I say “growth hacking,” and you say, “where can I learn more?” I say “crowdfunding,” and you say “fascinating.” I say “business ethics,” and you may say … “b…o…r…i…n…g.” Maybe you last gave the topic any focused consideration when you were in your business classes at school? If even then?
Ethics are the bedrock of business relationships, and thus matter deeply. And the rules of engagement have been shifting: members of Congress recently tried to gut the Office of Congressional Ethics; we’re now in a world in which the President has declared that he is “smart” for not paying taxes, in which bankruptcy seems to be simply another tool in the old business tool chest for him, and in which a non-profit appears to have been used for private purposes. And none of these have disqualified these individuals from leading our country.
But the landscape was shifting before this: I think of the industry in which I grew up, Wall Street. It has moved from “my word is my bond” and “I do business on a handshake” to one that today is characterized by hidden fees, big type that says “FREE” and smaller type that shows the real costs, and bringing in customers at one advertised rate of interest that is later changed. And that’s before delving into the complicated ethical questions underlying the industry’s actions leading up to the financial crisis.
In corporate America at large, we’re in a world now in which a singular commitment to shareholders has led to closing profitable businesses down and outsourcing them to other countries in order to make even more profit. And, in the companies at which I’ve worked in the past, this has been done without much (OK, any) discussion of the ethical considerations of such a move. It is thus a world in which the wealth gap between the haves and the have-nots has been increasing.
So, yes, business ethics are important.
Everyone faces tough ethical decisions at different points of their careers, virtually without exception. I know I’ve been pushed to make some of those hard choices throughout mine. Sometimes it’s possible to come up with good-enough solutions that work for everyone. Other times, though, it’s simply too black and white, and you can be forced into a choice that’s career-altering. These are extremely difficult, messy calculations no matter which direction they go. Here’s a look, by my own reckoning, at that moral math.
When To Push For An Imperfect Solution…
One of the lesser known subplots of the financial crisis was the freezing of the auction rate securities market. Auction rate securities were financial instruments whose value was set on a periodic basis through an auction process; these products were sold as higher-yielding alternatives to cash. At certain points in the crisis, the risk aversion became so great that there was simply no bid for the securities; money that individual investor clients had expected to always be available became essentially worthless. I remember having one gentleman on the phone with me crying….literally crying…because this was the money he had put aside for his daughter’s wedding and he now didn’t have access to it.
What would you do?
By and large, the industry’s answer to this was “There’s nothing we can do” and “This is really awful, but the fine print says that the price is set by auctions” and “You know, this isn’t our fault.”
I’ll tell you what my team and I did: we made available 0% interest, non-recourse loans to those clients. By any calculation this would cost us, since our budget had us earning a higher rate on these loans, and there was real risk that clients would “take the money and run” given their non-recourse nature.
It wasn’t a perfect solution by any means, but it felt like the most ethical one to make under the circumstances. And we were fortunate to have the leeway inside the organization to make it without having to get more senior level approvals to do it. (And in this case, probably better to “ask forgiveness than permission.”) The result was that our team felt proud of the efforts we were making.
In the end, the financial cost was not as high as we had thought it would be, since not many of our clients took advantage of these loans anyway. When we asked them why, they told us that simply the knowledge that the loans were available was enough for them, and they were willing to bet that we would continue to do the “right thing” for them. As a result they wanted to expand their relationship with us, rather than taking money out. A win-win.
… And When Not To Compromise
Then there are ethical conundrums that don’t leave as much room for creative solutions.
When I joined Bank of America to run Merrill Lynch in August 2009, I was confronted with a crisis: a stable value fund that had lost its value. Stable value funds are investments in 401(k)s that are akin to money market funds, in that they offer yield while looking to maintain a stable principle amount. The fund’s sub-advisor had chased higher yields, a bet that failed during the financial crisis, thus permanently impairing the fund. One more thing to note: the biggest group of investors in this stable value fund were Walmart employees, not wealthy individuals.
What would you do?
But let me back up.
I’d joined Bank of America after getting fired from Citigroup for partially reimbursing clients over there — for alternative investments that had been sold as low-risk but wound up losing most of their value in the market downturn (so not so low-risk, as it turned out). I broke up with my CEO; it was public and it was ugly.
The pain of that decision was pretty fresh, and so, not surprisingly, I wasn’t particularly excited to gamble my job yet again on what I considered to have been a principled decision.
I began by talking to people inside the company and within my own network to see what options I had. One guy I spoke to — somebody so senior he was considered an industry titan — dismissed the very idea of there being options. “There’s nothing to be done,” he told me. “Everyone knows stable value funds aren’t stable.”
“Huh?” I said, “I’m pretty sure that’s in the name.” But, again and again, I got the advice to keep my head down and do nothing. Instead, I took the case to Bank of America’s CEO, and after a good bit of back-and-forth, he agreed to allocate enough money to top up those depleted stable-value funds.
While I breathed an initial sigh of relief — “Hey, we did the right thing, and I still have my job,” that feeling didn’t last long. The problem-solving process itself, not to mention to solution I eventually struck inside the company, cost me some powerful allies among those who’d stuck to the other side of the argument. I didn’t lose my job then, but when that CEO retired, I never found a comfort zone at the company, and the clock to being “reorganized out” of that job was already ticking.
Where The Line Falls
How did I decide which way (and even whether) to act in these two scenarios? Even at many years’ distance, that’s hard to say.
One reason why is because I couldn’t have foreseen the exact costs. And when the outcome — including the level of personal career risk — isn’t very clear, the best you can do is follow your gut. Back at Citi, I lost a job I’d loved, working with people I’d considered friends. One of my peers who left at about the same time was given a severance package of $42 million; at one point they offered me the equivalent of “don’t let the door hit you in the a** on the way out.”
Going against the grain cost me financially, but there were also penalties for breaking ranks with the bigwigs in the industry that were harder to quantify. Sometimes, it’s simply not possible to make ethical decisions that you know (or strongly suspect) will cost you your job because you literally can’t afford to lose it. And I recognize that it can be easier to make “ethical” decisions when you know you can recover from getting fired. But even then, the career risks I was facing were considerable, even if couldn’t predict precisely what they’d be.
Here’s what I did know, though. The financial crisis, at bottom, was about investors’ faith in banks: would they be able to get their money back when they needed it? Once there’s a crack in that belief, mistrust spreads, and some bank may eventually have to shut their doors — as many sure enough did. So my choice to go out on a limb in these situations wasn’t strictly a matter of principle, though it was that, too. It was a way to communicate to our clients that while the system had failed them, our particular institutions still deserved their faith. Ethical business was good business, I thought, if not always in the short-term. Not everyone agreed with this perspective.
I believe there is a longer-term cost to eroding ethics, as well. I would argue that two substantial groups — millennials and women — shy away from engaging with the investing industry because of this. (Women have ranked financial services dead last among the industries with which they engage, and research I have conducted indicates that this is in part due to lack of trust.) This hurts the industry, because of the lost business, and it hurts these groups as well; it may be a driver of the gender investing gap, which can cost women a hundreds of thousands — even millions — of dollars over their lives.
So while ethical decisions on paper can sound simple, they can be anything but. It came down to my sense of purpose, as well as my sense of my industry’s purpose, instead of some abstract ethical theorem. I thought long and hard about why I had gotten into wealth management in the first place, and what my responsibilities there were.
And the answer wasn’t that I got into the business simply to make a lot of money. It was because it was a business that I knew could have a positive impact on clients’ lives, but at that time wasn’t. It was because I found the content of the work to be fascinating. And then, yes, it was because I could do well financially in the process.
But for me, it was in that order.
Sallie Krawcheck is the Co-Founder and CEO of Ellevest, a digital investment platform for women. She is also the Chair of Ellevate Network and the Pax Ellevate Global Women’s Index Fund. She is author of the recently released Own It: The Power of Women at Work.
A article originally ran on LinkedIn.com on January 27th.
Originally published at medium.com