The new Archbishop of Canterbury thinks our banks and hedge funds have crossed the line
Did our banks and hedge funds bring about the financial crisis of 2008 by engaging in “wild and frantic activity” that served “no socially useful purpose”? That’s what Justin Welby claims.
At 56, Welby is the newly-anointed Archbishop of Canterbury — spiritual head of the world’s 77 million Anglicans — and an outspoken member of the Banking Standards Commission of the House of Lords, which is charged with disinfecting London’s financial services industry in the wake of the LIBOR scandal.
The Archbishop believes Anglo-American financial institutions have lost their way and need to reinvent themselves as vehicles for the common good, by promoting human development and bridging the gaps between the disparate socio-economic elements of global society.
In an interview with The Guardian earlier this year, Archbishop Welby called it “deeply wicked” for one societal group – such as the City of London’s financial institutions – “to corner a source of human flourishing.” He traces the evil in financial services to excessive leverage (read greed) and electronic trading. To Welby, “there’s something different about looking someone in the eyes and doing something dishonest to [sic] doing it over the phone or screen . . . The opportunity to make enormous sums of money is enormously corrupting.”
Welby cites Pope Leo XIII’s 1891 Rerum Novarum encyclical as the greatest influence on his moral thinking. That papal pronouncement responded to the exploitation of workers in industrial societies by declaring that the State should promote the acquisition by the working classes of ownership rights to property so that the poor could eventually enjoy the same benefits of citizenship as the rich. The encyclical expressly rejected socialism which would transfer all property rights to the State.
Before becoming a cleric, Archbishop Welby read law and economic history at Cambridge and then spent 11 years in the treasury departments of French and British oil companies. He left a promising business career in 1987 at the age of 31 to take the cloth, answering a call that came to him after his first child died in an automobile accident three years earlier.
For his theological dissertation at Durham University, Archbishop Welby wrote a polemic — entitled Can Companies Sin? — arguing that a commercial entity can create an “ethos” in which its staff acts on explicit company instructions in violating criminal laws or deviating materially from accepted moral standards. He likened the concept to Nazi Germany, in which the entire nation was held to account for the inhumane directions of its leadership.
Welby contends that the owners of companies acting excessively for their own benefit should take responsibility for corporate misdeeds that disadvantage others and thereby offend ethical standards. As punishment, he suggests reducing shareholder dividends by the amount of third-party losses and imprinting a company’s crimes on its official letterhead.
I would take issue with His Grace on this point since I don’t think the shareholders of a public company have anywhere near as much control over the business enterprise as Archbishop Welby thinks they do. Hedge fund activist campaigns, for example, show how hard it is for even substantial shareholders to have any sway at all over public company managements (see The First Ten Days of an Activist Campaign). Privately-held companies are, of course, an entirely different matter since their owners and managers are usually the same people.
On the issue of “sin,” the fact that a company is a “person” for legal purposes (inasmuch as it can enter into agreements and sue and be sued) does not in my view translate into a “person” who can offend accepted moral precepts. I appreciate the “ethos” argument, but a company’s “ethos” (which our regulators refer to as “tone at the top”) is typically created and sustained by a small and easily identified group of executives, regardless of the company’s size.
The leadership circle of a company should be held personally responsible for any corporate misbehavior attributable to its directions or oversight, and the individuals in that circle should pay any penalty out of their own pockets.
As I see it, the typical punishment of fining a dissolute public company misses the mark by hurting its remote shareholders and innocent employees as well as those who control the culture of the organization. The leadership circle of a company should be held personally responsible for any corporate misbehavior attributable to its directions or oversight, and the individuals in that circle should pay any penalty out of their own pockets. Add to that fearsome principle Archbishop Welby’s lovely suggestion of a ‘Scarlet Letterhead’ and we would soon see a lot less “wickedness” in our financial services industry.