The “wealth care” industry needs the transparency of the health care industry

Rehan Syed, head of portfolio management at ABN AMRO Private Banking in Dubai, recently wrote that the “wealth care” industry must catch up to the health care industry when it comes to objectivity and transparency.  We’re not sure everyone wopuld agree that the health care industry is the model of transparency, but his main point still holds: that the Hippocratic oath changed medicine and another oath could change business. He argues for an oath for business and makes the case that protecting integrity can be a core competitive advantage:

“In a research study by the Harvard and Michigan business schools, 80 cases drawn from a period of more than 30 years were analysed to evaluate whether corporate social performance contributed to corporate financial performance. In 53 per cent it did, which is a high outcome for a study of this nature.”

One note on his article however is that he says more than half of Harvard Business School students chose not to sign the oath. Actually more than half of the graduating students last year did sign the MBA Oath. And now students from hundreds of other schools are signing too.

Syed’s topic is ethics in the investment business.  How do you integrate ethics into an investment firm? Syed proposes three steps.

1. integrate ethics into the hiring process:

Inquire what ethical situations candidates faced, how they handled those and what should have been done differently. If they are clients facing staff, perhaps they need a “moral sense test”, such as the famous one by the bioethicist Marc Hauser.

2. Hire an ethics officer to supplement the requisite compliance manager.

Instead of a dedicated hiring, one US corporation smartly rotates business leaders into that role to promote ethical sensitivities throughout the management team. Encourage whistle-blowing, preferably to an anonymous hotline or in-box, and adjust the incentive structure to reward ethical behaviour.

3. Set client expectations appropriately

When it comes to ethically setting client expectations, design a management mechanism to cross-check whether sales staff promise too much. If a salesperson sells more product for a higher fee in a shorter time than is normal, pat the person on the back but also meet the client to understand that the expectations set are appropriate.

4. Build a brand around your firm’s corporate character. Syed describes how Kit Kat is advertising its Fair Trade practices in EMEA. Could an investment fund successfully do the same thing? How many investors go for a socially responsible firm and how many just want the best return? Socially responsible investment funds already exist. Why don’t they take a larger share of the market?

Syed’s ideas are worth considering, but changing the landscape of business can’t be done quickly and can’t be done by one firm alone. Entire industries need to change, a difficult but exciting challenge.

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