chairmen and CEOs of different
faiths and Jewish, Muslim and Sikh theologians.
Cowley was also centrally involved in work with Unilever and another
large multinational to refine and shape a version of the Framework that
can be used within a business, e.g. with employees, as well as a meeting
with 25 CEOs of the largest UK companies.
As of the end of July 2013, the Blueprint core group was in preparation
for two major events: a conference in October on `Business Success Through
Serving Society', with speakers to include, among others, the Archbishop
of Canterbury, the former CEO of Oxfam, the Director General of the CBI,
and business leaders from Unilever, Hermes, Blackrock, Credit Suisse,
Morrisons, KPMG, Barratt's, and a former Director of the Institute of
Fiscal Studies; and a `soft launch' of the Framework of Principles at
Davos in January 2014.
As the list of companies and executives with whom Cowley has worked
indicates, the reach of the impact of Cowley's research extends throughout
the international financial and business sector. Its significance cannot
be exaggerated, as her work is at the vanguard of developments in business
ethics at a time when there is more interest and dynamism in this field
than ever before. It is notable that her involvement has, throughout, been
at the request of research users, resulting in repeated engagements and
the development of long-term projects and relationships.
Sources to corroborate the impact