What to do when Ethics are Discouraged

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What to do when Ethics are Discouraged

Yesterday I gave a talk on ethics to the incoming class at The Johns Hopkins Carey Business School.  As some of you might know, I received my BA and MA from Johns Hopkins in 1982 long before they had a business school.  It was fun to talk to all of the entering MBA students who came to the school from all over the world.  It largely serves international students.

At the end of my talk I took questions, both formally, and informally after the talk was over.  The biggest question was, “Mr. Merkel, what you say about ethics might be the best policy for business in the US, but when I return to my home country, it will not be well-received.  What should I do?”

This is a tough one.  I think people have an easier time missing out on gains by being ethical than losing one’s job.  But let me give a few ideas anyway.

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  1. Many countries where business ethics aren’t practiced set themselves up for financial crises and scandals.  One strategy could be to bide your time and wait for the next large scandal or crisis.  Then suggest to your management (assuming your firm survived) that managing in an ethical way could prevent these problems, and potentially attract more business to your firm.
  2. Take a chance and try to create your country’s equivalent of Vanguard.  Low cost, mostly passive investing, owned by clients, limited management salaries, etc.
  3. Same as #2, but if you get the chance to start or run any firm, adopt ethical practices and make it a selling point.  You could be the start of cultural change.  (Now elements of that could prove difficult if there are government officials expecting bribes… how you work that out is difficult.  Friends of mine working as missionaries in corrupt countries tell me that you can still get things done without bribes, but it takes longer, with more effort.)
  4. Suggest to government ministers that a lack of ethics holds back growth.  Countries with no bribery, low corruption, and moderate regulations tend to grow faster.
  5. Propose small experiments in your firm testing whether an ethical approach will produce better results.
  6. Consider working for a foreign firm in your country if they have ethical standards.
  7. Consider gaining experience in a country other than your home country, and propose to that firm that they try setting up a subsidiary in your home country.
  8. On the side, develop a voluntary organization that promotes ethical business conduct.  Consider publishing some books that point out how unscrupulous business practices are harming most people.  Recruit well-known foreign businessmen known for clean business practices to come talk in your country.

I can’t think of anything more right now.  Readers, if you can think of other ideas, please mention them in the comments.  Thanks.

PS — One more note, having worked for a few firms that were ethics-challenged as far as accounting and sales practices went, I can say that trying to promote change from inside is tough.  Taking a job at another firm was my way out of those situations.  No surprise that almost all of those firms failed.

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.

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