We ask people to invest in uncertain outcomes over long periods of time.
They trust us to do our best as we work in their interests.
Ethical leadership – making sure that organisations’ culture and processes help people to make the right decisions on clients’ behalf – plays a key role in maintaining the integrity of the investment profession and building trust.
It is not an easy task. Investment professionals work in a complex environment of multiple interests and stakeholders. Often these interests align, but sometimes they do not, and investment professionals regularly face ethical challenges of varying degrees.
Our 2018 Ethics Survey revealed particular concern from those working in the industry around professionalism; ranging from knowledge of the law to independence and objectivity, misrepresentation and misconduct, with 39 per cent of respondents finding this challenging in the previous 12 months.
It also showed that a gap remains between the regard in which the investment profession is held by its clients, and how it is perceived by society more generally. We are, however, making progress and leadership will be vital if we are to maintain this positive momentum.
Raising awareness
To help the profession enhance its ethical awareness and skills, CFA UK has been partnering with Duke Corporate Education on a unique ethical leadership programme.
The programme – which has now run for three years and worked with 40 individuals from leading firms across the sector – is designed for current and future leaders of the profession, who make the daily business decisions that impact clients.
Our participants work for firms that value high ethical and professional standards and that have strong processes and systems in place to prevent poor behaviour.
But these same firms know that poor ethical outcomes are not usually the result of a single actor or a single decision.
Key Points
- Ethical leadership plays a key role in maintaining the integrity of the investment profession
- It is about having an internal moral or ethical compass ticking along inside you at work
- Firms’ ethical and professional culture is playing an increasingly important role in influencing where people choose to work
When things go wrong, they do so through a series of events – often accidental and initially thought to be inconsequential – that combine to create poor client outcomes and reputational damage.
Our partner firms understand the importance of building a culture that values ethical awareness and that prizes ethical decision-making centred on the client.
The programme uses experiential learning to explore professionalism, culture and conduct, equipping leaders with the skills, techniques and experience to deal with ethical issues themselves and, crucially, enabling them to guide others in their organisations. It is creating an alumni network of ethically skilled and aware leaders across the investment sector, who can sustain and develop the profession into the future.
Ethical dilemmas can be frequent
As we celebrate the graduation of our 2018 programme participants this month, we asked industry leaders who have either participated in the programme or sponsored people to take part for their views about the programme.
Omar Kodmani, senior executive officer and global head of international business development at EntrustPermal, says: “Ethical leadership in our profession is much deeper than a check-the-box exercise.
“It is about having an internal moral or ethical compass ticking along inside you at work throughout the day.
“While increased regulation and general pressures to maintain profitability may cause investment professionals to want to just get by with the bare minimum, the CFA Institute’s Code of Ethics and Standards of Professional Conduct require us to go the extra mile.
“The ethical leadership programme that we have rolled out in the UK brings these issues to life, helping mid and senior level management to realise that ethical dilemmas arise rather frequently and there is a proper framework for dealing with them.
“For some professionals, this is a natural reflex. For others, ethical leadership can be learned through case studies and group projects. While some may be motivated by the belief that ‘good ethics is good business’, we believe good ethics makes investment management ‘a noble profession’.”
Combining leadership, business and ethics
Amanda Young, head of global ESG investment research at Aberdeen Standard Investments, says: “I have completed both leadership courses and modules on business ethics in the past.
“What I had not done before participating in this course is combine the two into understanding how to be an ethical leader.
“Setting the tone from the top is so important in steering the right culture in a business. Ethical decisions are not black and white, and the shades of grey needing to be explored were extensive.
“However, if I took one thing away it is this: there is a distinct lack of focus on the client in everyday investment decisions. If you keep the client at the heart of every process, you will be steered in doing the right thing when faced with areas of grey.”
Live experience needed
Alexandra Haggard, managing director, strategic product management at BlackRock says: “Investment professionals only get ‘live fire’ experience. We don’t get to practice our craft the way athletes and others do.
“CFA UK’s ethical leadership programme is an opportunity to explore decision-making and the potential impact on clients, shareholders and employees.
“As our business gets ever more complex, as the regulatory environment gets more challenging and as societal obligations evolve, the programme puts participants in scenarios based on real life issues and helps them think through how to respond in a safe environment – one where the consequence of a mistake is a learning opportunity, not a risk event.”
Eoin Murray, head of investment at Hermes Investment Management says: “The key challenge of ethical leadership is never losing sight of the interests of the ultimate beneficiary. The link between financial wealth creation and environmental, social and governance considerations delivers that better alignment with the people that we serve.
“This explains why we should always remember that not only are we investors of capital on behalf of our clients, but we are stewards of that capital too, with a clear obligation to hold companies to account and influence the ways in which they behave.
“There are no corners to be cut, there are no regulatory risks that can be waived, and the investment community still fails to accurately account for the effect of ESG factors on the value of economic activity and future returns – this programme goes a long way to developing a personal ethos that will deliver on the rhetoric.”
At a time when it is increasingly important and difficult to capture clients’ trust and when investment professionals’ opinion about firms’ ethical and professional culture is playing an increasingly important role in influencing where they choose to work, it is clear that the sector can benefit by building ethical leadership.
Investment firms are acutely conscious of the need to maintain their teams’ technical competencies as markets and technologies change.
Investment professionals encounter ethically grey areas every day.
We need to make sure that they have the frameworks and tools at hand to get these decisions right. Developing ethical leaders within organisations helps investment firms make the right decisions for clients and helps the profession to build trust and maintain our social license.
Will Goodhart is chief executive at CFA UK
