Ethics on Wall Street: Hate the Player, Not the Game!

A recent survey of Wall Street executives paints a bleak picture of the moral tone of a central part of our economic system.

According to the survey (conducted for Labaton Sucharow LLP), 24 percent of respondents believe that financial professionals need to engage in unethical behaviour in order to get ahead. 26 percent report having observed some form of wrongdoing, and 16 percent suggested that they would engage in insider trading if they thought they could get away with it.

Two points are worth making, here.

First, some perspective. Far from alarming, I think the number produced by this survey are relatively encouraging. Indeed, the numbers are so encouraging that I can’t help but suspect unethical attitudes and behaviours were seriously underreported by respondents. Only 26 percent had seen something unethical? Seriously? That seems unlikely. And the fact that only 16 percent said they would engage in insider trading is also relatively benign. There are, after all, people who believe that insider trading isn’t unethical at all, and shouldn’t be illegal. They argue that insider trading just helps make public information that shouldn’t be private in the first place. I don’t think that point of view hold water, but the fact that it’s put forward with a straight face makes it pretty unsurprising that a small handful of Wall Street types are going to cling to the notion.

Second, a survey like this highlights the difference between our ethical evaluation of capitalists, on one hand, and our ethical evaluation of capitalism, on the other. One of the major virtues of the capitalist system is that it is supposed to be able to produce good outcomes even if participants aren’t always squeaky clean. In no way does it assume that all the players will be of the highest virtue. Adam Smith himself took a pretty dim view of businessmen. In The Wealth of Nations, Smith wrote:

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public.”

And yet despite his dim view of capitalists, Smith remained a great fan of capitalism — or rather (since the term “capitalism” hadn’t been coined yet) a fan of what he referred to as “a system of natural liberty.” The lesson here is that evidence (such as it is) of low moral standards on Wall Street shouldn’t make us panic. Perhaps it should make us shrug, and say, “Such is human nature.” The challenge is to devise systems that take the crooked timber of humanity and mould it in constructive ways. Governments need to take corporate motives as they are and devise regulations that encourage appropriate behaviour. And executives need to take the motives of their employees as they are and devise corporate structures — hierarchies, teams, incentive plans — that motivate those employees in constructive ways. In both cases, while the players should of course look inward at what motivates them, the rest of us should focus not on the players, but on the game.

8 comments so far

  1. Constant Geographer on

    As always, very thought-provoking. What is your take on the composition of corporate Boards of Directors? In the sense of their original design as to act as independent arbiters of corporate governance and over time having become a sort den of “crime and villany.” I say that somewhat tongue-in-cheek. It is your comment about what is illegal by law and activities which are perceived as necessary for “getting ahead” and the role corporate governance has a hand in the de facti support of such activities.

    In other words, in this a case of a few rotten apples, or, is the tree poisoned?

    • Chris MacDonald on

      Sure, the Board is crucial. The hard questions: how should boards be reformed, and to what extent is that a matter for public policy (as opposed to private contract)? But I also don’t believe reports of impending doom, so I don’t think the tree is necessarily poisoned, just crooked.

  2. Constant Geographer on

    The media undoubtedly plays a huge role in this. To what extent I have no idea. Public sentiment seems to follow the notion, “well, if one company is tainted, then they all must be tainted.” The NYT, WashPost, et al, drive public sentiments against corporate governance.

    I was interested in the numbers reported, “16% reported they would engage in insider trading if they thought they could get away with it.” My thought was, well, that leaves 84% who would not. However, you surprised me in your skepticism stating you suspect under-reporting, which I have no doubt is true.

    To tie these two thoughts together, I wonder what the true % of corporate malfeasance is, or rather, of all corporations, how many have been found guilty of serious ethical or legal violations? 1 or 2%? Is this a real problem, or is this simply the media fueling a spark?

    • Chris MacDonald on

      That would be good to know. Certainly someone must have that data — at least with regard to, say, Fortune 500 companies.

  3. Julia Fernandes on

    It is certainly not easy to take the crooked timber of humanity and mould it in constructive ways. Government can only implement regulations that can limit the scope to cheat. The ability to cheat without feeling any guilt pangs speaks so much for the sad state of human nature!

  4. Matthew Brophy on

    The immortal words of Ice-T advise us, “Don’t hate the player, hate the game.”

    Unfortunately, when it comes to business morality, this suggestion is too frequently heeded. This corrosive metaphor absolves business participants from moral responsibility. And yet business participants have a responsibility to refuse from participating in these “games” in ways that are immoral (e.g., have clear victims), even if such practices are legal, and/or are the norm for the industry. These norms — the unofficial rules of such “games” — are in large part created by how the “players” conduct themselves in the first place. And immoral conduct by competitors, among other things, oftentimes motivates a “race to the bottom.”

    Rules are imperfect: there are always loopholes and limitations. Human beings need to hold themselves individually accountable, and not hide behind this “player” mentality. So to Ice-T, et al., I respectfully say: Focus on the game *and* the players. Human beings are moral agents, not lumber. Try to change the rules of the game, certainly; try to engender a culture of moral responsibility, clearly; and try to get the business participants to realize that they are responsible for their conduct — even if the “game” allows it.

    Thanks for the good, thought-provoking post Chris . See ya in Boston. 🙂

    • Chris MacDonald on


      Thanks. My intention is certainly not to promote apathy about individual behaviour. But my worry is that the survey discussed above is all too likely to make people think the capitalist system is fundamentally flawed.

      There will always (always) be a certain amount of dishonesty. You can’t change that directly. And if you’ve got 10,000 employees, trying on an individual basis would be silly. What you need is good institutions and systems.

      (And no, unfortunately I won’t be in Boston!)


      • Matthew Brophy on


        Thank you for the clarification. My worry tends to be that we absolve, as a precondition of business, unethical behavior for its participants. If business persons have the “I’m just a player, following the rules of the game” mentality, then the 10,000 employees you mention will be far more likely to slough off any sense of individual personal responsibility for their actions.

        Regarding capitalism, I rarely talk to a person who has a problem with capitalism, but they do have a problem with some corporate behaviors. Let me try out an analogy: capitalism is like the First Amendment (of the U.S., granted). Both are great principles that allow for great freedoms, and certainly neither should be undermined. However, these principles unfortunately also allow people to act unethically: e.g., racist slurs; vulture capitalism (though there is some room for that). We should dismantle neither capitalism nor the protected freedom of speech, but we do need to hold people morally accountable for the way they “play the game.”

        Anyway, I don’t think we disagree at all. I just wanted to reinforce the additional point.

        I’m sorry to hear you won’t be at this year’s SBE. Was looking forward to loitering with you (despite no San Antonio RiverWalk BBQ). Perhaps next year. Congrats by the way on the TRSM appointment!

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