By Bob Souster

Modern approaches to business ethics often focus on duties (or obligations) and consequences. Both are products of the Enlightenment, a period of history that saw great philosophers such as Immanuel Kant, John Stuart Mill and Jeremy Bentham cast fresh light on how we should examine right and wrong. Today, the deontological (duties-based) approach is reflected in statements of values and codes of practice: they impose obligations on professional bankers to respect confidentiality, treat customers fairly and with respect and act in the best interests of stakeholders. The same sources urge those bound by these statements and codes to be aware of the consequences of their actions, a clear allusion to the teleological (consequentialist) approach to ethics. Yet, two thousand years before the Enlightenment writers wrote their enduring words, classical scholars considered ethics in relation to virtues, or the personal qualities that ‘good’ people would exhibit and put into practice.

Although it never went away, virtue ethics came to feature less among those specialising in applied ethics and business ethics. Since the global financial crisis, it has made something of a comeback. This article examines why this has happened.

What is Virtue Ethics?

Virtue ethics suggests that ethical behaviour results from individuals possessing, demonstrating and applying inherently good characteristics. Once these personal traits are present, ethical behaviour and decisions should naturally flow.

In Europe, virtue ethics originated with the work of ancient Greek philosophers such as Plato and Aristotle. They conceived the notion of arête, or excellence, or in short, being the best that one can be. In those times, the desired virtues would be derived from the perceptions of ancient heroes; qualities such as bravery, physical strength and wit. Some virtues were thought to come with age and experience, including wisdom and intelligence. The Greeks regarded eudaimonia as achieving happiness, the highest human good. The term is best translated as ‘flourishing’. The ancient scholars differed on their views of the virtues that would lead to happiness: Socrates suggested characteristics such as courage, piety and self-control; Aristotle proposed nine virtues (wisdom, prudence, justice, fortitude, courage, liberality, magnificence, magnanimity and temperance).

In Asia, Confucius similarly adopted a virtues-based approach, identifying five constants and four virtues. The four virtues are loyalty, filial piety, contingency and righteousness.

Some of the virtues that classical writers discussed were reflected many centuries later by Enlightenment philosophers. For example, John Stuart Mill discussed the nature of happiness and how this related to pleasures.

Some contemporary writers now produce interesting work on virtue ethics. Roger Steare writes of ‘the ethics of reason’ as reflecting who we are and the values we hold. We do the right thing because we consider it the right thing to do under the circumstances.

How are Virtues Relevant to Professionals?

Virtues have always been relevant to professionals in general and specifically to bankers. Organisations that aspire to professional standards are bound to foster good characteristics in those they employ and do business with. A recruiter will seldom prefer a candidate with ‘negative virtues’ (i.e. vices) over a candidate who exhibits positive qualities and traits. An example of how this featured in recruitment and selection in the past is the importance placed on the ‘character’ of the applicant.

With a greater focus on the need to maintain the trust and confidence of customers and other stakeholders, many banks now insist on adherence to certain standards, the most important of which is honesty but also qualities such as integrity, authenticity, respect and so on. Inevitably, every organisation could create its own list, and even individuals within the same organisation may differ on which virtues are most important, as well as their priorities.

An excellent book for readers keen on learning more about virtue ethics is Roger Steare’s Ethicability: How to Decide What’s Right and Find the Courage to Do It.

Why Virtues Became More Important

An examination of the causes and effects of the global financial crisis provides useful insights into our discussion. The causes of the crisis were complex and diverse, but most politicians, regulators and banking practitioners now agree that the crisis was exacerbated by a failure to manage risks in a rapidly-changing environment and a deficiency in ethical standards among some decision takers in the banking industry.

In the final years of the twentieth century, many bankers were judged on their ability to secure new business, create new products and generate financial returns to their organisations. In other words, the perceived virtues might have been seen as willingness to take risks (arguably this requires courage), competitiveness, audacity, creativity and other traits consistent with the need to secure greater market penetration as well as develop products and markets. To be fair to the bankers of that era, the majority of banks served their customers well and a significant contribution was made to increasing incomes and wealth in most countries. Yet, the banking catastrophes of 2007 and 2008 had far-reaching effects, including fundamental changes in what banks expect from their people. Virtues today could include consistency, dependability, willingness to comply and empathy (the ability to put oneself in another’s shoes).

Were he still alive in the twenty-first century, Aristotle would have explained some of these changes. Aristotle wrote of a concept which is now referred to as the ‘golden mean’. Many virtues can be described with reference to a continuum. For example, courage is undoubtedly a virtue in many situations, but too much courage will be regarded as being reckless or foolhardy, while not being courageous enough is timidity or lack of resolve.

The crisis caused many regulatory bodies to reset their approaches to maintaining order and stability in the banking sector. They became acutely aware of the limitations of rules-laden, prescriptive regimes. For example, the UK’s Financial Conduct Authority had a rule book comprising 770 individual rules on mortgage lending, yet irresponsible mortgage lending was a major contributory factor in the demise of at least six financial institutions. Instead, regulators turned to qualitative requirements often based on principles, and many of these were concerned with transforming the culture of banking organisations. Today, the phrase ‘tone from the top’ is used all around the world to refer to the need for directors and executives to create, embed and maintain an appropriate culture. Inevitably, this depends totally on instilling a whole new set of virtues: trust, prudence, accountability, responsibility and respect.

Limitations of Virtue Ethics

One of the main drawbacks of virtue ethics is that it cannot help us to prescribe the best way forward or to resolve an ethical dilemma. A hard-working person will come to an answer more efficiently than a lazy one, but that virtue will not help the individual arrive at a conclusion. Where virtues can be helpful in such situations is that many practitioners will reflect on what their own influencers would do in a similar situation (for example, people they have encountered who they regarded as virtuous). This is perhaps the biggest limitation of virtue ethics: by using the duties-based approach we can revert to formal standards in policies and codes, while using the consequentialist approach we can often judge the best outcome for the greater number.

There is no meaningful consensus of any definitive list of virtues. Qualities and characteristics valued by some would be regarded as less important than others.

It is also clear that the virtues we regard as positive may be applied only in certain situations. Most people like others to be ‘nice’ to them and to others, so ‘niceness’ is most certainly a virtue. However, being nice to a person may not always be appropriate, especially if approving a loan application that should not be approved is considered by the customer to be the ‘nicest outcome’. Likewise, if a manager wishes to discipline a member of staff for carelessness or not working hard enough, the kindest approach is to tell the truth, set down the expectations and perhaps not be ‘nice’ at all.

Robert (Bob) Souster is a Partner in Spruce Lodge Training, a consultancy firm based in Northampton, England. He lectures on economics, corporate and business law, management, corporate governance and ethics. He is the Module Director for ‘Professionalism, Regulation and Ethics’, a core module of the Chartered Banker MBA programme at Bangor University, Wales.