Monday, June 14, 2010

A Crisis of Ethic Proportions

A little over a year ago John Bogle wrote this in the Wall Street Journal. In it, Bogle asserts that business ethics and professional standards have gone south in important ways.

Bogle points out that we've evolved from an "ownership society", where shares are owned directly by owners, to and "agency society", where financial institutions increasingly act as as agents. This change, in combination with what he calls a "spree of speculation" by the agents who should be acting as fiduciaries, has led us down an unfortunate path.

He also says:

Our money manager agents...fostered the crisis with superficial security analysis and research and by ignoring corporate governance issues. They also traded stocks at an unprecedented rate, engaging in a dangerous spree of speculation.

So what should be done? Bogle says we need to establish a "fiduciary society".

...where manager/agents entrusted with managing other people's money are required -- by federal statute -- to place front and center the interests of the owners they are duty-bound to serve. The focus needs to be on long-term investment (rather than short-term speculation), appropriate due diligence in security selection, and ensuring that corporations are run in the interest of their owners.

There are important and badly needed changes that unfortunately seem unlikely to happen anytime soon.

Read the entire opinion here.

Adam

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