Book Review: ‘Working Ethically in Finance: Clarifying Our Vocation’

Anthony Asher’s new book is a valuable read for actuaries and all those aspiring to cultivate wisdom, self-control, and courage. Chris White reviews ‘Working Ethically in Finance: Clarifying Our Vocation’.

This is a wide-ranging book, demonstrating the breadth of both the author’s reading in and beyond the finance sector and his active engagement with a range of the sector’s important ethical issues. It is a book all actuaries should read and actively discuss as part of the profession’s CPD program. It should be compulsory reading for new actuaries attending the Professionalism Course.bookReveiw

To give an overview and response, I can do no better than repeat Asher’s chapter headings, which I follow with a few rather disparate comments.


1 Vocation and Virtues  
I agree with Asher that the four classical virtues (self-control, justice, courage and wisdom), widely affirmed by faith traditions and secular humanism alike, are helpfully encapsulated in the notion of integrity, which should be the foundation of a profession and professional behaviour.   

2 What is Not Covered  
While wholeheartedly agreeing with Asher that virtues are developed in the context of practice, they need deep intellectual foundations to be sustained and promulgated. However his dismissal of both deontological (or duty-based) ethics and teleology (generally utilitarianism) is somewhat cavalier; the former is fundamental to most religious traditions (including his own), and the latter frequently underlies social ethical decisions (particularly in business and government) in secular (actually, pluralist) societies such as Australia. Virtue ethics needs both deontology and teleology, in varying degrees depending on the circumstances, to reinforce values with consistency and substance. 

“‘Physics envy’ has persisted amongst economists since the eighteenth century: are actuaries also guilty of over-valuing mathematical models? “

3 An Overview of the Finance Sector  
The fundamental purpose of the financial system as servant to the community’s need to match assets/savings/income with liabilities/capital/housing indicates how far Wall Street’s “masters of the universe” have been allowed to range beyond their proper roles and beyond what their expertise actually supports. Asher’s endorsement of Braithwaite’s case for a circle of mutual responsibility for regulating the system – the law, government regulators, professions, industry bodies, academics – is appealing, but how to implement?  


4 My Personal Experience  
Asher’s recounting his experience in the South Africa, and some of the choices he made to engage with what he viewed as both social and financial sector equity issues (e.g. apartheid and black people’s poverty, and inequitable vesting in defined benefit pension schemes, respectively) made me question my own choices as an Australian who has had a privileged life.  Have I been as forthright as I could have in areas where my conscience troubled me? Asher discusses openly the role his faith has played in these choices, including those where he now questions what he did.  I salute his openness and self-examination.   

5 A Model of Justice   
Asher mentions applying his justice model to a variety of actuarial issues (e.g. pension fund withdrawal benefit design, and differential insurance premium rating) as well as broader social questions (e.g. the provisions of the South African Constitution, and the remuneration of public representatives (including MPs)).  The application of a consistent justice model across the range of one’s interests in social ethical questions is appealing.  (Space prevents my mentioning many other interesting issues he covers.)

6 Injustice in Finance and Economics  
Asher cites Adam Smith to (rightly) debunk the idea of value-free economics. 
“Physics envy” has persisted amongst economists since the eighteenth century: are actuaries also guilty of over-valuing mathematical models? 
Asher’s extended discussion of rent-seeking – in life insurance, investment banking, executive remuneration, etc – uncomfortably but validly challenge our professionalism.    


7 Investment Management  
Asher appears to attribute to hard-nosed actuaries the questioning of over-optimistic estimates of equity risk premia by ivory tower academics. Actuaries are a small part of the financial sector and are not alone in this concern; see, for example, Copeland, who estimates an equity risk premium of between 3% and 4%. With the present market shake-out, no doubt there’ll be plenty more asking hard questions. 

On performance measurement, I agree with him that investment committees typically get more general economic commentary from investment managers than hard analysis of actual results – they should push back.

Finally, (and there’s lots more of interest here) passive investment managers track markets at low cost, but need active managers focused on fundamental analysis, etc to help keep markets reasonably efficient, but with the downside of high management fees (which exploit the hope which springs eternal, despite at least half of active managers underperforming the market, especially after expenses!).    

8 Insurance and Pensions  
Mis-selling – or as Asher calls it, hard selling – seems to be often the result of poor product and sales remuneration design, as much as dysfunctional sales management and poorly trained salespeople.  Efficient economic structures are those which produce desired results from enlightened self-interest (to use the famous phrase derived from Adam Smith), and managements (including actuaries) bear part of the responsibility for mis-selling. 

It’s interesting that in the last few decades life insurers have been replaced by superannuation funds as the main category of mutual financial institutions. If competition between superannuation funds becomes more intense, will we see the same capital needs arguments being advanced for their demutualization?  If so, will it be without the subtext of enriching the current generation of managers, advisers, etc which Asher points out was a significant factor in the life insurance cases?

9 Banking  
Among the many points which could be made on Asher’s discussion and recommendations, I raise the question of how the excessive scope and influence of banks could be curbed without creating other problems. Should some limitations on the scope of banks be introduced: a modern version of the former US Glass-Steagall Act, for example separating “mum and dad” banking from riskier investment banking activities, thereby limiting the “too big to fail” problem?   

“…seeing vocation and career as more than making money…also helps in the transition into an engaged life post full-time work.”

10 Regulation  

I make just two points on Asher’s generally insightful comments on regulation:

  • There is a strong human tendency for those injured in a catastrophe to want disproportionate punishment of those perceived to be to blame, and while his reintegrative shaming (prompt recognition and correction of shortcomings, and prompt forgiveness of offenders) may be appealing in some circumstances, it requires strong structures with a measure of independence from immediate public pressures to sustain it;
  • His reference to “the rogue nature of the Arthur Andersen culture, worldwide” (in the context of a particular ethical failure within Andersen) seems too general – while there were significant ethical problems within parts of Andersen, there were also individuals and areas within the firm behaving to high ethical standards (see 2003 Harvard Business School case study 9-103-061). The point of the Andersen case is that even a broadly ethical organization can be brought undone if the internal control mechanisms are inadequate to stop rogues doing irreparable damage. 

11 The Poor  
While I take Asher’s point that sometimes micro-finance can help keep poor people (mostly men) out of the formal economic system with its advantages of division of labour and economies of scale, the MFIs which focus on women’s small enterprises in countries with under-developed economies, and which use community pressure to keep defaults low, are performing a very useful service in alleviating poverty and providing meaningful engagement.   


12 Passions and Virtues  
I welcome Asher’s discussion of the important issue of how young people in the critical developing years (during tertiary education and early professional life) can have the courage to stand apart from destructive cultures (such as binge drinking). From experience, seeing vocation and career as more than making money, as well as providing deeper meaning during one’s working life, also helps in the transition into an engaged life post full-time work. 

13 Developing Our Strengths  
It is refreshing in a book such as this to read discussion of such practical issues as handling supervisors and managers who are bullies, and coping with the occasional failures encountered when stepping outside one’s comfort zone. Asher also mentions the role the reflective aspects of the religious traditions, as well as secular counselling and advice services, can help anyone in gaining deeper self-understanding as well as dealing with difficult issues in one’s working life. 

14 Serving Society’s Needs  
The extent of observed relative commitment and service in Asher’s three communities (family (broadly defined), political, and work) varies culturally – for example, in some cultures family tends to trump the others; in others work tends to dominate.  Finding an appropriate balance, and applying a consistent ethical outlook across all three provides the path to the goal of a life well lived.

As will be clear to the reader who has persisted this far with this review, Anthony Asher’s book is a very broad-ranging discussion of issues of interest to anyone wanting to engage thoughtfully and ethically with the financial sector.  It is of particular interest to actuaries, to whom I warmly commend it.

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