The finance sector has the capacity to enrich and reward the lives of many. The wealth it has helped generate has played a vital part in the decline in global poverty over the past 30 years.
The most remarkable thing about financier BlackRock CEO Larry Fink’s latest letter exhorting corporate captains to develop a “social conscience” was not the media’s excited response – the NY Times called it “Wall Street’s watershed moment,” and Le Monde, an “ ‘inflexion majeure’ ” in the evolution of capitalism. No, what was remarkable was that it was news at all.
Granted BlackRock – the world largest asset holder – owns a staggering 8% worth of the S&P 500 companies, so what Mr Fink says is always worth listening to. But is not his message precisely what all financiers and asset managers ought to be demanding all of the time from the businesses they invest in? More to the point, is it not precisely what the invested-in corporations ought to be delivering? Corporations must secure a reputational “social license” to operate, alongside their legal license of incorporation if they are to be commercially successful and sustainable. All investors should be demanding as much, and the rest of us should be expecting no less.
Yet in terms of respect for the rule of law, let alone social responsibility, the finance sector has a lamentable record. It is not just that the sector’s political clout has managed criminal law to grey out areas that were previously manifestly illegal (such as conflicts of interest). The numbers of bank prosecutions pursued by the DOJ following the 2007/08 global financial crisis, for example, are pitiful (roughly 70 per annum) compared to those following the Savings and Loans crisis in the 1980s/90s (1,837 in 1995 alone). Nor is it that overwhelmingly those cases that are pursued are settled rather than convictions recorded (by way of so-called deferred (or non-) prosecution agreements), even when admissions of wrong-doing are extracted from errant banks.
What is most reprehensible is the evident disregard banks pay to the consequences of their actions. The size of settlements in many of these cases are eye-watering. BNP paid $8.9bn (for violating trade sanctions); Credit Suisse, $2.6bn (facilitating tax evasion); and HSBC, $1.9bn (money-laundering). And yet they do…