Views on improving the integrity of global capital markets
26 May 2015

Honorable Profession? Survey Says Corrupt Culture Still Afflicts Investment Industry

Professions are defined by their willingness and ability to improve not only their skills but the manner in which they apply those skills. They recognize flaws in behavior of their members and take steps to correct them to make their work honorable for the benefit of all. It is disappointing then, that a recent survey on attitudes in the investment profession indicates we often don’t live up to the expectations that come with that lofty designation.

The survey, which has received significant media attention in recent days, was conducted jointly by the University of Notre Dame’s Mendoza College of Business — a member of the CFA Institute University Recognition Program — and Labaton Sucharow, a law firm that represents whistle-blowers in financial services lawsuits. Conducted between late December and early January, the survey generated responses from 1,223 people from the United States (925) and the United Kingdom (298).

The survey does have its problems, which undermines its message. For instance, the results combine first-hand knowledge with second-hand presumptions without distinction. And there is a great deal of expectation among the respondents that the people down the hall or at competitors’ firms are up to no good.

These flaws aside, the results, nevertheless, are largely consistent with the results we’ve seen in our own annual Global Market Sentiment Survey over the past several years, and therefore shouldn’t be discounted. Most troubling from the Notre Dame survey is the disturbing response that 32% of individuals with less than 10 years’ experience in the industry (14% for those with more than 21 years) would use inside information to make $10 million under the right conditions — i.e., perfect certainty of both return and avoiding prosecution. This suggests that we, as individuals who aspire to a profession, have our work cut out for us as we strive to show these individuals the light.

A second disturbing data point is the view among many of the respondents that their firms are working to keep problems quiet and out of the purview of market regulators. Worse, they expect their firms to retaliate against them if they were to report wrongdoing to regulatory authorities. This reflects either the lack of a message from the top that improper behavior won’t be tolerated, or, worse, the message that results matter more than the manner in which they are achieved. Neither bodes well for professional behavior, now or in the future, without important changes.

The survey looks almost exclusively, but not entirely, on the dark side of these issues. For instance, it points out that “an astonishing 17% of all respondents find it unlikely that company leaders would report misconduct to law enforcement.” Taken from another perspective, a significant majority — 83%! — say their company leaders are likely to report misconduct. Along these lines, the finding that nearly 90% of respondents said they would report wrongdoing despite the personal risks it would create for their careers is most encouraging.

Professions are built both on the highly developed skills and good behavior of the people engaged in such activities. Sadly, the Notre Dame survey indicates our industry has some way to go before we can rightfully call ourselves members of an honorable profession. It will take a concerted effort from our members at every stage to set the right tone and to set the right examples for our colleagues, our competitors, and the investor public. It is up to us as CFA Institute charterholders to take the lead. Fortunately, it is a role our organization has been preparing to fill for more than 50 years.

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About the Author(s)
Paul Smith, CFA

Paul Smith, CFA, was the president and CEO of CFA Institute. He has more than 25 years of relevant financial services leadership experience in many aspects of the investment management industry.

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