Short-termism and ethics
Stephen Dunne, BFO Chairman, reflects upon the dangers of finding short-term solutions to financial problems, or ones that deliver results for clients in the shortest time span, as these often hold ethical flaws, and come at the expense of long-term stability and trust. The BFO seeks to improve the ethical fabric of all market participants and thereby build a sustainable industry in the long-term.
Much has been written on the topic of the scourge of a short-term focus in financial markets. Despite this, markets participants seem to be focussed on driving a short time span to see or deliver results for clients.
Like other short-term fixes, while the initial gains are high, they often come at the expense of long-term stability. And when it comes to short-termism in financial markets, the over emphasis on short-term results is fundamentally inhibiting greater long-term value creation.
Those involved with financial markets argue that short-termism is what the public wants, if not demands. And while it seems fine to talk about sustainable long-term results, what we’re seeing are clients wanting to sign on for the long-term, but also for their results to be delivered each year.
Researchers have put forward a range of reasons why market participants behave this way but at the core of the problem is the erosion of trust. As many recent studies show, trust in financial market participants is at an all time low and because of this lack of trust, it is understandable that we are likely to keep these people we have such little trust in on a short leash.
Hence, while there are a number remedies to address the issue of short-term focus around incentive schemes - first and foremost, we must look at ways to restore trust in the industry.
Rather than attempting to restore trust through excessive and onerous regulation, we need to look at ways to improve the ethical fabric of all market participants. The Banking and Finance Oath initiative seeks to do just that.
The Banking and Finance Oath
Trust is the foundation of my profession.
I will serve all interests in good faith.
I will compete with honour.
I will pursue my ends with ethical restraint.
I will create a sustainable future.
I will help create a more just society.
I will speak out against wrongdoing and support others who do the same.
I will accept responsibility for my actions.
My word is my bond.
By encouraging the leaders of our industry to individually commit to this oath, we will help to grow the credibility of the oath and thus attract a greater majority of people over time.
We’re under no false pretences assuming this will happen overnight, as we know there are no quick fixes to restoring trust, but with time we hope the significance of the oath will help to enable the financial system to better serve the community with a focus on long-term sustainability.
BFO Chairman Stephen Dunne