An Exploration of Virtue Ethics in Irish Banking

This paper seeks to examine virtue ethic of ‘due care’ in Irish Banking. It builds on the important work of Alasdair MacIntyre in appreciating the linkages between virtues, practices and institutions. It also... [ view full abstract ]

This paper seeks to examine virtue ethic of ‘due care’ in Irish Banking. It builds on the important work of Alasdair MacIntyre in appreciating the linkages between virtues, practices and institutions. It also incorporates the views of Emmanuel Levinas and other continental philosophers with a particular focus on responsibility for the other. Empirically, we find that ‘due care’ matters and that younger less experienced bankers are likely to characterised by a stronger ethical orientation in relation to due care. We believe that an important contribution of this paper is simply to highlight the philosophical perspectives as a basis for gaining a deeper and yet practical insight into virtue ethics.

Theoretical Base
Rather than focusing on actions or outcomes the virtue ethics framework emphasises the excellence of personal character as the fount of moral behaviour (MacIntyre, 1984). Historical, social and Institutional contexts are important in understanding ethical issues as any account of virtues is generated out of the ‘community’ in which those virtues are practiced. For the purpose of this study, Ireland in the period after the crisis is ‘the context’ while Ireland’s bank manager population is considered the ‘community’.

The community participates in the practice of virtues in the achievement of internal goods (e.g., customer care) that are valued by that community. ‘Practices’ are differentiated from ‘institutions’ where institutions are concerned with external goods structured in terms of power and status. Indeed, institutions possess the potential to be a corrupting influence on practices. For the purposes of this study banking is considered to be ‘the practice’ while banks are considered ‘institutions’.

Virtues are dispositions or traits – positive characteristics or qualities of a person which support individual excellence and collective wellbeing, enabling ethical decision making (Crossan et al., 2013).A virtue is an acquired human quality, the possession and exercise of which tends to enable us to achieve those goods that are internal to the practice. In relation to financial professionals, Graafland and van de Ven (2011) identify three core virtues that are desirable in order to produce various ‘internal goods’: honesty; due care; and accuracy. In this paper the main focus is on the second of these, due care.

Due care in the practice of banking invokes a fiduciary care for the interests of customers and all of the bank’s stakeholders. Related concepts of responsibility and prudence are also reflective of this virtue ethic.

Recent re-focus on the work of Emmanuel Levinas (1969) illuminates the concept of responsibility (also referred to as hospitality) as an ‘ethic beyond ethics.’ The principle of responsibility towards ‘the other’ creates a desire for an open engagement without limits.

Concern for due care and responsibility is simply constrained to philosophical debate. It is also at that heart of economics properly understood. In The Theory of Moral Sentiments, Adam Smith (1759) states that “virtue is not said to be amiable, or to be meritorious, because it is the object of its own love, or of its own gratitude; but because it excites those sentiments in other men”. Here we see that the sentiments of others matter and that the focus is more on the interaction of the self and other rather than pure self-interest which has perhaps been over-played in economics.
Edward Freeman (2007) describes a principle of ‘responsibility principle’ as follows: ‘most people, most the time, want to, actually do and should accept responsibility for the effects of their actions on others. Therefore, business cannot be separated from ethics, and business decision must be made with social responsibility.

In banking, there are a number of areas wherein the core virtue of due care or responsibility is particularly applicable. In the realm of corporate governance managers are expected to act in good faith and in the shareholders’ best interest. More recently the concept of fiduciary care is seen to consist of duties of good faith, loyalty, diligence and prudence in acting in the best interests not only of the shareholders but of stakeholders of the firm (Koslowski 2011).

While banks have been motivated to make profits for their shareholders, there has historically been a culture of prudence in traditional banking. However in the era of the financial crisis, the prevalence of moral hazard or the lack of incentive to guard against risk when one is protected from its consequences has given rise to excessive risk-taking and reckless lending.

Very often sellers and buyers of financial services do not meet as equals. In this instance, ‘due care’ argues that sellers who enjoy a more advantageous position have a responsibility to take special care of the buyer’s interests in the design and marketing of their products, for example in relation to the design complex mortgage products. This means that a supplier is morally negligent when others are harmed by a product in a way that the supplier could possibly have foreseen and prevented.

Research Questions & method
An empirical assessment of prevalence of the core virtues of ‘due care’ in the behaviour of bank managers in Ireland was undertaken through the review of a set of sixteen ethical dilemmas set out in a questionnaire. These dilemmas set out various human behaviours directly related to each of the core virtues of banking; honesty, due care and accuracy. This current paper focus is on ‘due care’. A lack of due care is exemplified in the following ethical dilemma: “Because of pressure from a brokerage firm, a stockholder recommended a type of bond which he did not consider a good investment”

Professional and personal factors influencing ethical orientation include: duration in role as bank manager, the area of banking in which the manager was employed, age and whether or formal training in ethics had been undertaken. Respondents were also asked to rate certain external factors on their ethical views including family background, education, work experience and religion/spirituality.

The questionnaire was administered to a set of executive, middle-level and lower-level bank managers operating in a variety of Irish-based banks and building societies. Of 200 questionnaires sent out 96 were returned. Of the 96 returned questionnaires two were incomplete. Therefore 94 completed questionnaires were included in the study. The data was analysed using ANOVA and Tukey-B Tests.

Findings
The results suggest that the ‘due care’ is indeed influenced by ‘duration as a bank manager ( F-Ratio 5.647; .005), the area of banking experience (F-Ratio 18.7; .000), bank manager’s age (F=4.321; .016). Furthermore, the findings suggest that issues of unethical behaviour in relation to ‘due care’ is less acceptable to younger, less experienced managers as compared to their older, more experience colleagues. Also, branch managers were less tolerant of unethical behaviour as compared to their colleagues occupying more corporate level roles.

Implications
The results of this study indicate that the ethical orientation of managers in Irish banking is generally strong. It is especially interesting to note that as compared to their very experienced colleagues, young and relatively inexperienced managers showed higher levels of ethical awareness. This may be due to the prevalence of issues such as ‘groupthink’ and ‘herding’ in relation to certain patterns of behaviour among cohorts of more experience bankers.

It may also be the case that younger, less experience managers are more likely to have a face-to-face encounter with customers and through such encounters become more attuned to the needs of the customer. It is perhaps also the case that such managers are more removed from the institutional and cultural conditions of the organisation and they are at least in the earlier phase of their career less affected by external goods associated with power and positions, allowing space for the generation of internal goods and practices of ‘due care’ as they sense higher levels of responsibility towards their direct customers.

While shortcoming in the area of ethical awareness may in part be addressed through appropriate training programmes, there is also likely a role for more effective regulation in the area of compliance especially in those aspects of banking in which there is little face-to-face engagement with customers.

References
MacIntyre, A. 1984. After Virtue – A Study in Moral Theory, University of Notre Dame Press, 2nd Ed.

Crossan, M., Mazutis, D. and Seijts, G. 2013. In Search of Virtue: The Role of Virtues, Values and Character Strengths in Ethical Decision Making. Journal of Business Ethics 13:4 pp567-581

Freeman, R. E. 2007. The Purpose of the Corporation – Managing for Stakeholders Darden Business Publishing, University of Virginia, January 2007, pp. 56-68.

Graafland, J. J, and van de Ven, B. W 2011., The Credit Crisis and the Moral Responsibility of Professionals in Finance, Journal of Business Ethics, 103, pp 605-619

Koslowski, P. 2011. The Ethics of Banking: Conclusions from the Financial Crisis. Springer Dordretcht Heidelberg, London.

Levinas, E. 1969. Totality and Infinity: An Essay on Exteriority. Duquesne University Press. Pittsburgh, PA.

Smith, A. 1759. The Theory of Moral Sentiments, London: A Millar, III, 1.

ethics, banking, due care, [ view full abstract ]

ethics, banking, due care,