The CLMR portal in recent times has seen a number of interesting pieces under the label The Oxford Project, which have offered commentary on core issues of trust and accountability in financial services and markets.  Some of these commentaries, (presumably influenced amongst others by the writings of Alasdair MacIntyre promoting Aristotelian conceptions of the virtues and how they might sustain moral philosophy), have had a particular emphasis on whether the professions could, and should, play a more proactive role in promoting more virtuous behaviour in financial services and markets that continue to be affected by the repercussions of the GFC. 

Just how much gatekeeping responsibility should be imposed upon professions such as auditors and lawyers amongst others is a moot point, especially bearing in mind the competitive commercial reality within which these individuals and their organisations must function.  In commenting on these issues Dubnick stresses the dangers associated with perhaps snatching at “..easy explanations and quick policy solutions.”  He urges an increased focus on the nature and dynamics of the “micro-foundations” (to use the Oxford Project term), of the relationships and practices of contemporary financial markets.

Contemporary financial markets are based on sociologies of trust whose historical influences and operational cultures developed in relatively insular financial centres such as the City of London.  However, these sociologies of trust are increasingly being extenuated across time and space, as not only the number of actors involved in financial markets increases dramatically, but also the number, scale and complexity of the products brought to market seem to increase exponentially.  This ever-growing time:space distantiation carries with it increasing difficulties of verification and has the capacity to go spectacularly wrong on a global basis, as seen with the GFC itself, and in more individual contexts (that still have systemic implications), such as the current fiasco involving the Chief Investment Office of JP Morgan.  JP Morgan’s projected losses currently stand at US$2 billion and are likely to rise, as is the commercial and political pressure on its CEO Jamie Dimon, especially regarding perceived failures of accepted protocols of good governance at JP Morgan.

The JP Morgan scenario and the GFC more generally indicate many problems and dangers.  One of these dangers seems that there is not enough information disseminated widely enough about the levels of risk associated with the trading positions of organisations such as JP Morgan, even when it meets its disclosure obligations.  This may well be true, but while the inner machinations of JP Morgan’s Chief Investment Office hedge book were, (understandably given commercial realities), not widely known, the potential pitfalls of its governance structures were no secret.  Under such conditions the importance, and potential systemic threat of routinisation, becomes pivotal.  If it is routine, (and therefore somehow to an extent at least partially legitimised), for financial actors especially large investment banks to operate with defective governance regimes that foster sometimes hopelessly Panglossian perspectives on risk management, then the risk of financial carnage and disaster is ever present, and it would seem in recent years a depressingly more frequent occurrence.

There are various circuit breakers that civic society can turn to in efforts to lessen not only the impacts, but also the frequency of the disturbingly familiar patterns of: industry-wide/organisational avarice allied with wilful blindness/deceit that deliver the damage of financial crisis and the too big to fail financial institution.  For example, in recent times in many jurisdictions we have seen popular protest against the perceived excesses and dangers of finance capitalism manifested on the street through initiatives such as the Occupy Wall Street Movement, and at the ballot box in elections in Greece and France. 

There have been specific legislative responses such the Wall Street Reform and Consumer Protection Act 2010.  When President Obama signed the Act into law on 21 July 2010, he proclaimed the reforms as the strongest consumer financial protections in history and acknowledged that his administration had to overcome the furious lobbying of an array of powerful interest groups and a partisan minority determined to block change.  JP Morgan shareholders and other investors in the US and elsewhere perhaps might wonder whether Mr Dimon and JP Morgan were involved with that furious lobbying effort.

Despite the proclivity of codes of conduct across various occupational groups, sectors and jurisdictions to promote good behaviour and practice, as the JP Morgan debacle illustrates, there seem to be structural forces at work within the financial industry that limit transparency.  In particular, there is a dearth of outlets from a bottom-up perspective that throw light on the operational culture of an organisation.  This in part reflects not only the intrinsic power and influence of financial organisations themselves, but also the reality that it is not uncommon for the more powerful in many contexts to organise themselves in ways that limit scrutiny of their activities.  Returning to Dubnick’s call for more awareness on the dynamics of market processes what possible sources of sunlight may have been under-utilised?

In some instances one possible brake on the scrutiny-limiting processes and mechanisms of an organisation can be exposure by a whistle-blower.  In some instances the repercussions of someone blowing the whistle are spectacular.  For example, Sherron Watkins was the whistle-blower who revealed excesses at Enron and Cynthia Cooper put World.Com in a public situation where they had admit to $US 3.9 billion worth of accounting fraud.  The excesses of Enron and World.Com were viewed widely as egregious and led to enormous levels of negative media scrutiny of inadequate corporate governance provisions culminating in the Sarbanes-Oxley Act 2002.  

Sarbanes Oxley generated much heated debate in the US, especially regarding the alleged business emasculation qualities of section 404, which has since been amended.  Nevertheless it is still regarded as one of the most significant legislative initiatives on corporate governance in the US or any other jurisdiction.  However, would we have had Sarbanes Oxley without the whistle-blowers?  If legislative innovations such as Sarbanes Oxley are a positive contribution towards increased virtue in business should more be done to encourage whistleblowing? 

If there were more whistle-blowers, would this lead to more bottom-up research and inquiry, not simply by academics, but by regulators, other law enforcement actors, professional intermediaries and finance industry actors themselves that contributed to increased knowledge of the dynamics of market processes?  These are not lay down misere propositions, for the concept of whistleblowing itself is a contested one which is explored further in Part II of this paper.