A right of conscience for financial professionals

Posted: June 30, 2012 in Ethical decision-making, Responsible business
Tags: , , , , ,
To Buy or Not to Buy

To Buy or Not to Buy (Photo credit: Wikipedia)

In the last month or so we’ve seen a lot of attention given to ‘Say On Pay‘ – the right of shareholders to have a say on executive pay. The fact that this is even contentious is very revealing: it is allegedly the shareholders on whose behalf the managers are acting at all times. It just brings home the reality that a small number of people maximise their own benefit whilst keeping other investors at arms length.

The whole Say On Pay issue is a red herring compared to the more important questions that shareholders ought to be able to ask, but don’t. Even though I agree it’s an abuse of privelige for executives to be skimming that much money out of companies and people only do it because they can, nonetheless I feel activists have let themselves get distracted by this issue instead of worrying about questions that affect many more people, such as: What is this company paying the rest of its workforce?

Other than regulators, shareholders are the only group to whom boards have to account for their decisions, but they don’t ask them to do anything of the sort (boards do their best to ensure it stays this way I might add). Basically we accept that executives will run companies and shareholders will give them money and hope for the best. That’s about as far as their involvement goes.

Way forward?

Ok so what about the shareholders’ proxies, the accountants and bankers? I’ve previously looked at strategies of regulation, corporations bound by charter and consumer pressure to bring corporate behaviour under control in situations where union advocacy is difficult because headquarters and production are located in different countries. From the investing angle, a concept in legal philosophy might help here: the modus vivendi.

The concept has been devised by jurist Iain Benson as a way to resolve problems with pluralism(1). It’s easier to illustrate it in the context of a political disagreement: A law in the state of Victoria requires doctors or other health professionals to assist a person who seeks an abortion regardless of their own views about the matter. To date no one has ever been prosecuted for noncompliance so there remains an uneasy stand-off. Benson uses the term modus vivendi to mean a state of affairs where two points of view are able to coexist without one needing to quash the other.

Now let’s apply this concept to investment. Institutional investors will generally move money wherever it will generate a return. In fact, in Australia, they are obligated to do this and would probably run afoul of regulations if they were to take CSR considerations into account(2) .. not that anyone does. As far as I know, no one has considered allowing financial professionals to recuse themselves from recommending investment in companies whose operations they have ethical issues with. At present, profits trump everything and anyone who thinks otherwise should go work in another industry and that is the legally-sanctioned view(!) Protecting the rights of people in the industry to follow their conscience would be a more easily attainable goal for fans of shareholder democracy.


  1. Benson, I. T. (2010) Living Together with Disagreement: Pluralism, the Secular and the Fair Treatment of Beliefs in Canada Today, Camrose, The Chester Ronning Centre
  2. Superannuation Industry (Supervision) Act 1993 (Cth), s. 62(1)

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Revision June 2015:

In the original version of this post I used same-sex marriage as an example of the modus vivendi. The argument went as follows:

In Canada same-sex marriage is now legal yet many Canadians continue to believe that marriage should only be marriage between a man and a woman. Benson argues that the state, if it is to be truly neutral on the issue, has to accommodate them and make arrangements that do not forcibly compromise people who hold such beliefs. He says problems of pluralism only arise when one viewpoint tries to dominate everyone’s understanding of a contested matter. So, for example, civil marriage registrars should be entitled to recuse themselves from registering same-sex marriages if it is contrary to their beliefs.

On reflection, I don’t believe that is defensible as an example. A civil marriage registrar’s job is to certify that people have met the requirements for a civil marriage as defined by the state. That person’s religious views about the nature of marriage are simply not relevant to this task. The registrar is not being asked to attest that the couple before them are married in the eyes of his or her religion. If you think about it, the same people who might seek to be recused from registering same-sex marriages should already have sought this privilege with respect to second marriages (which, I’m pretty confident in saying, never happens).

  1. […] A right of conscience for financial professionals 30 June 2012 […]

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