Anthony Hilton: So is it possible to do the right thing and still make an honest profit out of it?

The alternative to responsible finance shouldn’t be irresponsible finance

Thirty years ago when Warren Buffett took over Salomon Brothers after an earlier generation of investment bankers in that firm tried to rig the US government bond market, he explained his philosophy in the following terms:

No one should do any piece of business unless they would be totally relaxed about it appearing the next day on the front page of their local newspaper where all the details could be read by their spouse, their children and their friends.

At a conference organised by the English Institute of Chartered Accountants on Wednesday one of the speakers asked the audience how many would encourage their children to follow them into a career in the City. No one moved. None of them wanted their kids in the business.

Not quite the Warren Buffett test in action. But had it been rigorously applied here down the years then perhaps the audience would have been more relaxed about encouraging their children to follow in their footsteps.

There again, it may not be an issue for them if you believe a later speaker, Paul Woolley, who was once a successful fund manager and is now a self-funding academic at the London School of Economics where he studies what it is that makes markets and the financial system dysfunctional. In what was almost a throwaway line he said that the financial sector was three times as big as it should be and needed to contract.

Behind the comment lies the belief that finance in the UK has reached the point of diminishing returns. If it confined itself to providing the services society needs rather than devising ways to skim the cream off the top of the system it need only be one-third its current size. When it gets too big it not only hires a disproportionate share of the brightest and best thereby creating a shortage of top talent in other industries, but it also devotes capital to trading rather than loans thereby depriving business of the funds it needs to expand.

Interestingly other academic work supports him. A paper published recently under the auspices of the Swiss-based Bank for International Settlements suggested the benefit from finance was the shape of an inverted U. For a while society as a whole benefits from increasing sophistication of the financial sector but beyond a certain point increased levels of financialisation are damaging for the economy as a whole.

And finally John Kay in his recent work on the equity markets pointed to the growth of intermediaries each taking a cut in activities like share buying and mortgage lending which previously seemed to function perfectly well without so many links in the chain.

But even now I am not sure that the powers that be still understand how much needs to change. The question the conference explored was "can responsible finance pay?" which can be paraphrased as asking whether it was possible to do the right thing and still make money. Someone talked about devising incentive schemes which rewarded people for doing the right thing.

It took someone linked to the Church of England to point out that they should do the right thing because it was the right thing, and if they could not make a profit then they should pay themselves less or withdraw from the activity altogether. The alternative to responsible finance should not be irresponsible finance – but it is astonishing how many still don't understand that.

Kenny Ireland, pictured in 2010.
peopleActor, from House of Cards and Benidorm, was 68
A scene from the video shows students mock rioting
newsSchool leaver's pic YouTube video features staging of a playground gun massacre
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
Morrissey pictured in 2013
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Robyn Lawley
ebookA unique anthology of reporting and analysis of a crucial period of history
i100  ... he was into holy war way before it was on trend
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmThe film is surprisingly witty, but could do with taking itself more seriously, says Geoffrey Macnab
Life and Style
food + drinkVegetarians enjoy food as much as anyone else, writes Susan Elkin
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain