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Money and its mysteries

17 April 2015

Peter Day looks at the morality of people and algorithms


Sharing Profits: The ethics of remuneration, tax and shareholder returns

John N. Reynolds

Palgrave Macmillan £29.99


Church Times Bookshop £27 

THIS is an exceptionally timely and focused book. In the wake of the financial crisis, I have struggled with several attempts to apply ethics to business in a philosophical or theological way. Sharing Profits is different from those titles, because of its practicality. As banks and their bonus policies and corporate tax arrangements continue to make headlines, it is also uncannily timely.

Remuneration, tax, and payments to shareholders are complex things, often deliberately shrouded in mystery. John Reynolds lifts the shroud in a very thoughtful way.

He has exceptional experience of what he is writing about. Before embarking on a 20-year career as an investment banker, he studied theology at Cambridge University. This eventually made him an ideal candidate for chairing the Church of England's Ethical Investment Advisory Group for four years from 2006. More than that, he is now on the Methodist Church's Central Finance Board, and the investment committee of the Scottish Episcopal Church.

John Reynolds's book is a brisk, practical, systematic, and sensible guidebook to anyone thinking about the morality of capitalism, or seeking to exercise responsible investment judgement. It does not grandstand or attitudinise.

Though it is lively, it is not a particularly easy read. But this is a very complex subject. Each chapter crackles with ideas and references from history, literature, and theology, as well as numerous practical examples bringing clarity to complex decisions made by boards and investors. But they are not necessarily told what to do.

Take the nervousness about ethical investment by church institutions, for example. It is easy and clear-cut to deplore church investments in dubious activities such as gambling. But the same churches which abhor the idea of deriving dividends from casino corporations may well turn to the Heritage Lottery Fund when it comes to restoring the roof with funds subscribed by weekly lottery gamblers. A blind eye is easily cast when it is convenient. Ethics isn't easy.

I have some reservations about Reynolds's ideas about the responsibilities owed by and to company shareholders as owners of the business, which shape much of the book.

The traditional and easily comprehended ideas about ownership and its responsibilities have surely become much more tenuous with the rise of computerised share-trading, in which institutions may "own" shares for fractions of a second as they attempt to profit from market imperfections.

This doesn't change the human principles of ethical investment. But it does make you wonder about who actually owns anything in this microsecond world, and how ethics can apply to a computer acting only according to its algorithms.

Many people have been outraged by continuing exposures of the way in which companies seem to behave with little regard for any moral code except for "Don't Get Caught". Reynolds reminds us that ethical behaviour has also a lot to do with what society accepts and the law and the regulators determine. Tax avoidance is perfectly legal, even if morally sniffy. It is up to the law to determine change.

Reynolds's realistic approach is right at the end of the book. "Business plays a major role in establishing strong ethical principles," he writes. "But it cannot do so in isolation from the rest of society."

This is not a book for those who seek polemical denunciation of the errors of capitalism. Reynolds is too embedded in the investment world for that. Sermons will not be written from it, despite its stimulating asides.

But for those seeking to exercise ethical decisions as investors, directors, or advisers, it should become a much consulted textbook. In particular, reading it will load even more responsibilities on to the people who are seen as the key to improving company behaviour, the non-executive directors.

Unless it scares them off, wiser boardroom decisions may result from it.

Peter Day is the presenter of In Business on BBC Radio 4 and Global Business on the BBC World Service.

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