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L'Université canadienne

Canada's university



FACULTÉ DES ÉTUDES SUPERIEURES 1=1 FACULTY OF GRADUATE AND
ETPOSTOCTORALES u Ottawa posdoctoral studies

L'Université canadienne
Canada's university

Robert D. Bresnahan
AUTEUR DE LA THESE / AUTHOR OF THESIS

M. A. (Public Ethics)
GRADE /DEGREE

Faculty of Philosophy
"FÄCÖlTOCÖLE, DEPARTEMENT/ FACULTY, SCHOOL, DEPARTMENT

Virtue Ethics and Investment Advisors in the Canadian Financial Services Industry:
An Application of Alasdair Maclntyre's Tripartite Model of Virtue Ehtics and Moral Philosophy

TITRE DE LA THESE / TITLE OF THESIS

Raymond Jahae
"DIRECTEUR (DIRECTRICE) DE UTHESE/ THESIS SUPERVISOR

"CODiRECTEUR (CO-D I RECTRICE) DE LA THESE / THESIS CO-SUPERVISOR

Richard Feist Gregory Walters

Gary W. Slater_
TiTDoyërTdeia"^^^^ et postdoctorales / Dean of the Faculty of Graduate and Postdoctoral Studies



Virtue Ethics and Investment Advisors in the Canadian Financial Services Industry:

An Application of Alasdair Maclntyre's Tripartite Model of Virtue Ethics and Moral

Philosophy

Robert D. Bresnahan

Thesis submitted to the Faculty of Philosophy, Saint Paul University, in partial fulfillment
of the requirements for the degree of Master of Arts in Public Ethics.

Ottawa, Canada
January 6, 2009

© Robert D. Bresnahan, Ottawa, Canada, 2009



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Virtue Ethics and Investment Advisors in the Canadian Financial Services

Industry:

An Application ofAlasdair Maclntyre 's Tripartite Model of Virtue Ethics and

Moral Philosophy

Robert D. Bresnahan: 5079443

ABSTRACT

Recent events in global capital markets have underscored the impotence of

securities regulation and paucity of ethical behaviour. With the resurgence of virtue

ethics it only seems appropriate that a concerted effort should be undertaken to apply

this model to the financial services industry.

This thesis will apply Alasdair Maclntyre' s tripartite notion of virtue ethics as

explicated in his highly acclaimed work After Virtue to the role of the Investment

Advisor in the Canadian financial services industry. Maclntyre's concepts of practice,

narrative order of a single human life and the notion of tradition will be applied to the

role of the Investment Advisor and the institutions that accommodate the profession.

It will be concluded that Maclntyre's notions of practice and narrative order of a

single human life is readily applicable but due to Maclntyre's profound criticism of

capitalism, the notion of tradition is more difficult to incorporate comprehensively.



TABLE of CONTENTS

Acknowledgments v ii

Tables and Figures iii

List of Abbreviations iv

Introduction 1

1. Overview of Canadian Securities Industry 16

1 . 1 Morality and Market Regulation 2 1

2. The Investment Advisor in the Canadian Securities Industry. 29

3. Maclntyre' s Critique of Modernity 42

4. Maclntyre' s Tripartite Notion of Virtue 65

4.1 Practice 67

4.2 The Narrative Unity of a Single Human Life 81

4.3 Tradition 89

Conclusion 100

Bibliography 108



11

In Memory of

L.H. Bresnahan (1916-1979) Whose Life Exemplified the Pursuit of Excellence.

Acknowledgments

I would like to acknowledge the following people for their contributions to this project.

At Saint Paul University: Dr Raymond Jahae, my thesis advisor, who, through his

guidance encouraged me to develop a thorough understanding of many of the debatable

issues of Maclntyre's moral philosophy. Dr. Gregory Walters and Dr. Richard Feist-

excellent professors— who exhibit a passion for their craft and impart their knowledge and

wisdom is an eloquent manner. Dr. Mahmoud Masaeli, whose lectures in Ethics and

International Relations were inspiring and encouraged me to focus my interest on the

social roles undertaken by multinational corporations. I would also like to recognize fellow

students, Brian Bridson, Jonathan Mahdi and Glenn Williams for their camaraderie,

support, critiques and encouragement during my time at Saint Paul University.

At Laurentian University: Dr. Rachel Haliburton for her invaluable lectures and

accompanying lecture notes that acted as a catalyst for my interest in Maclntyre's work

and served as the cornerstone for my research.

Finally, I wish to extend my deepest gratitude to Anita Law for the encouragement

and support that made this project possible and for the patience that was required of her

during this segment of our journey together. And, to my children, Zachery, Trinity, Elijah

and Zoey, who are the pillars of my being and the inspiration for all that I hope to

accomplish.



iii

Tables and Figures

Table 2.1 Nature of Complaints Received by COMSET 35

Figure 2.1 Complaints Received by COMSET (1997-2008) 35



IV

Abbreviations

CE Continuing Education

CFA Chartered Financial Analyst

CSC Canadian Securities Course

CDNX Canadian Venture Exchange

ComSet Complaints and Settlement Reporting System

CSA Canadian Securities Administrators

CSI CSI Global Education Inc. (formerly Canadian Securities Institute)

CPH Conduct and Practices Handbook Course

FBI Federal Bureau of Investigation

IIROC Investment Industry Regulatory Organization of Canada

IDA Investment Dealers Association

LSE London Stock Exchange

KYC Know Your Client Rule (IIROC 1 300. 1 )

NYSE New York Stock Exchange

MOU Memorandum of Understanding Regarding Securities Regulation

RCMP Royal Canadian Mounted Police

RS Market Regulation Services Ine

TSE Toronto Stock Exchange

TSX TSX GROUP Inc. (formerly TSE Inc.)

SRO Self Regulatory Organization

UMIR Universal Market Integrity Rules



Virtue Ethics and Investment Advisors in the Canadian Financial Services Industry:

An Application of Alasdair Maclntyre's Tripartite Model of Virtue Ethics and Moral

Philosophy

A morality that believes itself able to dispense with the technical knowledge of economic laws is not
morality but moralism. As such it is the antithesis of morality. A scientific approach that believes
itself capable of managing without an ethos misunderstands the reality of man. Therefore it is not
scientific. Today we need a maximum of specialized economic understanding, but also a maximum
of ethos so that specialized economic understanding may enter the service of the right goals. Only in
this way will its knowledge be both politically practicable and socially tolerable.

Introduction

The securities industry appears to be inundated with incessant scandals that

generate headlines in an ostensibly unremitting manner. Breaches of the law and

contraventions of ethical norms ranging from massive frauds, such as the Enron

scandal and more recently the sub-prime loan fiasco, have captured the attention of the

public, the media, the judicial system and legislative bodies. "Wall Street's" insatiable

thirst for profit and power is not simply confined to high profile situations such as the

instances referred to above, but permeates the ranks of the Investment Advisors who

provide services to the general public. I am referring to the thousands of financial

professionals who have a fiduciary duty toward average citizens endeavoring to

accumulate savings and establish financial security for themselves and their families.

Securities fraud and unethical behavior of this ilk strikes at the heart of the middle class

1 Cardinal Ratzinger (Pope Benedict XVI). 1986. "Church and Economy: Responsibility
for the Future of the World Economy", Communio (Fall) 13: 199-204.



2

and is a constant threat to the level of confidence that is so greatly required to sustain

an efficient and free trading marketplace.

Although banks and other securities firms have adopted various 'codes of ethics'

that serve as moral guidelines to the various professional positions within the firms,

contravention of securities laws and procedures continue to be an ubiquitous problem

in the industry.

From an academic perspective, surprisingly little has been dedicated to the subject

of ethics with regard to the role of the Investment Advisor (IA) (Boatman 2008, de

Goey 2006). The question of whether the IA is considered to be a professional is

somewhat controversial, which has perhaps led to a deficiency in philosophical

analysis in this area. The majority of the analysis of professional ethics deals with

members of the legal and medical communities. The vast majority of writing in the

area of marketing ethics accords little attention to the role of the IA, who in many cases

essentially markets the products of his employer or Mutual Fund Company. Most

publications pertaining to marketing in the financial services industry emphasize

marketing success and strategies. The lack of specific attention to the ethics of

marketing securities accentuates the need for further academic investigation and

analysis into this matter.

While it is recognized that all governing and regulatory bodies acknowledge the

stated problem and make an effort to keep abreast of the situation, it has become

2 IIROC/COMSET statistics indicate a 40% increase in customer complaints in 2008 over
2007. As well as an increase in internal disciplinary actions, IIR0C (2009) records a 93%



3

apparent that a concerted effort must be made to inculcate members of the financial

community with a strong sense of ethical standards and promote a deeply embedded

understanding of what constitutes deviations from standards of moral excellence.

I will argue that that the Canadian securities industry must undertake a

comprehensive and recurrent educational program to ensure that representatives

deliberately and persistently apply ethical business practices in their field of

specialization. Greater priority must be given to ethics in the educational aspect of

becoming registered with the organizations and associations that enforce securities

regulations in Canada. In order to effectively accomplish this task, the underlying

principles of any ethical code adopted by the industry must be supported by a logical

and normatively justifiable methodology. Financial professionals must comprehend

and embrace these foundational principles with verve and absolute dedication to ensure

the legitimacy and efficient enterprise of free market capitalism. Is there an ethical

theory that accomplishes this task with greater effect than the status quo?

To instill a 'moral compass' by which to conduct their fiduciary tasks, current

ethical training for professionals in the financial services industry focuses on the

deontological maxims of duty and responsibility. Is it possible that another normative

model of ethical theory would be more effective in subduing the levels of unethical

behavior in the industry by encouraging a greater sense of ethical commitment amongst

members of the Investment Dealers Association?

increase in external action being taken through criminal and civil suits. Both the FBI
(2006) and RCMP have issued reports indicating the widespread and multifaceted nature
of financial crimes in North America.



4

In Western civilization, the notion of virtue originated in ancient Greece. The four

cardinal virtues of justice, temperance, courage and wisdom were central to Plato's

moral thesis in his Republic (Book IV: 427d - 434d). According to Aristotle

(Nichomachean Ethics, 1097a -1099b), the concept of eudaimonia described the trait

achieved by the person who lives a proper human life. This level of human flourishing

could be attained through continued habitual practices and behaviors that result in arête

(virtue or excellence). The notion of virtue was later incorporated into Christian moral

theology by St. Thomas Aquinas in his Summa Theologiae (SUMMA THEOLOGICA,

Prima Secundae Partis, Q. 61).

Although very little has been dedicated to the moral theory validating the ethical

role of the IA, the securities industry has tended to focus on a deontological and/or

consequentialist models for the justification of the various codes of ethics that have

been adopted.4 With the resurgence of virtue ethics it only seems appropriate that a
concerted effort should be undertaken to apply this model to the financial services

industry.

The contemporary revival of virtue ethics has been attributed to G.E.M.

Anscombe's essay, "Modern Moral Philosophy" (1958). Anscombe was critical of

ethical models based upon law and duty and in their place she advocated a moral

philosophy that emphasized character, virtue and the quest for excellence through

3 The quotes from Republic and Nichomachean Ethics were accessed from the anthology:
Baird, Forrest E., and Walter Kaufman, eds. 2003. Ancient Philosophy 4th ed. New Jersey:
Prentice Hall.

IIROC and the CSI focus on deontological and utilitarian ethical models in the Ethics
Courses offered. (Canadian Securities Institute. 2004: 2007.)



5

human flourishing. The acclaim of Anscombe's essay influenced others to revisit the

notion of Aristotelianism. One of these philosophers was Alasdair Maclntyre.

Alasdair Maclntyre was born in Scotland in 1929 and began teaching at

Manchester University in 1951. Since relocating to the United States in 1969 he has

held various academic appointments at several American Universities including Yale,

Duke and Notre Dame. Classified as a communitarian, Maclntyre is a radical critic of

modernity and liberal individualism, citing the dysfunction of modern practices,

institutions and especially contemporary moral discourse. With the publication of the

highly acclaimed After Virtue (1984), his philosophical project has stimulated renewed

interest and compelled vigorous debate on the subject of virtue-based ethics.

Subsequent publications that expound on his theory of moral philosophy include

Whose Justice, Which Rationality (1988), Three Rival Versions of Moral Enquiry

(1990), The Tasks of Philosophy (2006) and Ethics and Politics (2006).

Maclntyre provides an uninviting view of the state of modern moral philosophy,

claiming its failure to be rationally explainable. He asserts that older forms of moral

discourse were more effective within society, particularly singling out Aristotle's moral

philosophy as a standard. Maclntyre criticizes the Enlightenment and its influence on

contemporary ethics and has called for a return to the Aristotelian tradition in moral

philosophy. Can Maclntyre' s concept of virtue ethics be employed to improve the

status of ethical behavior in the retail sector of the Canadian financial services

industry? Is Maclntyre's project compatible with economic liberalism, which is

embodied by the practice of laissez faire capitalism?



6

It will be argued that Maclntyre's tripartite notion of virtue ethics can provide a

useful philosophical framework to support the formulation of an agent-based ethical

model that can be adopted by the Investment Advisors in the Canadian securities

industry. However, it will be made clear that Maclntyre's overall theory can be

considered somewhat hostile and incompatible with the notion of capitalism and the

institutions that support it. Investment Advisors are professionals who are directed

primarily towards the attainment of external goods, both for their clients and

themselves in an extraordinarily competitive market environment. This social role

assumed by the IA appears to be the antithesis of Maclntyre's notion of what would be

tolerated in his ideal moral society. In light of Maclntyre's conviction with regard to

the moral state of western society, the securities industry is a demanding milieu for the

application of his virtue ethic model.

Applying Maclntyre's model to the role of the Investment Advisor is not without

its challenges. The activities performed by the IA and the environment in which he

operates epitomizes the conditions that characterize the present moral morass which

Maclntyre claims is the result of an emotivist framework guiding contemporary moral

philosophy. Maclntyre infers that two forms of subjectivity, the liberal-individualism

and emotivism, are mutually reinforcing: the result being the ethical quagmire

exhibited in today's capitalist society.

Capitalist social practice encourages a non-reflective, instrumental and acquisitive

mode of engagement with the world, providing a climate amenable for the emotivist



7

self to thrive.5 It is this setting in which the IA finds himself, totally immersed in an
extraordinarily competitive vocational environment, accompanied by a level of

acquisitiveness seldom shared by other professions. It would be difficult to find a

better individual in the current emotive-liberalist culture that better exemplifies the

moral challenges that confront society. Who better than the IA to apply the concept of

virtue ethics to?

An analysis of Maclntyre's critique of modernity will reveal the challenges

confronting the Investment Advisor with respect to the moral foundations on which the

contemporary liberal individualist society functions. The inadequacies of the

deontological and utility-based ethical models will be exposed by analyzing instances

that have a direct bearing on the Investment Advisor. Subsequently, by applying

Maclntyre's tripartite notion of what constitutes his core conceptualization of virtue, it

will be demonstrated that the first two concepts, specifically, the notions of practice

and narrative of the unity of a human life can be productively applicable to the role of

Investment Advisor in formulating an ethical model that promotes excellence of

character and virtuous business conventions. However, the third component of his

tripartite model, specifically, Maclntyre's concept of tradition will be revealed to be

antithetical to the contemporary economic paradigm of capitalism and hence not a

viable aspect of Maclntyre's thesis to apply. (See footnote 25)

5 Maclntyre defines emotivism as "the doctrine that all evaluative judgment and more
specifically all moral judgments are nothing but expressions of preference, expressions of
attitude or feeling, insofar as the are moral or evaluative in character." (Maclntyre 1984:
11-12)



8

Methodology

The proposed research encompasses the philosophical virtue ethics of Alastair

Maclntyre's tripartite model, which includes the notions of practice, the narrative unity

of a human life and the concept of tradition. Drawing upon general aspects of

Maclntyre's moral philosophy, and appropriating in particular Maclntyre's tripartite

model of virtue ethics, the thesis will apply the core concepts of his virtue model to the

Canadian securities industry, specifically, the roles of professional retail Investment

Advisors.

In order to properly analyze and incorporate Maclntyre's tripartite model, his view

of the current state of morality in the Western world must be elucidated. It is necessary

to familiarize ourselves with his argument that the state of morality in the liberalist

west is a contemporary morass. Maclntyre claims an inevitable product of an

unraveling morality is emotivism. "Emotivism is the doctrine that evaluative judgments

and more specifically all moral judgments are nothing but expressions of preference,

expressions of attitude or feeling, insofar as they are moral or evaluative in character"

(Maclntyre 1984: 11-12). The cultural milieu of emotivism has produced a society

where moral judgment is not grounded on any rational method but merely results from

the projection of personal preferences in the most convincing of manners. Emotivism

can be best understood by the embodiment of what is the moral life through the roles

archetypal characters play in society. The securities industry and its professional

representatives exemplify this state of affairs; an atmosphere where there seems to be

no rational basis for moral approval and the choice of ends, upon examination, seems



9

to be totally subjective. Maclntyre utilizes three typical characters to present his

argument: the rich aesthete, the manager and the therapist. It is directly in the role of

manager that we find the financial advisor.

"The manager represents in his character the obliteration of the distinction

between manipulative and non-manipulative social relations" (Maclntyre 1984: 30).

The manager treats ends as given, concentrating his intellectual skills on technique and

effectiveness. For the manager, the ends of actions are justified by the desires of those

who pursue them; actions that are based on subjective individual aspirations and the

persuasive use of words as opposed to the objective rational analysis through the

meaning of language. The investment world is rife with those who claim a profound

expertise in the business of managing wealth. Who symbolizes and embodies the

emotivist culture, the product of a liberalist society better than the professional money

manager? It is from this perspective that we shall undertake to analyze the financial

professional and determine how Maclntyre's critique of modernity and the tripartite

concept of virtue applies to him. Once we have established the money manager's

circumstances with respect to this core concept of virtue it will be possible to ascertain

how to bring about constructive change in the securities industry.

Maclntyre claims that the three stages mentioned above comprise the development

of the core concept of virtue that we must examine if this concept is to become

intelligible:

The first stage requires a background account of what I shall call a practice, the
second an account. . .as the narrative order of a single human life and the third an
account. . .of what constitutes a moral tradition. Each later stage presupposes the



10

earlier, but not vice versa. Each earlier stage is both modified by and reinterpreted
in the light of, but also provides an essential constituent of each later stage.
(Maclntyre 1984: 187)

The role of practice is essential to the process of indentifying the core concept. The

notion of practice of a particular type provides the arena in which the virtues are

exhibited. By a practice, Maclntyre means:

. . .any coherent and complex form of socially established cooperative human
activity through which goods internal to that form of activity are realized in the
course of trying to achieve those standards of excellence which are appropriate to,
and partially definitive of, that form of activity with the result that human powers
to achieve excellence, and human conceptions of the ends and goods involved are
systematically extended. (Maclntyre 1984: 187)

Maclntyre uses the example that throwing a football with skill is not a practice, but

the game of football is. Bricklaying is not a practice but architecture is. This paper will

demonstrate that trading securities or marketing securities is not a practice per se but

the participating in business-as-practice within the institution of economics is.

An analysis of internal and external goods will be examined in detail since these

ideas form the core of Maclntyre' s concept of a practice. External goods are

contingently attached to a practice and are often realized as a result of competition

where there are typically losers and winners. These external goods can be achieved in

any number of ways and are usually attained in the form of money, power or fame. The

impressive income, prestige and managerial power that the 'successful' Investment

Advisor enjoys are examples of external goods derived from his practice. External

goods are not exclusive to any specific practice: the Investment Advisor may be able to

attain the same degree of external goods in a different occupation. Internal goods are



11

competed for as well, "but it is characteristic of them that their achievement is a good

for the whole community who participate in the practice" (Maclntyre 1984: 190-191).

Unlike external goods, internal goods are specific to individual practices and can only
be realized by participating in the practice itself. The personal fulfillment of seeing an
investment strategy come to fruition, or a production goal being achieved through
diligence and principled business acumen are internal goods available to the
Investment Advisor.

It will be demonstrated that although technical skills are required to do the

'mechanical' aspect of an occupation well, it is of great importance that these technical

skills be applied in a manner that contributes to the realization of internal goods of the
professional and the social institution to which he is associated. This will lead to a

critical analysis of the roles of institutions and the integral part they play in the

requisite tension between the pursuit of external goods and the realization of goods
internal to practices.

Maclntyre claims that "any contemporary attempt to envisage each human life as a

whole, as a unity, whose character provides the virtues with an adequate telos

encounters two different kinds of obstacles, one social and one philosophical"
(Maclntyre 1984: 204). The social obstacle arises from the fact that modern lives are

split into segments: work being separated from leisure, public life divided from private.
These divisions have resulted in man forgetting that a human life is a unity, rather than
something that is composed of distinctive parts.



12

The philosophical obstacles are twofold: First, there is a philosophical tendency to

analyze human acts atomistically; action is viewed as independent and isolated from

any broader context. At the same time contemporary social theory makes a sharp

distinction between individuals and the roles they play. Roles tend to become arbitrary

and incompatible resulting in a series of detached and incoherent episodes which

exemplify the emotivist self. Maclntyre claims that despite these emotivist dilemmas

the narrative self is a natural approach for us to grasp the meaning of our lives.

Institutions, practices and other social relations serve as settings that provide a place in

which the histories of individuals are situated. Without settings, individual histories

would be unintelligible because an agent's actions can only be contextualized by

placing his intentions in causal and temporal order in relation to his history and with

reference to the role in the history of the setting to which they belong (Maclntyre 1984:

208). It is only when situated in context do the actions of man have certain

intelligibility:

The intelligibility necessary for giving accounts to one another highlights a
further moral dimension here.... Accountability, a universal element of morality,
is built in to the concept of an intelligible human act. The accounts are all the
more intelligible when we consider life as enacted narrative. To see life as enacted
narrative means making human action intelligible in a narrative history with
beginning, middle and end. (Ballard 2000: 18)

Agents are both actors in and authors of narratives; they are affected by the actions

and thus narratives of others. Since our narratives are intertwined with the narratives of

others, there is the peculiarity of omnipresent unpredictability in our future. This

combined with the fact that all lived narratives have a certain teleologica! character,



13

some future possibilities repel us while others attract us or seem inevitable. The

personal identity is simply "the unity of the character which the unity of a narrative

requires" (Maclntyre 1984: 218). The agent is not only accountable for himself but is

an individual who can also demand and expect others to be accountable. The virtues

are those dispositions that sustain us in our teleological quest and help us cope with the

dangers and unpredictability that we encounter in that quest.

While the self finds its identity in particular communities, it is not necessarily

limited by them. We are bearers of a tradition, a "historically extended, socially

embodied argument, and an argument precisely in part about the goods which

constitute that tradition" (Maclntyre 1984: 222). An individual's search for the good

takes place within the context defined by his personal narrative as it contributes to the

community which hosts the society's traditions.

Chapter one will provide an historical overview of the Canadian securities industry.

The roles of the various provincial Securities Commissions, Investment Dealers

Association, self-regulatory bodies and The Canadian Securities Institute will be

described, providing a perspective of where each body stands in regard to the

adherence to the ethical expectations of the industry. Legislation, registration

publications and documentation from the stock exchanges, security commissions and

Investment Industry Regulatory Organization of Canada (HROC) will be employed to

elucidate the current state of affairs in the Canadian securities industry. References will

be made to the Canadian Securities Institute (CSI) Conduct and Practices Handbook



14

Course and a critical analysis of the CSI publication Applied Ethics in the Securities

Industry.

Chapter two will provide an historical overview of the financial services

professional. A description and assessment will be made of the ethical models applied

to the professions with emphasis on the financial services professional. Boatright's

work found in Ethics in Finance will demonstrate the principles that are adopted by

various members of the financial community. The vast changes that have taken place in

the securities industry over the last twenty years will reveal the pressures that

professionals in the field experience and also shed light on the state of the institution-

registered representative-client dynamic. This examination will be derived from the

rules, regulations and procedures adopted by IIROC (Investment Industry Regulatory

Organization of Canada). The educational curriculum and registration process will be

analyzed using current information from the Canadian Securities Institute. The ethical

foundations pertaining to the financial advisor will be abstracted and critically assessed

using current literature dealing with professions in general since there is a limited

scholarship available pertaining directly to individuals in the profession of providing

financial advice. The role of the financial advisor is often compromised since the

advisor is also in a marketing role. The conflicts that arise from this dual position will

set the stage for the basic ethical problems that exist in this sector of the securities

industry.

In chapter three, Maclntyre's critique of modernity will be examined, interpreted and

applied to the individuals and institutions that constitute the structure of the securities



15

industry. The moral dilemmas that confront the IA will be critically evaluated using

Maclntyre's assessment of the current ethical models that are applied in the business

world. Maclntyre's explication of the emotivist character of the bureaucratic manager

will be applied to members of the investment industry and the social sciences that

entail it. The disclosure of the negative aspects of the status quo will lead to

Maclntyre's thesis of how virtue can be reestablished in the emotivist culture to which

he claims that Western culture has succumbed.

Chapter four, which is comprised of four parts, will directly address the application

of Maclntyre's virtue ethics to the profession of the Investment Advisor. Maclntyre's

conceptions of a practice, the narrative unity of human life and the role of tradition will

be explicated and applied to the educational and professional expectations of the

Investment Advisor. Finally, the conclusion will ascertain the viability of applying the

concepts of Maclntyre's three part model of virtue ethics to the Investment Industry

with specific reference to the role of Investment Advisor.



16

1. Overview of Canadian Securities Industry

The securities industry plays an integral role in Canada's financial services sector,

facilitating both government and industry in the raising of capital in the form of both

debt and equity. Today, the industry is comprised of institutional, retail and integrated

firms with the integrated firms largely represented by the Canadian chartered banks

being the most significant in the generation of revenues.

Canada's first stock exchange was incorporated in Montreal in 1874, followed four

years later by the incorporation of the Toronto Stock Exchange by a special act of the

Province of Ontario. Chartered banks were the most influential due to their expertise in

the underwriting of debt on behalf of the provinces and federal governments. The

bank's influence was eventually eclipsed by the rise in the number and financial clout

of private underwriting firms, bond traders and equity market brokers. The majority of

these securities firms were owned by senior partners and private families and provided

services in one of the 'four pillars' of Canadian finance; the other sectors being

banking, insurance and trust services. In the mid 1980s the federal government eased

the regulations pertaining to the ownership of securities companies by trust companies

and banking corporations. In 1987, the federal and provincial governments amended

legislation so that banks, trust companies and foreign investment firms could own

brokerage firms. The large Canadian banks acquired leading brokerage firms or created

their own firms. In addition to the large banks providing services, many smaller

specialty firms offer select services to a wide array of clientele. Three broad types of

brokerage firms coexist, namely the integrated brokerage firms, institutional brokerage



17

and retail brokerage. At the end of 2001, all the large integrated brokerage firms in

Canada belonged to the banks, of which six represent more than 90% of total banking

assets in 2002.

With market deregulation, Canadian stock exchanges underwent major structural

changes. The Alberta and Vancouver stock exchanges merged in 1999 and became

known as the Canadian Venture Exchange (CDNX). A year later the CDNX acquired

the Winnipeg Stock Exchange to assume control of junior equities listed in Canada.

The Toronto Stock Exchange became the sole senior exchange while the Montreal

Stock Exchange (MSE) became the sole derivatives exchange. Another significant

structural change in the Canadian securities markets occurred when both the TSE and

MSE demutualized in 2000. In May 2001 the TSE acquired full ownership of the

CDNX. Canadian equity trading was conducted under the umbrella of one organization

for the first time in its history. In July 2002, the TSE Inc. was renamed TSX Inc. and

the CDNX, a wholly owned subsidiary of the TSX was renamed the TSX Venture

Exchange Inc.

The structural changes that took place in the Canadian stock exchanges lead to new

demands being placed upon the traditional operations, the mandates of the provincial

Demutualization is the process through which a member-owned company becomes
shareholder-owned: Demutualization was originally used to refer specifically to this
conversion process by insurance companies; the term has since become more broadly used
to describe the process by which any member-owned organization becomes shareholder-
owned. Worldwide, stock exchanges have offered another striking example of the trend
towards demutualization, as the London Stock Exchange (LSE), New York Stock
Exchange (NYSE), Toronto Stock Exchange (TSE) and most other exchanges across the
globe have either recently converted, are currently in the process, or are considering
demutualization.



18

securities commission and the associated self-regulatory organizations. After the

demutualization and subsequent consolidation of the Canadian exchanges, self-

regulation became the authority of the Investment Dealer's Association (IDA), which

acted as regulator in all provinces except Quebec. Market Regulation Services (RS),

which was created as a joint venture of the TSX Group and the IDA, commenced

operation in March of 2002. RS Inc. was formed to amalgamate the surveillance,

compliance, investigative and enforcement functions of the TSX and TSX Venture

exchanges. Acting independently of its two shareholders, this non-profit corporation

operated as a neutral regulatory authority in British Columbia, Alberta, Manitoba,

Ontario and Quebec. The only other self-regulatory organization (SRO) in the

Canadian investment industry was the Montreal Exchange.

In an effort to enhance Canada's securities regulatory system, which was already

ranked by the Organisation for Economic Co-operation and Development and the

World Bank Group as one of the best in the world, all provinces and territories, except

Ontario, signed the 2004 Provincial/Territorial Memorandum of Understanding

Regarding Securities Regulation (MOU). Under the MOU provincial ministers

committed to adopt a passport system for an improved securities regulatory framework

and to develop highly harmonized securities laws. The passport system, when fully

implemented, will allow a company to access capital markets in other participating

provinces or territories once it obtains the regulatory approvals required in its home

jurisdiction. Under this harmonized system registered dealers and advisers will find it

easier to offer their services to investors across Canada without re -registering in each



19

province. Harmonized laws are also intended to improve the efficiency and

effectiveness of the regulatory framework. The passport system proposed is also

intended to improve Canada's capital markets in the global economy. In September

2005, all provinces and territories except Ontario adopted the first phase of the passport

system: the Principal Regulator System rule and related policy and procedural changes.

Phase two of the passport system will allow participants to clear a prospectus, register

as a dealer or adviser, or obtain a discretionary exemption from their principal regulator

(i.e. regulator in their home province or territory) and have that decision automatically

apply in all other passport jurisdictions. Phase two also ensures public companies are

subject to only one set of harmonized continuous disclosure requirements in passport

jurisdictions.
Q

The Investment Industry Regulatory Organization of Canada (HROC) was formed

on June 1 , 2008 from the merger of the Investment Dealers Association (IDA) and

7 See: http://www.securitiescanada.org/index.html . Phase two of the passport system is
already in effect for issuers, beginning March 17, 2008, with the implementation of
Multilateral Instrument 11-102 Passport System, National Instrument 41-101 General
Prospectus Requirements and Multilateral Instrument 62-104 Take-Over Bids and Issuer
Bids. Phase two of the passport system will be fully implemented by mid-2009 with the
implementation of National Instrument 31-103 Registration Requirements. On February
29, 2008, the Canadian Securities Administrators republished for comment proposed
National Instrument 31-103, with the comment period expiring May 29, 2008.
8 See: http://www.iiroc.ca/English/Pages/home.aspx. The following functions are
performed by IIROC:
• Writes rules that set high regulatory and industry standards.
• Screens all investment advisors employed by IIROC- regulated firms to ensure they are
of good character and have successfully completed all the required educational courses and
programs.
• Conducts financial compliance reviews to ensure that firms have enough capital for the
specific nature and volume of their business. IIROC- regulated firms also participate in the



20

Market Regulation Services Ine (RS). IIROC is the national self-regulatory body that

operates under a Recognition Order from the Canadian Securities Administrators

(CSA). IIROC is subject to oversight and regular operational reviews by the CSA9. As
a self-regulatory organization, IIROC is governed by a Board of Directors consisting

equally of independent and industry directors. The mandate of IIROC is to set and

uphold the quality of regulatory practices by maintaining the integrity and efficient

functioning of Canadian capital markets. IIROC regulates operations and standards of

practice for debt and equity marketplaces in Canada and enforces the Universal Market

Integrity Rules (UMIR).10

Canadian Investor Protection Fund which protects individual investors in the unlikely
event that a firm should go bankrupt.
• Conducts business conduct compliance reviews to check that firms have procedures in
place to properly supervise the handling of client accounts and that advice and transactions
appropriately reflect the client's directions.
• Conducts market surveillance to ensure that trading is carried out in accordance with
securities trading rules.
• Investigates complaints against a dealer firm, approved person, access person, participant
or applicant and takes disciplinary action when rules are broken.

9 See Canadian Securities Administrators: ( http://www.csa-acvm.ca/) The CSA is
primarily responsible for developing a harmonized approach to securities regulation across
the country. The CSA brings provincial and territorial securities regulators together to
share ideas and work at designing policies and regulations that are consistent across the
country and ensure the smooth operation of Canada's securities industry. By collaborating
on rules, regulations and other programs, the CSA helps avoid duplication of work and
streamlines the regulatory process for companies seeking to raise investment capital and
others working in the investment industry.

10 UMIR were established to promote fair, equitable and efficient markets. Prior to the
formation of the UMIR, each individual exchange was responsible for governing its
trading practices. By making these practices universal Canadian exchanges have attempted
to ensure equal fairness and improve investor confidence in all the exchanges



21

1 . 1 Morality and Market Regulation

Finance is one of the most heavily regulated sectors of Canadian society. This is due

to the fact that the expectation of fairness is paramount to the upholding of confidence

through the persistent viability and efficiency of capital markets. The financial services

industry is arguably the most visible face of finance to ordinary citizens; it is an

industry that impacts the well-being of not only direct participants in the markets, but

also affects many third parties such as stakeholders and other community groups.

Provincial regulators and securities commissions seek to instill confidence and trust in

financial services organizations through legislation and the consequent regulations that

derive from such enactment of law. However, as Boatright states: "The law is a rather

crude instrument, and it is not suited for regulating all aspects of financial activities,

especially those that cannot be reduced to precise rules" (Boatright 2008: 9). It seems

that after a deleterious financial incident seizes the public's attention, legislators rush to

implement new regulations and laws to curb deviant behavior. Some concerned

citizens are left with the impression that the operative adage on Bay Street is "if it is

not deemed illegal, then it is morally okay." For the vast majority of participants in the

financial services industry this is simply not the case. The management of investment

firms realize that the companies and individuals to which they provide their services

expect not only compliance with the laws but also implicitly demand ethical treatment.

What then is the connection between law and morality in the case of the securities

industry?



22

It must be stressed that there is a difference between compliance and ethics. CSI

Global Education Inc. (CSI) is the educational body of IIROC and has the exclusive

mandate to provide many of the courses and exams required to work within the

securities industry in Canada. The following is stated in the Conducts and Practices

Handbook Course (CPHC):

Compliance is, basically following the rules, whether those rules are legal
requirements or firm policies. Ethics involve not only complying with the letter of
the law but also complying with the spirit of the law. Therefore, ethics goes
beyond prescribed behavior, and address situations where rules are not clear or
are contradictory. It is possible to take an action that is unethical, even though
one is complying strictly with the rules. (CSI 2007: 1.2)

Maclntyre asserts that "...regulation which is concerned with the safety or quality of

goods and services is not itself and expression of any particular moral standpoint, but is

rather a substitute for morality at just those points in our social fabric where we no

longer possess adequate moral resources" (Maclntyre 1980: 31). Although Maclntyre

is clearly supportive of regulation, he recognizes the 'systematic inconsistencies' in our

conceptions of justice.

On the one hand, we tend to think of morality positively, where citizens pursue

human goods through the notion of community, family, the workplace and other social

relationships. We conduct ourselves in a fashion that positively contributes, through

participation and communication, in the community: the pursuit of good for all of its

members is a common priority of all individuals. On the other hand, we view our social

milieu as one of self interest and ceaseless competing desires amongst individuals and

rival groups. This negative view holds that self satisfaction and the resultant conflicts



23

that ensue require that we should be protected from each other. In regard to the former

view of justice, Maclntyre claims: "From the standpoint that envisages the goal of

political society as the creation and maintenance of communities, we do indeed need a

system of public law, but only as a system of last resort" (Maclntyre 1980: 32). Using

medical malpractice suits as an example, Maclntyre suggests that these legal actions do

not rise due to greater negligence on the part of the medical profession but because of
the breakdown in trust between physician and patient. The erosion of the moral

relationships between individuals has resulted in the law being relied upon much more

frequently instead of a social vehicle of last resort.

Where protection from others is paramount, reliance on the law is not an action of

last resort but a primary instrument in the functioning of society. Maclntyre explains:

[W]hen law is thought of in the second way, as a device for protection of one
against another, then fear or self-interest become the dominating motives... When
the law is in good working order it is not when everyone is obeying the law from
fear, or when everyone is obeying the law from calculated self-interest. It is when
obedience to law expresses a genuine allegiance to law. Thus it is precisely when
the law is least needed, when it is least invoked, that it is in its best working order.
When by contrast there is continuous resort to the law, it is generally a sign that
moral relations have to some large degree broken down. It is a sign that the
motives which make us invoke the law are those of fear and self-interest. And
when fear and self-interest have been brought into play, law itself tends to be
morally discredited. (Maclntyre 1980: 32-33)

At the time of this paper being written, global markets are experiencing the

consequences of a combination of factors, predominately the catastrophic sub-prime

loan fiasco and ensuing banking crisis in the United States. This financial debacle and

other factors including the speculative bubble in the commodities markets, lead by



24

petroleum products, have resulted in a period of extreme volatility and uncertainty in

financial markets. In the early stages of the aftermath of the global monetary crisis,

investment firms have been denounced for participating in devious sales practices and

implementing deceptive investment policies. It should be noted that transgressions of

ethical expectations and regulatory statutes are frequent in the final stages of markets

cycles, only to surface as the ensuing downturn gains momentum.

1 ' On December 1 1 , 2008 the Securities and Exchange Commission ("SEC") charged
Bernard L. Madoff and Bernard L. Madoff Investment Securities LLC. with securities
fraud for an alleged massive Ponzi scheme perpetrated on their advisory clients. According
to the U.S. Attorney's office, Madoff admitted to defrauding clients for up to $50 billion in
a massive Ponzi scheme that was committed over a number of years. Madoff conducted an
investment advisory business providing investment services for wealthy clients,
institutions, schools, and charities. Madoff s services were marketed as providing steady
double-digit returns even in the most turbulent of markets.

Sometime in 2005, according to the SEC suit, Madoff s investment-advisory business
morphed into a Ponzi scheme, taking new money from investors to pay off existing clients
who wanted to cash out. As the market declined precipitously in the autumn of 2008,
Madoff continued to report to investors that his funds were up which would have been a
relatively remarkable performance. During the same time, the stocks of the Standard &
Poor's 500, where Madoff supposedly did most of his trading, had dropped a weighted
average of 37.7%.

Despite his gains, a growing number of investors began asking Madoff for their money
back. In the first week of December 2008, according to the SEC suit, Madoff told a senior
executive that there had been requests from clients for $7 billion in redemptions. Soon
after, Madoff met with his two sons to tell them the advisory business was a fraud — "a
giant Ponzi scheme,"— and was nearly bankrupt. The sons reportedly contacted their
lawyer, who then alerted federal authorities to the fraud. Before being caught, Madoff was
working on a scheme to dole out his funds' remaining $300 million to the firm's employees
and his family members. For details of the complaint against Madoff see:
http://www.sec.gov/litigation/complaints/2008/comp-madoffl21108.pdf



25

Financial markets are cyclical in nature, ostensibly being driven by the aggregate

psychology of the investing public12. History has repeatedly demonstrated that mass
psychology manifests periodically as hysterias, driven by both fear and/or greed, which

is invariably accompanied by deceitful and fraudulent behavior on the part of unethical

parties participating in financial markets. The hope and optimism of rising markets

develops into a period of exuberant euphoria, which is characterized by excessive

acquisitiveness and blatant disregard for risk. Inevitably the 'boom' is followed by the

'bust' or descending market prices but not before predatory firms and individuals

exploit the naivete of investors who are typically overcome by avarice in the

distribution stage of the market cycle. The declines are often dramatic, punctuated by

periods of panic with culmination of the bear phrase occurring in an environment of

acrimonious fear and despair amongst the investing public. In a setting where

exploitation of investors by parties with malevolent intentions is prevalent, securities

regulation can only operate under the conditions of the protection of self-interest and

fear. Unfortunately, without the investing public having a general knowledge of what

causes periods in the market where securities laws are typically transgressed, securities

regulation is only effective in a reactive manner. Galbraith summarizes this point:

What have not been sufficiently analyzed are the features common to these
episodes, the things that signal their certain return and have thus the considerable
practical value of aiding understanding and prediction. Regulation and more
orthodox economic knowledge are not what protect the individual and the financial
institution when euphoria returns.... There is protection only in a clear perception of

12 An abundance of research and analysis of stock market cycles is available through both
commercial and academic sources: (Galbraith 1993: Graham 1973: Shefrin 2002: Herbst
and Slinkman 1984: Bauman and Miller 1995)



26

the characteristics common to these flights into what must be conservatively
described as mass insanity. (Galbraith 1993: 1-2)

The crash of 1987 is a good case in point. After the crash in October 1987 the blame

was directed towards several parties including the federal government for running such

large deficits. Program trading and portfolio insurance were also condemned for their

adverse effect on short-term market behavior. Diminutive mention was attributed to the

orgy of speculation that led up to the fateful day of October 19th, 1987. The insider

trading scandals involving Dennis Levine and Ivan Boesky which led to the indictment

of Michael Milken of Drexel Burnham Lambert, were merely symptoms of the

speculative bubble that had been forming during the mid 1980s. The markets had

succumbed to the vices of fear and greed, subsequently demonstrating that existing

regulations were not able to deter reckless and immoral behavior.

A more recent example has had a devastating effect on the global economy. Easy

credit for the American housing market led to the inevitable financial bubble that like

all other 'manias' was bound to crash. Initially, small regional lenders of residential

mortgages began to experience an increase in defaults on sub-prime mortgages and

non-traditional mortgages. ' The problem began to mushroom when high risk

mortgages that were being bundled, ostensibly to lower risk to the securities firms and

their clients, began to collapse in value. These mortgage backed securities being held

typically by investment banks and hedge funds were flaunted as being of 'investment

Subprime mortgages are those lent to people with poor credit who might not otherwise
qualify for loans. Non-traditional mortgages include those with adjustable interest rates,
interest-only payments and other enticements.



27

grade' due to the diversification of the bundling process and risk management

strategies utilizing derivative products. The entire process began to unravel, directly

leading to the collapse (to date) of Countrywide Financial, Fannie Mae, Freddie Mac,

Bear Stearns, AIG Insurance and Lehman Brothers.14 The financial crisis presently

enveloping Wall Street was allowed to get to unmanageable proportions due to the

dubious sales practices of residential mortgage brokers and the faulty 'financial

engineering' of mortgage backed securities that relied on the apparent sophistication

and expertise of Wall Street money managers. As shall be demonstrated below, the

alleged expertise of financial professionals resulted in what Alan Greenspan terms a

'once in a century' financial crisis. Once again the regulators were caught in a position

of being reactive to the economic crisis as a result of unbridled avarice and short

sightedness.

Maclntyre summarized the role of regulation in society as follows:

The result: regulation is the best we can do... I see it as a minimal device that has
been developed in order to compensate for the grave defects of a culture where the
fabric of morality is being torn apart and where government cannot act in the ways
that we would want it to if moral community were a real possibility. Regulation is a

Fannie Mae and Freddie Mac were the largest American purchasers of mortgages. They
were taken over by the U.S. federal government on Sept. 8, 2008, as the two mortgage
giants struggled with deep losses and investors lost confidence. Bear Stearns and Lehman
Brothers were investment banks that offered strategic advisory services for mergers,
acquisitions, and other financial services for clients, such as the trading of derivatives,
fixed income, foreign exchange, commodity, and equity securities. Bear Stearns was
acquired by JPMorgan Chase in March 2008 after becoming illiquid due to loses in the
Mortgage Backed Securities markets. Lehman Brothers suffered the same fate in
September 2008 but was allowed to file for bankruptcy protection. On the same day
Merrill Lynch was acquitted by Bank of America possibly averting yet another bankruptcy
of a major Wall Street firm.



28

necessary makeshift. Churchill once said that democracy is the worst form of
government except for all others. Regulation, it seems to me, deserves a similar
verdict. (Maclntyre 1980: 33)15

In Canada, the Provincial Acts and regulatory bodies require the registration of all

individuals and firms who trade in securities as principles, agents or advisors. The Acts

require that individuals desiring to trade in securities or to advise on the purchase or

sale of securities must first be approved and registered in the proper capacity. The role

and regulatory requirements of the individual advisor, referred to as the Investment

Advisor (IA), in the Canadian securities industry will be now be examined.

15 Maclntyre' s position that regulation is a 'necessary makeshift' implies that it does have
an important role to fulfill in a just society. The relative strength of the Canadian banking
system as compared to other countries affected by the current economic crisis (2009) aptly
demonstrates that effective and efficient regulatory systems stabilize the financial
environment to a greater degree than the laissez faire attitude adopted by American
financial regulators.



29

2. The Investment Advisor in the Canadian Securities Industry.

The contractual relations that exist in the securities industry are diverse. The ethical

question regarding transactions between buyer and seller turn on whether the exchange

is fair and conducted with equal access to information and without duress, deception or

fraud. The "broker" who executes the order of a client is expected to adhere to rules

and regulations that derive from a contractual relationship and result in some form of

compensation to the 'broker' . Two distinct roles are prominent when dealing with the

investors: fiduciaries and agents. An agent is an individual or party who is engaged to

act on behalf of another due to their specialized knowledge and skills. A broker who

simply executes a client's order without providing advice but utilizing his skill and

knowledge in the operation of trade execution is considered to be acting as an agent.

On the other hand, a fully licensed Investment Advisor is part of a fiduciary

relationship in which one party is the beneficiary of another party's service. "A

fiduciary duty may be defined as the duty of a person in a position of trust to act solely

in the interest of the beneficiary, without gaining any material benefit except with the

knowledge and consent of this person" (Boatright 2008: 39). The CPHC holds that the

IA is considered to be the trustee part of a fiduciary relationship:

The IA owes a fiduciary duty to the client if the IA provides investment advice
and recommendations to the client, and the client relies on such advice. The
existence of such a fiduciary duty imposes a higher standard of care upon the IA
than would be the case if the IA merely executed the client's orders without
providing any advice. A fiduciary relationship requires the IA to act carefully,
honestly and in good faith in dealings with the client, and not to take advantage in
any way of the trust the client has placed in the IA. (CSI 2007: 1-4)



30

The fiduciary relationship has two elements: trust and confidence. When the IA

provides advice with regard to a client's investments, the client assumes that proper

care will be taken which requires the subordination of the IA' s self-interest and an

exemplary level of trust, due care and loyalty. Boatright summarizes the difference

between an agent and a fiduciary:

The duty of a broker who is acting as an agent in the sale of securities is narrower
than that of a broker who is acting as a fiduciary in managing a client's portfolio.
As an agent-broker, a person may not have an obligation to advise against an
unwise trade... but a broker-advisor, acting as a fiduciary, would have such an
obligation. The difference between the two cases is the scope of the engagement,
that is, the range of services that the client seeks and the broker has agreed to
supply. (Boatright 2008: 42)

Conflict of interest, which is a violation of the expected level of loyalty in a fiduciary

relationship, is difficult to avoid in the securities industry since conflict plays an

integral role in the economic nature of the business. Participants in the free market

system are constantly presented with choices amongst the competing interests of
others; conflicts of interest are built into the structure of our financial institutions. "The

inhabitants of Wall Street are motivated primarily by self-interest and can be induced

to serve any master only within limits. The challenge, therefore, is not to prevent

conflicts of interest in financial services but to manage them in a workable financial

system" (Boatright 2008: 51). In order to facilitate this challenge, IAs are subjected to

a comprehensive process of registration and regulation in the various Canadian

jurisdictions.

The Investment Advisor is an individual registered to advise on a full range of equity

and fixed income securities products. Additional proficiency requirements are needed



31

to solicit orders or to advise in the trading of options, commodity futures and

commodity futures options. The term "Investment Advisor" is not an official

registration category under most provincial legislation; the official name given to

individuals with this standing is Registered Representative (RR). IAs have broadly

based knowledge, which allows them to provide advice on various investment products

and financial strategies. Competent knowledge of the functions of capital markets,

taxation issues, market cycles and the characteristics of sector performance places the

IA in a position that allows him to do more than merely execute client orders.

Prospective Investment Advisors must complete the Canadian Securities Course

(CSC) and Conduct and Practices Handbook Course (CPH), which are administered by

CSI Global Education Inc. (CSI). Subsequent to the approval as a representative, the

registrant must complete a ninety-day in-house training program with a Member Firm.

After training, the RR is subject to a six-month period of strict supervision by his or her

supervisor who must have at least two years experience in a registered capacity with a

member of IIROC. In addition to these proficiency requirements RRs must complete

the Wealth Management Essentials Course (WME), which combines elements of

Financial Planning and Investment Management with content on wealth management

applications. The course is designed to better prepare the RR to provide clients with

comprehensive, integrated financial advice. In order to maintain valid status as a RR,

IIROC mandates that educational development be taken on a continual basis. These

courses, which are provided by CSI, are designed to keep Investment Advisors current

with investment knowledge, expand their knowledge base and familiarize them with



32

industry developments. The continuing education program (CE) operates on three-year

cycles. Individuals registered to do retail business and give advice must complete a

Compliance course and a Professional Development course during each three-year

cycle.

The Canadian Securities Course (CSC) is the comprehensive introductory course for

individuals entering the securities industry in Canada. The course teaches students a

wide range of economic and financial topics including macroeconomic and political

factors effecting financial markets along with how to interpret financial statements and

analyze corporate, industry and market performance. Potential RRs become

knowledgeable with the financial instruments available to the investing public and

learn the various aspects of financial planning such as goal setting, investing and

taxation issues.

The Conduct and Practices Handbook Course (CPH) prepares the prospective IA

through the impartation of the regulations, practices and ethics that will serve as a

guide throughout their career. The examination consists of 120 multiple choice

questions and the course content is allocated approximately as follows: Special

Transactions and Products 14%, The Regulatory Environment 25%, Ethics, Ethical

Codes, and Standards of Conduct 25% and Dealing with Clients Accounts 36%.

Successful candidates will have a comprehensive understanding of the Canadian

regulatory environment and the provincial securities regulations. In addition candidates

are expected to apply their knowledge in dealing with clients appropriately by

constantly applying the standards of conduct and code of ethics of the industry (CSI



33

2007: 1-4 - 1-19). As part of the CPH, the ethics component explains ethical theories

and the importance of values in investment decision-making. Students are taught to

understand how their values influence the decisions they make and gives them the

knowledge required to make ethical decisions that go beyond the rules contained in the

CPH. The ethics component is presented in the Conduct and Practices Handbook

Course; Applied Ethics in the Securities Industry (CSI 2004). Further education is

provided in ethics through the continuing education modules, which can be applied to

meet the requirements for the Fellow of CSI designation.

Currently there are approximately twenty two thousand registrants falling within the

jurisdiction of IIROC. Table 2.1 summarizes the complaints year to date (2008)

received by the Complaints and Settlement Reporting System (ComSet) as of July 31

2008. ,7 Figure 2.1 indicates the history of complaints processed by ComSet since 1997.

16 The FCSI designation is a highly respected accreditation in the financial services
industry. It recognizes individuals who bring a rare combination of education, ethical
training and experience to their firm and their clients' businesses.
1 7

ComSet (Complaints and Settlement Reporting System) is a system that enables
reporting of client complaints and disciplinary matters by dealer Members to IIROC. With
ComSet, staff can identify new and emerging compliance or regulatory issues, as well as
patterns and trends in the industry, at the national, regional and firm level that help to
direct focus on potential problems, areas that require enhanced compliance review, or
events that warrant enforcement action.
(see: http://www.iiroc.ca/English/Enforcement/Statistics/Pages/Complaints.aspx )



34

Table 2.1

Nature of Complaints Received by ComSet.
Nature of Complaint

Unauthorized or discretionary trading
Unsuitable Investments

Misrepresentation
Service Issues

Violation of UMIR

Other

899

248

122

83

33

406

Source: ComSet: http://www.iiroc.ca/English/Enforcement/Statistics/Pages/Comset.aspx

Figure 2.1
Complaints Received by ComSet (1997-2008)

2000 r'

1500

1000

500

0
OD CD CD i— OM CO "st"
CD Oi CD CD CD CD CD
CDCTlCDCDCDCDCDCD
t- t— OM CN OM CM OM CN

¦ No. of
Complaints
received

Source: ComSet: http://www.iiroc.ca/English/Enforcement/Statistics/Pages/Comset.aspx

Considering the number of registrants in the Canadian securities industry an

annualized complaint rate of approximately 7%]8 suggests that violations of securities

; Complaint Ratio: Annualized # of Complaints/ # of Registrants : 1540/22000 = 7%.



35

regulations, ergo transgressions in ethical conduct, warrant the attention of Industry

Regulators and the management of Member Firms.

Aside from blatant deception and fraudulent practices in the securities industry,

COMSET data indicates conflicts of interest between the IA and the client and/or

Member firm is a problem that frequently leads to violation of the ÏÏROC rules and

regulations. The conflict of interest inherent in the ??/client relationship stems from the

fact that most IAs, who are not considered portfolio managers and compensated

through an account management fee structure, are compensated by a commission fee

that is directly correlated to the frequency of trading as well as the type of investment

related to the client investment objectives. Two frequent regulatory infractions that are

based on conflicts of interest according to COMSET data are discretionary trading and

unsuitable investments decisions being made on behalf of the client.

Excessive or unauthorized trading executed for the prime purpose of generating

commissions is referred to as "churning". Churning is difficult to define since differing

investment objectives among clients directly result in different levels of trading

frequency. Conservative income oriented clients are prone to generate significantly less

trading activity than a client whose investment objectives are highly speculative and

growth oriented, which invariably are investments with a short-term time horizon and

thereby generate a higher frequency of trading activity. A commonly used indicator of

churning utilized by compliance departments in the industry is the annualized turnover



36

ratio. Although this indicator does not take into account the nature of the account's

investment objectives, when compared with the clients stated objectives, anomalies and

discrepancies in trading activity can be easily detected.

Suitability is a key compliance issue that deals with the conflicts of interest and other

abusive practices between the client and the IA. The cardinal imperative in the

investment industry is the 'Know Your Client' rule (KYC). The KYC rule relates to

IIROC Standard A, Duty of Care, and is the cornerstone of all dealings with clients

(CSI 2007: 4-3). IAs must make a conscientious effort to familiarize themselves with

the vital financial and personal circumstances, and most notably, the investment

objectives of their client. Rules 1300 and 29 of the IIROC Dealer Member Rules

summarize Standard A of IIROC s Standards of Conduct. The CFA Institute Standards

of Practice Handbook, which is considered the authority for all other securities industry

codes of conduct, states the following:

One of the most important factors to be considered in matching appropriateness
and suitability of an investment with a client's needs and circumstances is
measuring that client's tolerance for risk. The investment professional must
consider the possibilities of rapidly changing investment environments and their
likely impact on a client's holdings, both individual securities and the collective
portfolio. The risk of many investment strategies can and should be analyzed and
quantified in advance. (CFA Institute 2006: 70)

Rule 1300.1(q) of IIROC Dealer Member Rules reflects this standard: "Each Dealer

Member. . . shall use due diligence to ensure that the recommendation is suitable for

Annualized Turnover Ratio = ?/? ? 365/D: where P = total cost of purchases made
during the period, E = the average equity in the account during the same period and D =
the number of days in the selected period.



37

(the) customer based on factors including the customer's financial situation, investment

knowledge, investment objectives and risk tolerance"

?? 29.1. BUSINESS CONDUCT
Dealer Members and each partner, director, officer, sales manager, branch manager,
assistant or co-branch manager, registered representative, investment representative and
employee of a Dealer Member (i) shall observe high standards of ethics and conduct in the
transaction of their business, (ii) shall not engage in any business conduct or practice
which is unbecoming or detrimental to the public interest, and (iii) shall be of such
character and business repute and have such experience and training as is consistent with
the standards described in clauses (i) and (ii) or as may be prescribed by the Board of
Directors.

For the purposes of disciplinary proceedings pursuant to the Rules, each Dealer Member
shall be responsible for all acts and omissions of each partner, director, officer, sales
manager, branch manager, assistant or co-branch manager, registered representative,
investment representative and employee of a Dealer Member; and each of the foregoing
individuals shall comply with all Rules required to be complied with by the Dealer
Member.

20 1300.1 IDENTITY and CREDIT WORTHINESS
(a) Each Dealer Member shall use due diligence to learn and remain informed of the
essential facts relative to every customer and to every order or account accepted.

(b) When opening an initial account for a corporation or similar entity, the Dealer
Member shall:

(i) ascertain the identity of any natural person who is the beneficial owner, directly or
indirectly, of more than 10% of the corporation or similar entity, including the name,
address, citizenship, occupation and employer of each such beneficial owner, and whether
any such beneficial owner is an insider or controlling shareholder of a publicly traded
corporation or similar entity; and

(ii) as soon as is practicable after opening the account, and in any case no later than six
months after the opening of the account, verify the identity of each individual beneficial
owner identified in (i) using such methods as enable the Dealer Member to form a
reasonable belief that it knows the true identity of each individual and that are in
compliance with any applicable legislation and regulations of the Government of Canada
or any province.



38

Determining the client's tolerance for risk is the most important factor to consider

when conforming investment vehicles to client objectives. Both churning and

unsuitability of investments are in most cases a direct result of a conflict between the

client's objectives and the IAs self-interest. Both actions have the risk/reward factor as

a basis for potential complaints being made to a regulatory body about the IA. When

violations of regulatory standards of conduct occur, the IA is usually acting out of self-

interest at the expense of the client. Whether the illicit action is performed to generate

higher commissions or to otherwise advance the IAs standing amongst his peers and/or

managers, or even in the eyes of the client himself, the client account is exposed to a

higher degree of portfolio risk in order to appease the IAs self-interest. The adage 'the

greater the risk, the greater the return' applies to the IA as well to his clientele. In order

to achieve a higher degree of compensation or recognition the IA risks his reputation

and possibly his career by succumbing to delinquent behavior. Although the

objectionable risk level of financial speculation is occurring in the unsuspecting

client's account, the IA, is at the same time, speculating with his future standing in the

securities industry with the hopes of securing some sort of material benefit for himself.

According to Prentice (2007: 13-24) financial professionals commit acts deemed to

be unethical "if they do not keep their ethical antennae up and guard against errors in

judgment that are commonly made—errors that, indeed, people are often predisposed

to make." Prentice goes on to describe many of the cognitive biases that can create

ethical traps, which include:



39

• Obedience to Authority. Frequently the employer' s pressure to make sales quotas
and other measurements of productivity are too great for one to ignore or
surmount.

• Conformity Bias. Conformity bias often compels people to align their judgments
with the judgments of their reference group. If the environment in which the IA
is performing his duties is rife with unethical behavior, the IA will succumb to
peer pressure with the classic excuse when caught that 'everyone else is doing it'.

• Incrementalism. Many Financial professionals unconsciously lower their
standards, sliding down a slippery slope in tandem with their peers.

• Groupthink. When the IA loses his independence and conforms to the thinking of
a cohesive group, poor decisions are often made, many with unethical
implications.

• Over-optimism/Overconfidence. "It can't happen to me!" Irrational optimism can
lead to systemic errors in decision-making, which often lead to unethical actions
being committed to mask the unanticipated consequences of such misplaced
confidence.

• Self-Serving Bias. Advisors often gather and process information in such a
manner as to advance their perceived self-interest and to support their pre-
existing views. These processes can easily undermine the credibility, fairness of
the investment strategies that the IA recommends to his clients.

The biases cited above share a commonality; each is as a product of manipulative

social relations, which are endemic in Western culture. It will be established below that

this condition is illustrative of the emotivist culture in which Western society finds
itself.

The securities industry's claim for self-regulation is justified by the industry's

commitment to the values of integrity, honesty, trust and competency. Clearly, for the

securities industry to function efficiently and ethically, a strong sense of values is

expected from all participants. CSI stresses that these commonly held values are



40

essential to prevent the industry from being morally compromised. The CSI defines

'values' as follows:

Values do have common characteristics. These characteristics are:

• Values are beliefs; they are not facts.
• Values are long lasting; they are not fleeting. But this doesn't mean values are

fixed and unchangeable.
• Values provide guidance with respect to two aspects of our lives: a) Our

personal and corporate behaviour: b) Our personal and corporate goals. (CSI
2004: 1-8):

The distinction is made between means values and ends values. The former being

characterized as ambition, openness, or competence that we employ to achieve our end

values or goals. The ends towards which we are striving are defined as ends values

such as a sense of accomplishment, service to people, security, a world at peace and

social recognition. The concept of a Unified Value System is presented which seeks to

impart to IAs that the means and the ends have to mutually reinforce and support each

other if trust is to be expected to prevail in the functioning of the market place. It is

stressed that IAs understand the nature of values, their degree of resilience and what

role they play in guiding the decision making process which is vital to the securities

industry. This understanding is referred to as Value Clarification (CSI 2004: 1-9). How

these values are derived in contemporary society is the essence of the moral morass

that Maclntyre's believes plague a liberal individualistic society.

It would be difficult to discuss the attributes of the IA without making a reference to

the term 'professional ethics' and the questions surrounding what constitutes the term



41

profession in general. Boatright states that three criterion for being designated as a

professional must be met:

• A specialized body of knowledge. Professionals must possess a highly developed
technical body of knowledge.

• A high degree of organization and self-regulation. This organization must adhere
to a standards of conduct and practice to retain its professional standing.

• A commitment to public service. The specialized knowledge of the professional
must serve some important social need. (Boatright 2008: 43)

Clearly, the IA meets this criterion.

While this paper is not focused on whether 'professional ethics' embodies a

unique level of ethical responsibility, the term 'professional' exemplifies the

characteristics of the milieu of liberal individualism that Maclntyre claims is besieging

western society. In order to apply Maclntyre' s tripartite notion of virtue ethics to the

role of the IA, Maclntyre' s perspective of how the remnants of a moral history which

has become the basis of contemporary liberal society has contributed to the tendency to

behave as if emotivism were a tenable moral philosophy. This consequence of the

failure of the moral philosophy developed during the Enlightenment is reflected in

contemporary culture, both at the individual and institutional levels of the social order.

The financial and economic institutions in Western society have certainly not been

immune from the affects of the current moral morass. Due to the enormous influence

material well-being has on socialization in liberalist society, it is perhaps the

functioning of economic/financial institutions that best reveal the inadequacy of the

moral philosophies of the Enlightenment.



42

3. Maclntyre's Critique of Modernity

After Virtue begins with a thought experiment, where Maclntyre asks the reader to

imagine that the natural sciences have been struck by a calamity: a series of

environmental disasters are being blamed on the scientific community by the general

public. An anti-science political organization takes over and attempts to rid society of

all vestiges of scientific thought. The outcome of this upheaval has left society in an

intellectual void. Upon a subsequent uprising and ensuing revolution, an attempt is

made to revive scientific knowledge. Using only remnants and shards of information

available to them: "Everything that they do and say conforms to certain canons of

consistency and coherence and those contexts which would be needed to make sense of

what they are doing have been lost, perhaps irretrievably" (Maclntyre 1984: 1). This

new civilization would use terms in ways that resemble their previous usage, but the

beliefs which grounded those partially retrieved scientific concepts would not be

available to them. According to Maclntyre, this hypothetical world is analogous to the

moral morass in which contemporary society finds itself immersed. '[I]n the actual

world which we inhabit the language of morality is in the same state of grave disorder

as the language of natural science in the imaginary world" (Maclntyre 1984: 2).

Maclntyre claims that philosophical analysis will not help us identify the current

situation and that the problem which confronts society can only be indentified if we

turn to philosophical history. The dominant forms of analysis that have been used since

the Enlightenment will no longer suffice to solve the problem; in fact these

philosophical models such as deontology and utilitarianism are part of the problem.



43

It is Maclntyre's observation that contemporary moral discourse is ensnared in a

series of interminable disagreements that demonstrate no rational course of securing

moral accord in society. He cites the current debates concerning abortion, just war,

health care and education, that are becoming increasingly acerbic and divisive. The

forums for discourse are now global and instantaneous, exacerbating the unsolved

ethical problems that challenge society. Maclntyre identifies three important features

that embody contemporary debate:

• Conceptual incommensurability. While the conclusions follow logically from
premises held by both debating parties, the premises themselves "are such that
we possess no rational way of weighing the claims of one as against the other"
(Maclntyre 1984, 8). Neither party can find good reasons to support their own
position or to agree with the position taken by the other side. In the end the
debate becomes increasingly aggressive, yet, futile.

• We purport to make impersonal rational arguments and as such are usually
presented in a mode appropriate to that impersonality." (Maclntyre 1984, 8). In
our arguments we appeal to supposedly independent criteria: even though the
acceptance of the presented concept is what we personally desire, we appeal to a
sense of duty or to a plea for the advancement of an anticipated universally
beneficial consequence to make our case.

• Our moral arguments have no historical context. Like the remnants used by the
new civilization in Maclntyre's thought experiment, the premises used in our
arguments have diverse historical origins that have been partially abstracted and
taken out of context over time.

Maclntyre considers the argument that all moral argument may be interminable: that

what appears to be a contingent feature in contemporary culture is a necessary feature

of all cultures' dialogues concerning morality. To address this point of contention

Maclntyre must refute the notion of emotivism which is a doctrine claiming that all

moral disagreement is rationally interminable. Maclntyre states that "emotivism is the



44

doctrine that all evaluative judgments and more specifically all moral judgments are

nothing but expressions of preference, expressions of attitude or feeling, insofar as they

are moral or evaluative in character"(MacIntyre 1984: 1 1-12). Maclntyre believes

emotivism fails for three reasons:

• Emotivism fails to identify or characterize the feelings and attitudes that
constitute an account of moral utterance. What kind of feeling or attitudes? If the
reply is a feeling or attitude of approval, then, what kind of approval? What
constitutes moral approval? AU emotivist based attempts to answer this question
becomes entangled in a circular argument.

• Emotivism attempts to approach two kinds of expressions, which derive their
distinctive function in our language from the contrasts and differences between
them, as being equivalent in meaning. As an example, an expression of personal
preference is very specific to what context these preferences are articulated,
while on the other hand, moral expressions are independent of context. Therefore
there can be no equivalent meaning assigned to them. Moral judgments, unlike
statements of inclination or approval, are impersonal and contain implicit appeal
to objective standards.

• The emotivist theory purports to be a theory about the meaning of sentences; but
the expression of feeling or attitude is characteristically a function not of the
meaning of sentences, but of their use on particular occasions. Expressing
feelings is a matter of the use of language, not of its meaning.

Emotivism is perceived by Maclntyre as an empirical thesis that emerged as a

response to social conditions and has persisted in contemporary liberalism.

Ballard claims in Understanding Maclntyre that the emotivist will claim feelings of

approval when accepting a moral statement but when pressed to explain his reasons for

acceptance he is left lacking an adequate response. "The emotivist has lost the defining

difference needed to distinguish moral approval from, say, ice-cream approval"

(Ballard 2000: 5). However, Maclntyre maintains that the central assertion of



45

emotivism, "that there are and can be no valid rational justification for any claims that

rational and impersonal moral standards exist and hence that there are no such

standards" (Maclntyre 1984: 19), has become embodied in our culture: citizens of

Western society now think, act and talk as if emotivism were true.

Maclntyre' s critique of modernity necessitates a critique of the modern self: how

members of western culture assess their choices, their values and their roles in society.

The current view of the self is best encapsulated by modern liberalism. The rise of

liberal views about the individual in society has complimented the tendency to believe

and behave as if emotivism were true. Maclntyre situates his critique in the real world:

A moral philosophy - and emotivism is no exception - characteristically
presupposes a sociology. For every moral philosophy offers explicitly or
implicitly at least a partial conceptual analysis of the relationship of an agent to
his or her reasons, motives, intentions and actions, and in so doing generally
presupposes some claim that these concepts are embodied or at least can be in the
real world. (Maclntyre 1984: 23)

Maclntyre considers the infusion of emotivism into western culture as the result of a

breakdown of a previously better ordered moral world. The failure to sustain

impersonal objective standards to support judgments, actions and policies led to a tacit

acceptance of emotivism. The key to the social content of emotivism "is the fact that

emotivism entails the obliteration of any genuine distinction between manipulative and

non-manipulative social relations" (Maclntyre 1984: 23). This fact has dire

consequences for society since individuals and institutions now rely on the authority of

persuasion, treating other agents as means to their desired end, in lieu of necessitating

adherence to principles of normative rationality. An emotivist social world would be



46

seen as "nothing but a meeting place for individual wills... who interpret reality as a

series of opportunities for their own enjoyment and for whom the last enemy is

boredom" (Maclntyre 1984: 25). The market place is one such environment that

embodies all of the trappings and manipulations of an emotivist culture. However,

before the social roles and stock characters that exemplify emotivist culture are further

identified and examined in the context of the securities industry, it is necessary to

understand why Maclntyre believes the Enlightenment project of justifying morality

had to fail. Recognizing why the various individual projects failed explains how the

social institutions of today sanction the continued moral deterioration in liberalist

culture through the acquiescence to emotivism.

Maclntyre claims that all philosophical arguments of the eighteenth and nineteenth

centuries were bound to fail because the philosophers presenting their arguments were

"inheritors of a very specific and particular scheme of moral beliefs, a scheme whose

internal incoherence ensured the failure of the common philosophical project from the

outset" (Maclntyre 1984: 51). Maclntyre asserts that the philosophers of the

Enlightenment all had shared beliefs about what constituted morality, arising from their

shared Christian past. They also agreed on what would constitute a shared rational

justification of morality: it would be based on some feature(s) of human nature, and on

rules that a being with this nature could accept. The moral scheme inherited by these

Enlightenment thinkers had both theistic and classical elements, embodied in a three

part scheme. Ethics was a way in which human beings could bridge the gap between

what they are and what they should be:



47

We thus have a threefold scheme in which human-nature-as-it-happens-to-be
(human nature in an untutored state) is initially discrepant and discordant with the
precepts of ethics and needs to be transformed by the instruction of practical
reason and experience into human-nature-as-it-could-be-if-it-realized-its-ie/os.
Each of these three elements of the scheme - the conception of untutored nature,
the conception of the precepts of rational ethics and the conception of human-
nature-as-it-could-be-if-it-realized-its-te/os - requires reference to the other two if
its status and function are to be intelligible. (Maclntyre 1984: 53)

In order for the three part scheme to be intelligible it is important to note that each

part required the other two. Maclntyre believes that the reason the Enlightenment

project failed is because the Enlightenment thinkers rejected one element of the three

part scheme that they had inherited, namely "any ideological view of human nature,

any view of man as having an essence which defines his true end" (Maclntyre 1984:

54). As a consequence, the relationship between the other two elements becomes

unclear; in addition, the "injunctions of morality, thus understood, are likely to ones

that human nature, thus understood, has strong tendencies to disobey" (ibid., 55).

The consequence of the loss of the ideological element can be captured in the

famous claim that you can't derive an 'ought' from an 'is': meaning that normative

claims cannot be derived from factual referents. Moral philosophers of the

Enlightenment came to accept that "no valid argument can move from entirely factual

premises to any moral or evaluative conclusion" (Maclntyre 1984: 56). Maclntyre
believes that this argument only holds when the teleological element of morality is

omitted from moral judgment. This principle held by Hume and Kant amongst other

philosophers of the eighteenth century demonstrates how the meaning of different

expressions and terms can change from one historical period to the next. Maclntyre



48

uses the concept of functionality to make his case. Functional concepts such as 'watch'

or 'farmer' cannot be properly comprehended without the notion of working as they are

intended to. The function of a watch is to keep accurate time; therefore, the concept of

watch cannot be separated from the notion of a 'good watch'. An object that does not

function as expected cannot be assigned a name that implies that it deliberately or

inadvertently carries out its intended function. The same can be said of the term

'farmer' which suggests an individual who successfully carries out the function of

producing a bountiful harvest on an ongoing basis:

Such concepts are functional concepts; that is to say, we define both 'watch' and
'farmer' in terms of the purpose of function which a watch or a farmer are
characteristically expected to serve. It follows that the concept of watch cannot be
defined independently of the concept of a good watch nor the concept of a farmer
independently ofthat of a good farmer. (Maclntyre 1984: 58)

Maclntyre asserts that if the 'can't derive an 'ought' conclusion from an 'is' premise'

argument is to remain valid, then functional concepts must be excluded from its scope.

Moral arguments in the Aristotelian tradition involve man's essential nature as being

purposeful or functional; this function entails the concept of a 'good man'. When the

teleological element is excluded from arguments in regard to morality it becomes

impossible to treat moral judgments as factual statements. The thinkers that excluded

the teleological element from their moral arguments believed that they had proven the

autonomy of man and thus the concept of the individual began to emerge. It is in this

social milieu, that of liberal individualism, that the emotivist self began to predominate

over Western morality and social structure.



49

Maclntyre claims that the Enlightenment failed for two reasons:

• The rise of individualism could not provide a framework to make claims about
human nature since the focus of attention was the sovereignty of the individuals'
moral authority.

• Since the new morality was deprived of their original context, rules of morality
became nothing more than expressions of individual will and desire.

The Utilitarian thesis of Bentham (Bowring 1962) attempted to derive morality from

the basic human psychology of attraction to pleasure and aversion to pain. From this

position he endeavored to connect what would motivate the individual to an account of

the common good; the moral agent was to choose the action that would produce the

greatest amount of happiness for the greatest number of people. This may be axiomatic

to the self-enlightened but the question remained whether the unenlightened citizen

could also see fit to pursue happiness for the greatest number. John Stuart Mill, who

embraced Bentham' s thesis, tried to correct this apparent weakness in Bentham' s

argument by expanding the concept of happiness to include both the higher and lower

pleasures (Mill 1991: 140-143):

Human beings have faculties more elevated than the animal appetites, and when
once made conscious of them, do not regard anything as happiness which does not
include their gratification. . . .
Utilitarianism, therefore, could only attain its end by the general cultivation of
nobleness of character, even if each individual were only benefited by the
nobleness of others, and his own, so far as happiness is concerned, were a sheer
deduction from the benefit. (Mill 1991: 138,142)

However, what the distinction between the higher and lower pleasures demonstrates

is that " the notion of human happiness is not a unitary, simple notion and cannot



50

provide us with a criterion for making our key choices. . .For different pleasures and

different happinesses are to a large degree incommensurable" (Maclntyre 1984: 63-64).

Maclntyre's criticisms of the moral ethical systems inherited from the Enlightenment

included deontological moral philosophy as exemplified by the works of Kant (1981).

Kant's Categorical Imperative is an attempt to create a rational universal standard by

which ethical judgments could be evaluated. Maclntyre asserts that there is a

fundamental flaw in Kant's system. He suggests that, while the first formulation of the

Categorical Imperative (the universalization formulation) has no distinctive moral

content since the maxims that pass the test can be both immoral and trivially non-

moral, the second formulation (the means-end formulation), although it does have a

moral content, is not one that is very strictly defined:

If the rules of morality are rational, they must be the same for all rational beings,
in just the way that the rules of arithmetic are; and if the rules of morality are
binding on all rational beings, then the contingent ability of such beings to carry
them out must be unimportant - what is important is their will to carry them out.
(Maclntyre 1984: 43-44)

Maclntyre argues that such a rational will cannot motivate the individual to perform

the rationally just action in the face of emotional or social pressure to act contrary to

such a sense of duty:

What Kant means by treating someone as an end rather than a means seems to be
as follows... I may propose a course of action to someone either by offering him
reasons for so acting or by trying to influence him in non-rational ways. If I do the
former I treat him as a rational will, worthy of the same respect as is due to
myself, for in offering him reasons I offer him an impersonal consideration for
him to evaluate. What makes a reason a good reason has nothing to do with who
utters it on a given occasion; and until an agent has decided for himself whether a
reason is a good reason or not he has no reason to act. By contrast an attempt at



51

non-rational suasion embodies an attempt to make an agent a mere instrument of
my will, without regard for his rationality. (Maclntyre 1984: 46)

The concept of human rights is a specific subset of deontological ethics. Maclntyre

uses Gewirth's (1978) thesis on human rights to demonstrate. According to Maclntyre,

what is central to Gerwirth's claim is that "Every rational agent has to recognize a

certain measure of freedom and well-being as prerequisites for his exercise of rational

agency. Therefore each agent must will, if he is to will at all, that he possess that

measure of these goods" (Maclntyre 1984: 66). Maclntyre does not have a problem

with Gewirth's argument up to this point but then asserts that Gewirth argues that

"anyone who holds that the prerequisites for his exercise of rational agency are

necessary goods is logically committed to holding also that he has a right to these

goods" (Maclntyre 1984: 66-67). Maclntyre claims that there is no obvious connection

between the concept of a need and the concept of a right. He also asserts that far from

being a universal and ageless attribute of the human condition, rights are highly

contextual and particular, coming "into existence at particular historical periods under

particular social circumstances" (Maclntyre 1984: 67). He goes on to state that the

existence of a specific type of social institution to provide these rights must exist and in

the lack thereof "the making of a claim to a right would be like presenting a check for

payment in a social order that lacked the institution of money" (Maclntyre 1984: 67).

Horvath summarized Maclntyre' s position:

In an individualistic society, self-centered demands necessarily go unmet when no
one accepts responsibility for meeting those demands. Social rights exist only
when socially enforced... The notion of rights has become a minimalist ethic in
American society. The failure of such claims can be traced to the same reason



52

Kant's formalism fails: even a rational presentation of the logic of such claims
cannot instill the desire to honor such claims. Reason alone does not motivate
most people. At best, it indicates what "should" be done; at worst, it serves as a
rationalization or mask for self-serving behaviour. (Horvath 1995: 508)

Even though the attempts of the Utilitarian and Kantian projects failed, most people

and social institutions act as if these attempts were successful, not conscious of the fact

that they have yielded to emotivism. This is the consequence of the inherited three

element medieval model progressing through history in a fragmented state; missing the

essential teleological element. Like the imaginary society that Maclntyre uses to

contextualize the current morass, the meaning of sentences and the use of sentences can

be and is often acutely divergent. "So both formalism and utilitarianism not only fail to

provide a useful moral guidance by themselves, they fail even more by providing a

veneer of morality which actually masks prerational preferences" (Horvath 1995: 510).

The emotivist dilemma is stated concisely by Maclntyre:

Seeking to protect the autonomy that we have learned to prize, we aspire not to be
manipulated by others; seeking to incarnate our own principles and stand- point in
the world of practice, we find no way open to us to do so except by directing
towards others those very manipulative modes of relationship which each of us
aspires to resist in our own case. (Maclntyre 1984: 68)

An outstanding example of the dilemma that occurs in an emotivist culture is the

interaction between the utilitarian model of morality and the deontological notion of

morality in actual practice. Investment advisors are faced with the consequences of the

recognition of both models on a continual basis. When Management of a securities

firm formulates its business plan and implements the ensuing strategy, it is in all



53

likelihood based on a utilitarian calculus that emphasizes effectiveness. This

effectiveness manifests itself as a drive towards maximized profitability and optimal

productivity of the workforce, which entails to a large degree the sales force as

represented by the Investment Advisor. 22 The IA is faced with this pressure from
Management on a daily basis. Meeting sales quotas, participating in branch office or

national sales contests and the Management desire for the achievement of performance

measurements delineate clearly what the desired ends are to be for both the IA and the

firm:

Since utilitarianism is consequentialist, it is logical for managers to concern
themselves with effectiveness. 'Getting the job done' and 'the bottom line' reflect
ends which must be accomplished to have any utility at all...MacIntyre finds that
business ethics, as it shares the weakness of utilitarian ethics, actually facilitates
an emotivist denial of the ability to make moral claims. But businesses have found
a substitute ethical base in the concept of effectiveness. As long as one is effective
at accomplishing a goal, one is good. The only external; standard which appears
to relate to this 'ethic of effectiveness' approach is that of the market. What one
earns (either individually or corporately, is the measure of success. (Horvath
1995:514)

At the same time as being expected to adhere to the directives of his employer, the

IA is bound by the deontological based code of conduct and practices described

previously. Responsibilities and obligations to various parties including primarily the

21 Proponents of utilitarianism would argue that Maclntyre's identification of utility with
effectiveness is problematic. It can be argued that when consequentialism is associated
with or identified by only an obsession with the bottom line, the philosophical notion of
utilitarianism is being misinterpreted. Maclntyre takes no consideration of Smith's
impartial spectator and notion of sympathy or Mill's higher/nobler pleasures. (Smith 1937,
1982: Mill 1991)
22 The link that Maclntyre makes between utility and effectiveness can be criticized since
concern with results alone does not accurately represent the goals of utilitarianism. There is
nothing in utilitarianism that forces one to be solely concerned by effectiveness. It can be
argued that an obsession with effectiveness is a misrepresentation of utilitarianism.



54

client, and to a lesser degree the firm and the community, obfuscate the moral

foundations on which the IA is expected to conduct his vocation. Not only is it

exceedingly difficult to pursue his career in a moral fashion due to the veneer provided

by emotivism, but the moral projects that are responsible for providing this veneer are

diametrically opposed:

In essence, therefore, individuals in financial organizations are faced with two
incompatible notions of rational behavior—two moral philosophies. One,
neoclassical economic rationality, provides the foundation for their early
educational experience and is reinforced through their acculturation into the
financial services industry. The other, a code of ethics that espouses some
rationality premise other than that of neoclassical economics, may be touched on
in their early educational experience but generally appears to play little part in the
industry. (Dobson 2003: 30)

The failure of the Enlightenment and subsequent emotivist culture has placed the IA

in an unenviable position of complying with corporate directives based on utility while

at the same time adhering to a duty based code of conduct that emphasizes the Unified

Value System described in the previous section.

Maclntyre argues that in all cultures stock characters inhabit "a very special type of

social role which places a certain kind of moral constraint on the personality of those

who inhabit them in a way in which many other social roles do not. . .They are so to

speak, the moral representatives of their culture and they are so because of the way in

which moral and metaphysical ideas and theories assume through them an embodied

existence in the social world" (Maclntyre 1984: 27-28). These characters are the rich

aesthete, the manager and the therapist. The role characters play in society does not



55

require universal assent: in fact it is being the focal point of disagreement within the

culture that defines the importance of the character.

The three characters Maclntyre assigns to contemporary Western culture exemplify

the collapse of the distinction between manipulative and non-manipulative social

relationships. The Investment Advisor is in the atypical position of inhabiting all three

of the positions, partitioning his life between them. His predominant actions are that of

the manager, but he often finds himself aspiring to assume the character of the rich

aesthete or subjecting himself to the portrayal of the therapist to quell client's concerns

in times of financial turbulence. While the different characters share sets of fictions the

manager employs a set of fictions which are peculiar to him. The manager claims to

possess systematic effectiveness in controlling certain aspects of social reality. The

purported effectiveness is presented as morally neutral: what is important is the

achievement of the desired goals, not whether the goals themselves are morally sound.

The manager's claim of authority is based on the perceived ability to produce certain

results. If anticipated results are not met, their claimed expertise may be nothing more

than a moral fiction, because "the kind of knowledge which would be required to

sustain it does not exist" (Maclntyre 1984: 75). Maclntyre claims that perhaps the

most culturally powerful moral fiction "is embodied in the claims to effectiveness and

hence to authority made by that central character of the modern social drama, the

bureaucratic manager. To a disturbing extent our morality will be disclosed as a theatre

of illusions" (Maclntyre 1984: 76-77).



56

The manager makes two claims to justify his authority. First he claims that there

exists a domain of morally neutral fact about which the manager is regarded as

possessing exclusive expertise. Secondly, that expertise in the domain allows the

manager to make law-like generalizations that can be applied to particular cases. In

order to comprehend the claim of expertise the notion of what constitutes a fact must

be examined.

Chapter 7 of After Virtue presents a comprehensive explanation of how the manager

and other emotivist characters developed, beginning in the seventeenth and eighteenth

centuries. The Enlightenment ushered in the advent of a mechanistic, value free, social

science coincident with the Protestant and Jansenist refutation of Catholic teleological

morality and the abandonment of the Aristotelian paradigm. Empiricism co-existed

with the proliferation of the natural science:

The empiricist concept was a cultural invention of the late seventeenth and
eighteenth centuries. It is at first sight paradoxical that it should have arisen in the
same culture in which natural science arose. For it was invented as a panacea for
the epistemological crisis of the seventeenth century; it was intended as a device
to close the gap between seems and is, between appearance and reality....
By contrast the natural scientific concepts of observation and experiment were
intended to enlarge the distance between seems and is... It redraws the lines
between seems and is; it creates new forms of distinction between both
appearance and reality and illusion and reality. (Maclntyre 1984: 80)

The result of these developments was that the notions of intention, purpose and

reason became detached from the notions of good or virtue. It is Maclntyre's opinion

that in the seventeenth and eighteenth centuries human nature ceases to be a

"functional concept" (Maclntyre 1984: 53-58, 81-83) and the resultant "explanation of



57

action is increasingly held to be a matter of laying bare the physiological and physical

mechanisms which underlie actions (ibid., 82). This in turn led to the development of

injunctive generalizations. Associated with these generalizations was the requirement
of antecedent necessary and/or sufficient conditions to explain the cause of action. It is

during this period that the "ideal of mechanical explanation was transferred from

physics to the understanding of human behavior. . ." (ibid., 83). It was in this

environment, void of a ideological paradigm that the development of the social

sciences was nurtured and in turn the arrival of the emotivist characters. A bifurcation

between human science and morality legitimized the existence of the technocrats and

bureaucrats who 'manage' as a consequence of their 'expertise' through the auspices

social institutions. Maclntyre asserts that the social manipulation prevalent in emotivist

culture is predicated upon philosophical fictions sharing this genealogy.

The dominance of the scientific model of inquiry had direct consequences on the

cultural roles played by the social sciences and the humanities. The social sciences that

include political science, economics, psychology and sociology, among others

incorporated the pervasive scientific method in the development of the particular

academic disciplines. Postman states that proponents of social sciences believe that

"the study of human behavior, when conducted according to the rigorous principles

established by the physical and biological sciences, will produce objective facts,

testable theories, and profound understandings of the human condition" (Postman

1992: 145). The social sciences quickly became the instrument of choice for the

manager since the respect and influence attributed to someone seen as a 'scientist'



58

could contribute to the effectiveness of their cultural manipulations. Ironically, as the

social sciences capitulated to the authority of scientific method, the humanities which

made no pretense to be scientific became increasingly marginalized in society. The

study of the human condition became a subordinate discipline in emotivist culture.

The manager can only present himself as someone with exclusive expertise if he can

demonstrate adherence to generalized rulings that hold the facility of strong predictive

power. Is the exercise of managerial expertise that sustains the manager's position and

authority strictly legitimate? Maclntyre does not believe that to be the case, suggesting

that "the true achievements of the social sciences are being concealed from us - and

from many social scientists themselves - by systematic misinterpretation" (Maclntyre

1984: 90). This misrepresentation is a consequence of the law-like generalizations that

sustain the social sciences. The generalizations made by social scientists co-exist with

many counter-examples. However, these counter claims are not criticized and

scrutinized to the same degree that natural sciences are. These generalizations that are

used to sustain the legitimacy of social science "lack not only universal quantifiers but

also scope modifiers" (Maclntyre 1984: 91). Thus, to determine under what conditions

the generalizations would be effective are impossible to ascertain. Finally, these

generalizations cannot be extended beyond the limits of observation to hypothetical

instances as can be done with the natural sciences. If this cannot be accomplished the

generalizations cannot be deemed to be authentic laws.

Maclntyre steers the reader of After Virtue towards Machiavelli, who believed in

Fortuna: no matter how sound our investigations, how vigilantly we conduct the



59

research that results in prediction, there exists a systematic unpredictability in the

affairs of mankind. This unpredictability originates from four sources (Maclntyre 1984:

93-100):

• Due to "the nature of radical conceptual innovation. ..any invention, any
discovery that consists essentially in the elaboration of a radically new concept
cannot be predicted, for the necessary part of the prediction is the present
elaboration of the very concept whose discovery or invention was to take place
only in the future" (ibid., 93).

• Systematic unpredictability derives from the fact that in many instances an agent
cannot predict his own future when in an indecisive state - say, choosing
between two alternative actions. Even if another agent is able to predict the first
agent's action, he himself would eventually find himself in the same predicament
as the first agent. Additionally, neither agent would be able to persistently predict
what his actions may have on other agents.

• It is impossible to reliably project the structures of game theory to actual social
life. The prisoner's dilemma is a good example of such an instance. Agents will
always realize that others will be attempting to predict their behavior in game
theory situations coincident with the agent trying to predict his adversary's
course of action. This leads to an infinite regress of 'you know that I know that
you know. . . ' Furthermore, in real life people are involved in more than one
action at a time and thus their actions may not appear to be what the composite
intention of the agent is.

• Finally, man must contend with pure contingency. Trivial contingencies can have
significant and unforeseen consequences. Example: The business executive who
was relieved to be seated on the earlier United Airlines flight number 175 to Los
Angeles from Boston on September 11, 2001.

Not all aspects of life are unpredictable. The necessity of scheduling and

coordination of social agendas instills predictability into one's life. A second source of

predictability arises from statistical regularities. Additionally, the causal relationships

of nature place constraints and expectations on human agency. Finally, the awareness



60

of causal regularities of social life can be anticipated and adjusted for in many aspects

of day to day experience.

Consequently, human lives are characterized by a blend of predictability and

capriciousness which render the injunctive generalizations proclaimed by social

science to be inductive, prone to counter-example and contradiction. It follows that the

claims made by the manager with regard to his expertise in the sphere of prediction

reveal themselves to be moral fiction, an illusion or masquerade to facilitate the

manipulation of others:

Hence the manager as character is other than he at first sight seems to be: the
social world of everyday hard-headed practical pragmatic no-nonsense realism
which is the environment of management is one which depends for its sustained
existence on the systematic perpetuation of misunderstanding and of belief in
fictions. (Maclntyre 1984: 107)

The manager presents an imitation of scientifically managed social control while in

actuality the claims of the social scientist "function in fact as expressions of arbitrary,

but disguised, will and preference" (Maclntyre 1984: 107).

The Investment Advisor effortlessly assumes the character of manager, claiming

expertise in the field of finance and wealth management. Virtually all the major

investment dealers in Canada make reference to the word 'expert' or 'expertise' in their

promotional and marketing operations:

RBC Investments

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portfolio management, global private banking, trust services, insurance, estate



61

planning, mutual funds and other products and services.
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Generations of Canadians have relied on the one to one expertise of CIBC Wood
Gundy Investment Advisors to manage their futures. At the heart of these
relationships are trust and integrity. Today, we continue to uphold these standards,
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BMO Nesbitt Burns

Our advisors also draw upon the best investment knowledge and market expertise
including top-ranked equity research. BMO Nesbitt Burns independent mutual fund
research further sets an industry standard for depth and breadth.
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ScotiaMcLeod

In addition to working with experts from across the Scotiabank Group, we include
other professionals who are integral to your financial strategy like your lawyer and
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National Bank Financial

Your Investment Advisor has the expertise and information at his/her disposal to
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investor profile. ( http://info.nbf.ca/ )

Maclntyre asserts that the concept of the character of manager is not exclusively the

franchise of government bureaucrats:

Private corporations similarly justify their activities by referring to their
possession of similar resources of competence. Expertise becomes a commodity
for which rival state agencies and rival private corporations compete. Civil
servants and managers alike justify themselves and their claims to authority,
power and money by invoking their own competence as scientific managers of
social change. (Maclntyre 1984: 85-86)

The Investment advisor is designated a professional since he meets the criterion set

out by Boatright which was referred to in Chapter 3 (page 35). Not only is the IA

presented to the public as an expert, i.e. professional, he is supported by a cast of



62

experts within the investment firm in which he is employed. The social science of

economics is clearly well represented in this managerial environment. Economists,

Chartered Financial Analysts and a host of other specialists contribute to the services

being offered to both the retail and institutional investor. Investing and marketing is

widely viewed as a science (Luenberger 1998).

Expertise conveys a high degree of effectiveness. Effectiveness "refers to

accomplishment of a task. In itself, the term effectiveness carries positive connotations.

.... But when a concern with effectiveness becomes an ethic unto itself, problems

arise" (Horvath 1995: 502). The 'ethic of effectiveness' concerns itself with 'getting

the job done' in the most efficient and cost effective manner. Profit maximization

becomes the superseding factor in all management decisions. "If business persons

define 'good' based on effective achievement apart from some type of internal or

intrinsic worth in their activities, then how does one measure such good? In our

capitalist culture, market competition provides such a measure" (Horvath 1995: 514).

A culture that promotes only external goods as being the standard of success gives

rise to what the Greeks referred to as pleonexia or acquisitiveness. When pleonexia

corrupts the concept of agon, a contest where excellence is strived for, personal

excellence ceases to be the priority. The self takes priority over the community, actions

become more important than character, personal best gives way to antagonistic rivalry,

cooperation is replaced by competition and the concept of good and bad are substituted

by the notion of strong and weak. These changes in interpersonal relations are

accomplished through manipulation under the guise of expertise. Maclntyre believes



63

that we have a choice before us: recognize the collapse of the Enlightenment project

and follow Nietzsche or accept that the Enlightenment project was misguided from its

inception and should have never been undertaken.

Maclntyre acknowledges that Nietzsche correctly recognized the failure of the

Enlightenment to identify morality by arguing that "if there is nothing to morality but

expressions of will, my morality can only be what my will generates. There can be no

place for such fictions as natural rights, utility, the greatest happiness of the greatest

number" (Maclntyre 1984: 113-1 14). This is in addition to Maclntyre's assertion that

deontology and utilitarianism fail to provide a meaningful definition of good.

Maclntyre goes on to claim that all Nietzsche accomplishes in his project is to entangle

us in another set of mistakes by explicating a version of aristocratic self-assertion,

exemplified by the concept of the Übermensch. The only alternative remaining is the

rehabilitation of the Aristotelian notion of virtue. Aristotelianism is not subject to the

problems encountered by the Enlightenment's attempt to establish morality in a world

that rejects the concept of final causes. In modernity, adherence to rules has become the

primary dictate of moral life. Character only becomes esteemed if the right sets of rules

are followed. In this moral paradigm virtues are justified on the bases of a prior

validation of certain principles. If the latter principles become problematic as

Maclntyre claims they have in modernity, then it follows that the former become

troublesome as well. Maclntyre believes that the rules should follow after the virtues

have been attended to, not before. Can a core conception of the virtues be established?

Can a core conception of virtue and a renewed affirmation of the virtue ethics in an



64

Aristotelian model deliver society from the moral stultification it currently endures?

Can the Investment Advisor, as an emblematic individual entangled in the

contemporary moral morass, hope to unshackle himself from the ethical constriction of

an emotivist culture? An analysis of Maclntyre's moral philosophy will reveal the

tenuous situation in which the Investment Advisor finds himself, and at the same time

make available a method by which the IA, like any other individual, may prevail over

the incomprehensibility of modern moral claims and instead commence an approach to

a state of moral excellence, incorporating a telos into their narrative with the

community.



65

4. Maclntyre's Tripartite Notion of Virtue

While analyzing the chronicle of virtue in After Virtue, Maclntyre acknowledges that

it would be difficult to present an argument for the existence of a core concept of

virtue:

One response to the history which I have narrated so far might well be to suggest that
even within the relatively coherent tradition of thought which I have sketched there
are just too many different and incompatible conceptions of a virtue for there to be
any real unity to the concept or indeed to the history.... It would be all to easy to
conclude that there are a number of rival and alternative conceptions of the virtues,
but, even within the tradition which I have been delineating, no single core
conception. (Maclntyre 1984: 181)

Maclntyre describes three different conceptions of virtue:

• Homeric: A virtue is a quality which enables an individual to discharge his or her
social role. Each individual in such a society "has a given role and status within a
well-defined and highly determinate system of roles and statuses.... In such a
society a man knows who he is by knowing his role in these structures; and in
knowing this he knows also what he owes and what is owed to him by the
occupant of every other role and status" (Maclntyre 1984: 122). In Homeric
society each individual does what is expected of them and hence the society will
function as it should. A well functioning society provides the context for pursuit
of the virtues that give meaning to individuals in the society.

• Aristotelian, Aquinas and the New Testament: For Aristotle it was the telos of
man as a species which determined what human qualities were virtues. Aristotle
treated the acquisition and exercise of the virtues as a means to an end and the
relationship of means to end is internal. The New Testament account of the
virtues has the same logical and conceptual structure as Aristotle's, that being the
achievement of the human telos. "Moreover the relationship of virtues as means
to an end which is human incorporation in the divine kingdom of the age to come
is internal and not external, just as it is with Aristotle." In both cases the concept
of the good life of man was prior to the concept of the exercise of virtues (ibid.,
184). The comparable concepts of Aristotle and the New Testament allowed
Aquinas to synthesize the two concepts.



66

• Benjamin Franklin's account of the virtues is ideological but was essentially a
utilitarian conceptualization. According to Franklin the virtues were a means to
an end but the relationship between means and end was an external one as
opposed to internal. Happiness for Franklin was interpreted as success, prosperity
in both this world and ultimately in heaven (ibid., 185).

Maclntyre argues that we can find a unitary core concept of virtue that in addition

provides a conceptual unity to the history of ideological thought. The moral

philosophy articulated in After Virtue presupposes a sociology where the ideological

concepts are embodied in the real world. The sociology conveyed by Maclntyre

develops 'the core concept of virtue'; a tripartite scheme comprised of the concepts of a

practice, the narrative order of a single human life and tradition. He emphasizes that

"each later stage presupposes the earlier, but not vice versa" (Maclntyre 1984: 187).

The tripartite conceptual scheme is intended to be a substitute for Aristotle's

metaphysical telos of 'man-as-he-could-be-if-he-realized-his-essential-nature.' If

comprehended correctly, the three unified concepts would prevail over social

manipulation and direct the individual towards acts that, while embracing interpersonal

cooperation, would deliver him from his initial untutored condition to an actualization

of his telos (Knight, 2007: 142).



67

4.1 Practice

The critical aspect of Maclntyre's project of identifying a core concept is the notion

of "a particular type of practice as providing the arena in which the virtues are

exhibited in terms of which they are able to receive their primary, if incomplete

definition." (Maclntyre 1984: 187). It is important to appreciate that the notion of a

practice does not mean the only vehicle in which virtues are exercised and that

Maclntyre's term practice is defined in a very specific manner:

By a 'practice' I am going to mean any coherent and complex form of socially
established cooperative human activity through which goods internal to that form
of activity are realized in the course of trying to achieve those standards of
excellence which are appropriate to, and partially definitive of, that form of
activity, with the result that human powers to achieve excellence, and human
conceptions of the ends and goods involved, are systematically extended.
(Maclntyre 1984: 187)

Maclntyre uses examples of practices to elucidate his definition. Chess, architecture,

athletics, agricultural practices, music and other artistic pursuits qualify as practices

since they meet the criteria set forth in the above definition since these activities

establish their own standards of excellence in regard to their specific implementation

and realization. In addition, these activities have their specific intrinsic internal goods

that can only be recognized and appreciated by direct participation. These practices are

accompanied by technical counterparts that facilitate the functioning of the practice and

the institutions which are bearers of the practice. Skills, such as skating and the ability

to accurately shoot a puck for a hockey player allow him to pursue and experience

athletic excellence. Skills, such as planting corn for a farmer and drafting for the

architect do not qualify as practices since they are narrowly defined and fail to meet all



68

the criteria set forth in the Maclntyre's definition. The mastery of skill as compared to

the notion of a practice will be elaborated upon below.

A key term involved in the definition of a practice is the idea of goods internal to a

practice. Maclntyre uses the concepts of internal and external goods to clarify his

definition of virtue as "an acquired human quality the possession and exercise of which

tends to enable us to achieve those goods which are internal to practices and the lack of

which prevents us from achieving any such goods" (Maclntyre 1984: 191). He offers

the example of the child who has to be bribed with candy to play chess. The child is

told that if he wins, he will be rewarded with twice the quantity of candy than if he

loses. The child has an incentive to cheat in order to maximize the amount of candy he

receives. However, if at some point the child develops an appreciation for the goods

specific to the game of chess, he will aspire to excel at the game whilst coming to the

realization that if he cheats he will likely defeat his opponent but deprive himself of the

internal satisfaction of excelling at the game. In life, like the game of chess, there are

some things that are contingent or external to the game which can be received through

various activities. However, there are also goods that are internal that can be obtained

only through engaging in some specific practice. These goods are considered internal

because they can only be achieved through genuine participation in a specific activity

and can only be enjoyed by the individual performing the specified practice. Those

who are not acquainted with direct participation in the practice will not be able to fully

appreciate the experience of the individual performing the practice. In order to achieve

excellence in a specific practice, the participant must also submit to the standards set



69

forth by the practice. By respecting the practice and adhering to its standards the

participant submits to objective judgment of their own performance. These standards

are not static, but changing over time as higher standards of excellence are achieved

through advances in the execution of the practice.

The significance of the difference between the pursuit of external goods and internal

goods is of paramount importance if one is to comprehend the notion of practice

correctly. "External goods are. . .characteristically objects of competition in which

there must be losers as well as winners. Internal goods are indeed the outcome of

competition to excel, but it is characteristic of them that their achievement is a good for

the whole community who participate in the practice" (Maclntyre 1984: 190-191).

Using the hockey player as an example of an athlete pursuing excellence, the external

object of the practice is to win hockey games and advance ones career as far as one

desires, albeit with the recognition that there are specific psychological and physical

attributes one must possess to achieve an advanced state of the specific vehicle of the

practice. Other external goods may include the fame and fortune that is associated with

a professional athlete in society. However, the achievement of internal goods for the

hockey player will result in the advancement of the athletic practice. Legends such as

Maurice Richard, Gordie Howe and Wayne Gretzky raised the bar on the game of

hockey; higher standards of athletic excellence were set. As a result, the goal of the

current practice's participants is to equal or better these standards.

The challenges of applying Maclntyre's virtue ethics to the Investment Advisor

becomes apparent immediately upon delving into the notion of practice. This is due to



70

the fact that the distinction between the concept of internal and external goods is

clearly exhibited when specific reference is made to the Investment Advisor. The

problem is twofold; the challenge of establishing how internal goods can be ascertained

from the profession as the Investment Advisor and secondly, the exceptionally alluring

effect that the quest for material goods has on the Investment Advisor. Both of these

problems are exacerbated by the nature of the interrelationship between the individual

and the institution that is the bearer of the practice. The former difficulty is not

exclusive of the latter since the influence of the institution tends to cultivate

acquisitiveness while tacitly not promoting attempts to pursue internal goods.

The institutional influence begins in the education process at which point the

individual's disposition is established before he enters the securities industry and is

introduced to the professional code of ethics. The majority of Investment Advisors

have obtained degrees from universities, most obtaining degrees in business or

economics at the baccalaureate or masters level. In business schools, students are

exposed continually to modern interpretations of the neoclassical economic theory and

a utilitarian notion of what constitutes rational behavior:

Used outside the context of pure economics, this rationality construct in an
educational setting inculcates business students and professional trainees with a
moral agenda that is very different from that espoused in professional codes of
conduct. Because neoclassical economic rationality is the real ethics education
that those entering the finance professions receive, what officially passes for
ethics education comes too little, too late. Professional neophytes already know—
or think they know—what the behavioral ideal is: material opportunism. (Dobson
2003: 30)



71

The traditional approach to integrating ethical behavior in the securities business is

action based, in that the focus is on the development and adherence to rules or

guidelines such as codes of conduct and/or codes of ethics. Conversely, the agent based

approach as espoused by a virtue ethics model is centered on the character, motivation

and intention of the individual agent. A virtue based model is based upon the individual

pursuing moral excellence and not simply adhering to rules or guidelines. It is because

the securities industry has relied upon the action based ethical paradigm that the

importance of internal goods has not been emphasized or sufficiently cultivated.

Participation in a practice requires that the individual recognize the contributions of

others and be prepared to accept criticism of his own shortcomings. Maclntyre claims

that "we have to accept as necessary components of any practice with internal goods

and standards of excellence the virtues of justice, courage and honesty" (Maclntyre

1984: 191):

• Justice requires that we treat others in respect of merit or desert according to
uniform and impersonal standards; to depart from the standards of justice in some
particular instance defines our relationship with the relevant person as in some
way special or distinctive.

• Courage: If someone says that he cares for some individual, community or cause,
but it is unwilling to risk harm or danger on his, her or its own behalf, he puts in
question the genuineness of his care and concern. Courage, the capacity to risk
harm or danger to oneself, has its role in human life because of this connection
with care and concern.

• Honesty is required if individuals undertake to pursue common goods. Without
honesty in this common pursuit, the allegiance the parties involved become
dubious.

(Maclntyre 1984: 191-192)



72

The critical importance of these components of a practice has been effectively

demonstrated during the credit crisis in the global economy occurring as this thesis is

being written. Trust has been lost in the financial market place leading to lenders'

hesitance to conduct typical business activity with other financial institutions. This lack

of trust has in turn resulted in the rise of trepidation and animosity amongst investors

globally. The injustices and dishonesty that have led to the problem and the lack of

courage to take responsibility for the resultant damage has led to dysfunctional

financial markets that have hideously affected global economic stability.

An expression of internal goods is more difficult to clarify for the Investment

Advisor due to the overwhelming focus placed on the ethic of effectiveness and pursuit

of external goods. Before the notion of internal goods for the IA is considered, a further

understanding of the concept of practice must be expanded upon with special reference
to institutions.

With respect to regulation, Maclntyre claims that regulation is "a minimal device

that has been developed in order to compensate for the grave defects of a culture where

the fabric of morality is being torn apart and where government cannot act in the ways

that we would want it to if moral community were a real possibility" (Maclntyre 1980:

33). Ironically, the deregulation of the financial services industry in the United States

between 1995 and the present has resulted in the chaos that the entire world is currently



73

experiencing. It is a significant fact that while the American securities industry was

deregulating, the Canadian securities industry regulation remained comparatively

stringent. The relative safety of the Canadian financial system is acknowledgment of

the fact that the more austere position taken by securities regulators in Canada has been

relatively effective.

In order to ascertain how internal goods can be derived from the practice of business

associated with the Investment Advisor it is necessary to distinguish between what

constitutes a set of skills and a practice in the Maclntyrean sense. Practices are not

merely a set of technical skills:

What is distinctive in a practice is in part the way in which the conception of the
relevant goods and ends which the technical skills serve—and every practice does
require the exercise of technical skills—are transformed and enriched by these
extensions of human powers and by that regard for its own internal goods which
are partially definitive of each particular practice or type of practice. (Maclntyre
1984: 193)

Maclntyre acknowledges that he did not pay particular attention to productive

practices in After Virtue but in a subsequent work he makes reference to the crafts of

farming, construction and architecture—Maclntyre uses the practice of fishing as a

specific example:

The aim internal to such productive crafts, when they are in good order, is never
only to catch fish, or to produce beef or milk, or to build houses. It is to do so in a
manner consonant with the excellences of the craft, so that there is not only a
good product, but the craftsperson is perfected through and in her or his activity.
(Maclntyre, 1994: 284)

23 See: Christopher Dodd's statement from the United States Committee on Banking,
Housing and Urban Affairs concerning the role played by regulatory bodies with respect to
the 2009 banking crisis.



74

Moore contends that Maclntyre's description of a productive craft can be applied to

all productive activities. Although different practices will differ in the required

technical skills and end product, customer service and satisfaction are principal

attributes of performing with excellence in business. "The entirely common feature,

however, is that each and every business falls within Maclntyre's definition of a

practice as 'any coherent and complex form of socially established cooperative human

activity'" (Moore 2002: 23).

Moore uses a marketing manager as an example:

Take a situation in which a marketing manager designs and executes a marketing
plan through which, not only does the corporation benefit, but the individual
derives intellectual stimulation, the enjoyment of the exercise of practical skills,
and the stimulation that the competitive situation affords. (Moore 2002: 21)

Maclntyre refers to this as "excellence of the products" (Maclntyre 1984: 189). The

position of Investment Advisor can simply be substituted in the above example since

his work serves the requirements of the client and facilitates the functional ability of

the social institution of economics of which finance is an ancillary component, as is the

financial corporation. Moore claims that by referring to Maclntyre's instance of fishing

as a practice that 'business as practice' should be considered as a holistic activity

encompassing all aspects of production and marketing using retailing as an example:

Retailing involves all of the usual functions of business—purchasing stock,
employing staff, purchasing or renting premises... and so on. Retailing involves
the integration of all of these elements in a holistic activity. And it is only when
we consider the holistic activity that it accords fully with Maclntyre's definition



75

of practice as a "coherent and complex form of activity of socially established
cooperative activity". (Moore 2002: 24)

It is important to differentiate the role of manager from a practice. The manager's

claims to effectiveness and hence authority should not be considered as a social

practice. "It belongs to the characteristic institutional forms of twentieth-century social
life. Their concern is not with goods of excellence internal to any particular practice,

but with technique, with effectiveness in transforming raw materials into final

products, unskilled labor into skilled labor, investment into profits" (Knight 2007:

160). Moore concurs, stating that "the clarification that employment is a feature of

institutions reinforces the earlier point that it is business that is the practice. It also

clarifies the nature of management, since here, similarly, it is clear that management is

a feature of an institution but not a practice in and of itself (Moore 2002: 24).

An athlete thrives on the action of a competitive sport and derives internal goods

from the pursuit of excellence in athletic performance by conducting himself with

behaviour that is considered sportsmanship as compared to ethically questionable

gamesmanship. The Investment Advisor can seek internal goods from exercising good

judgment [phronesis) in the ever competitive capital market place {agon) by

conducting himself in a manner that emphasizes the virtues of justice, courage and

honesty. The concept of fairness must be upheld to ensure the integrity of the

marketplace and the confidence of the IA' s clients. Courage must be exercised when

dealing with clients in markets that are unstable and when the client-advisor

relationship becomes tense or confrontational due to the innate unpredictability of



76

capital markets. Courage is needed to effectively function in the extremely competitive

and tension-filled environment of the markets. Honesty is paramount in maintaining

the IA' s reputation, sustainability and viability as an advisor. Like the boy in

Maclntyre's example that is enticed to cheat at chess for external rewards, the broker

that thrives on dishonesty, injustice and craven conduct will not only jeopardize his

career but will eventually fail to realize any true sense of self-esteem or excellence

{arête). If the IA recognizes and avails himself of the virtues of justice, courage and

honestly, he will be able to avoid any cognitive dissonance resulting from the attempt

to accept and execute behaviors contradictory to his values. Pursuing excellence in this

manner will result in the avoidance of the cognitive biases elucidated by Prentice, (see

page 36-37) The attainment of internal goods can only be realized from the consistent

implementation of the virtues in one's practice. Conducting the practice of business in
an ethical manner will lead to increased self-esteem and a sense of satisfaction that

both the individual and the community have benefited from one's efforts. "Thus virtue

is a special type of sentiment, with both cognitive and affective content. There is an

intrinsic pleasure in being virtuous, in doing the right thing.... These concepts of telos

and areté ...lead to hesuchia, a satisfaction arising from a job well done" (Horvath

1995:519).

As indicated above, the relationship between the institution that is the bearer of the

practice and the individual in the pursuit of excellence is of paramount importance, for

it is through the institution that the overwhelming desire for external gratification is

fostered:



77

Institutions are characteristically and necessarily concerned with ... external
goods. They are involved in acquiring money and other material goods; they are
structured in terms of power and status, and they distribute money, power and
status as rewards. Nor could they do otherwise if they are to sustain not only
themselves, but also the practices of which they are the bearers. For no practices
can survive for any length of time unsustained by institutions. Indeed so intimate
is the relationship of practices to institutions— and consequently of the goods
external to the goods internal to the practices in question—that institutions and
practices characteristically form a single causal order in which the ideals and the
creativity of the practice are always vulnerable to the acquisitiveness of the
institution, in which the cooperative care for common goods of the practice is
always vulnerable to the competitiveness of the institution. In this context the
essential feature of the virtues is clear. Without them, without justice, courage and
truthfulness, practices could not resist the corrupting power of institutions.
(Maclntyre 1984: 194)

The dominance of the pursuit for external goods via institutions is so strong that it

presents a threat to the pursuit of excellence through virtuous actions. "Practices are

often distorted by their modes of institutionalization, when irrelevant considerations

relating to money, power and status are allowed to invade the practice" (Maclntyre

1994: 289). In the case of the Investment Advisor, as with any other businessman, sales

quotas, productivity optimization and other institutionalized performance criterion

often pressure the individual to forfeit his standards of ethical behavior in order to meet

the demands and expectations of his employer, and moreover, in the case of the IA, the

demands his clients place upon him with same regard to the acquisition of wealth. The

incessant acquisitiveness endemic in the securities industry is unique both in its

intensity and its exclusive focus. The entire industry is predicated entirely on the

acquisition of material wealth in its most unadulterated form. An absurd amount of

emphasis is placed on success as defined by the attainment of material wealth; it is

often the sole yardstick by which accomplishment is measured by the securities firm,



78

the Investment Advisor and the client. It is in this atmosphere that the IA can be

tempted to abandon any sense of values for the attainment of solely external goods.

In light of this situation Maclntyre expresses concern that "if in a particular society the

pursuit of external goods were to become dominant, the concept of the virtues might
suffer first attrition and then perhaps something near total effacement" (Maclntyre

1984: 196). The financial chaos stemming from the sub-prime mortgage fiasco and the

ensuing bail out of the U.S. banking system is an excellent case in point where greed

completely beset the essential balance required between the quest for external and

internal goods.

However, as Maclntyre stresses, no practices can survive for any length of time

unsustained by institutions. Maclntyre expresses concern with the valuation of an

24 In the 1990s Michael Holoday was considered an exceptionally bright and successful
broker at First Marathon Securities. When clients began to notice discrepancies and
inconsistencies with what Holoday was telling them and what their brokerage account
statements indicated complaints were made to the firm's compliance department and
eventually to the Investment Dealers Association and Ontario Securities Commission. The
once revered Investment Advisor was subsequently charged with fifteen counts of
securities fraud.
When Michael Holoday was sentenced to eight years and nine months in jail in 2001, the
judge described him as "a dangerous man" who charmed and defrauded "everyone who
came in his path." Holoday had swindled dozens of clients, including his mother-in-law.
He cost his victims about $22 million, one of the largest cases of fraud by a single broker
in Canada. He did it all while enjoying a lifestyle that included a Porsche, a Jaguar, a 600-
horsepower speedboat and a planned Caribbean retreat. Even when he was out on bail after
his arrest, Holoday tried to manipulate accounts at three banks.
National Parole Board reports show that he was released on day parole in 2002, but it was
revoked the following year due to his deceitful and manipulative financial/business
dealings and for withholding information from those supervising him. In its decisions, the
parole board uses phrases like "disingenuous manipulation" and "apparent lack of concern
for others" to describe Holoday. (Waldie 2006).



79

institution based solely on external products. "When they are so valued, we are always

dealing with a type of activity at once alien and antagonistic to practices and very much

at home in modern economic orders. And much modern industrial productive and

service work is organized so as to exclude the features distinctive of a practice"

(Maclntyre 1994: 286).

Maclntyre cites three countervailing aspects to the institution-practice relationship

that demonstrate the essential balance between the two:

• No practice can survive any length of time unsustained by institutions; they
characteristically form a single causal order; there is a consequent intimate
relationship between internal and external goods.

• External goods should not be considered objects of disdain: they are
characteristic objects of human desire and to resist them would be hypocritical
since the allocation of external goods is the basis of justice and generosity.

• Even if institutions have the power to corrupt, institutions are integral
components of the formation of communities. (Maclntyre 1984: 194-196)

It is of vital importance that the institutions that facilitate practices bear in mind that

the relationship between the individual (the IA) and the institution (the securities firm)

is one of reciprocity; one cannot survive without the flourishing of the other. The

demise of Lehman Brothers, Bear Stearns, Merrill Lynch and AIG Insurance are classic

examples of what happens when the pursuit of external goods, in this case wealth and

power, becomes of such paramount importance that the notion of practice is treated

facetiously by corporate management. Failure of a securities firm to recognize this



80

essential relationship will ultimately lead to unprincipled and disreputable business

performance and, in many instances, its eventual demise.

It is of vital importance that the Investment Advisor be aware of the creative tension

that must exist between his quest for excellence and his ability to function effectively

in the pursuit of external goods as dictated through the institution in which he performs

his practice. The IA must realize that the balance between his practice and the

institution is analogous to the formulation of an investment portfolio. A strategic

balance between safety and growth must be established and subsequently closely

monitored to ensure secure and stable portfolio performance. The failures to adhere to

such basic investment principles in most cases will inevitably lead to financial ruin and

hardship. The ataraxis and contentment attained through the pursuit of excellence

combined with the satisfactory possession of material goods is the universal goal of all

rational individuals—happiness (eudaimonia). Awareness of this essential balance

should be encouraged by the institution.

Maclntyre maintains that even if we accept the validity of his account of the virtues

stimulated through a practice, we do not have an effectual approach of choosing

between various practices. Different practices themselves do not allow for an

arrangement of a hierarchy of practices. Are individuals to prioritize among practices

based on personal preference? This would clearly result in an emotivist situation: the

very state of affairs that he has exhaustively critiqued. Because of this problem, the

first stage of the tripartite model must be adjoined by the notion of a human life as

unity and subsequently by the concept of tradition.



81

4.2. The Narrative Unity of a Single Human Life

The second building block in Maclntyre's ethical model is the narrative unity of a

single human life. As noted above, there is a tendency in the social sciences to portray

the life of a human being as a disparate and disjointed series of events: work being

distinct from leisure, corporate and personal, self and other and so on. The

interrelatedness of the various activities of life is not acknowledged. Life is

compartmentalized into a series of distinctive activities mutually exclusive from each

other. The moral implications for the self which occupies these various roles are dire;

leaving the individual without the integrity to exhibit the same moral character in

different social contexts, or the constancy that sets limits to the flexibility of character

in the constant pursuit of the same goods through dissimilar and altering social

contexts:

By compartmentalization I mean that division of contemporary social life into
distinct spheres, each with its own highly specific standards of success and
failure, each presenting to those initiated into its particular activities its own
highly specific normative expectations, each requiring the inculcation of habits
designed to make one effective in satisfying those particular expectations and
conforming to those particular standards.... The detailed specificity in the
multitude of roles is matched by a lack of anything remotely like adequate
prescriptions for the self which is required to inhabit each of these roles in turn,
but which is itself to be fully identified with none of them. (Maclntyre 2006a:
117)

"To operate within such a compartmentalized structure an actor must

compartmentalize her own life, and she is therefore likely to believe it appropriate to

behave as one kind of person in the office and another at home. A compartmentalized

society teaches that flexibility is a virtue and integrity a vice. A compartmentalized life



82

is one incapable of completion" (Knight 2007: 160). In order to actuate the virtues

through a practice, Maclntyre believes one should perceive their life and that of others

as interlocking narratives:

What the narrative concept of selfhood requires is thus twofold. On the one hand,
I am what I may justifiably be taken by others to be in the course of living out a
story that runs from my birth to my death; I am the subject of a history that is my
own and no one else's that has its own particular meaning.... The other aspect of
selfhood is correlative: I am not only accountable. I am the one who always ask
others for an account, who can put others to the question. I am part of their story,
as they are part of mine. The narrative of any one life is part of an interlocking set
of narratives. (Maclntyre 1984: 217-218)

According to Maclntyre there are two obstacles to the concept of 'unity', one social

and the other philosophical. The social obstacle occurs due to the compartmentalization

of the various facets of life as stated above. The philosophical problem arises for two

reasons. Man's philosophical tendency to think atomistically, reducing complex human

actions into single components, is coincident with a contemporary social theory that

differentiates between individuals and the roles they play. In both cases "life comes to

appear as nothing but a series of unconnected episodes" (Maclntyre 1984: 204).

Maclntyre claims that disjointed existence "allows no scope for the exercise of

dispositions which could genuinely be counted virtues in any sense remotely

Aristotelian" (ibid., 205).

In the securities business it is not uncommon to witness this form of moral

schizophrenia; the wearing of several different hats. Ballard (2000: 17) points out that

when an individual dons their 'friendship' hat, others are treated with respect, good

will and affection. However, when the 'work' hat is worn, deception and manipulation



83

is used; others are treated as means to an end. The use of gaming metaphors and

euphemisms in the business world is another such effective and manipulative tactic:

What are spoken of as the virtues of a good committee man or of a good
administrator or of a gambler or a pool hustler are professional skills
professionally deployed in those situations where they can be effective, not
virtues. Someone who genuinely possesses a virtue can be expected to manifest it
in very different types of situation, many of them situations where the practice of
virtue cannot be expected to be effective in the way that we expect a professional
skill to be. (Maclntyre 1984: 205)

Maclntyre argues that for human activity to become intelligible an individual's

actions must be understood in terms of a narrative. It is the narrative self, as opposed to

the emotivist self, which recognizes the individual as being embedded in and partially

constituted by its social setting.

Maclntyre uses the example of a man gardening. When asked what he is doing he

can offer several equally valid answers. He is digging, he is gardening, he is exercising,

he is pleasing his wife, or he is preparing for winter. What is significant about the

' Christopher Home is an excellent example of such moral schizophrenia. Home worked
at RBC Dominion Securities Inc. and had a knack for attracting elderly clients, particularly
women, some of whom became so devoted that they included Home in their wills. As his
client list grew, Home indulged his passion for art. By the early 1990s, he was one of
Canada's top collectors, owning works by Henry Moore and Henri Matisse in a collection
valued at roughly $4 million. Home's contribution to the art scene, which included several
large donations to galleries, was so extensive that the Art Gallery of Ontario elected him a
trustee in 1988 and put his name on a room.
But in late 1993, one of Home's clients complained to the firm about problems in his
account. Home blamed administrative staff for the errors. In July, 1994, when bank
officials started asking tough questions, Home abruptly resigned. Police soon discovered
that $7 million of client money had been used to finance Home's art collection. Home
pleaded guilty to eighteen counts of fraud in August, 1996, and received a five-year prison
term. His art collection was sold off at rock-bottom prices to help cover a string of debts.
(Waldie 2006)



84

various answers is that the behaviour they explain presupposes "some prior answer to

the question of how these different correct answers. . .are related to each other"

(Maclntyre 1984: 206). The different answers will explain different behaviours which

will necessitate looking in different directions for understanding and explanation. The

gardener in Macintyre's example can easily be substituted by the role of the Investment

Advisor. Is he trading? Is he managing a client's portfolio? Is he earning commissions?

Is he appeasing the demands of his manager? Is he contributing to the contemporary

economic paradigm by participating in the distribution of wealth in a free market

economy? "We cannot. . .characterize behavior independently of intentions, and we

cannot characterize intentions independently of the settings which make those

intentions intelligible both to agents themselves and to others" (ibid., 206):

The unity of a single life is, then, its setting in history, or better, in the several
histories that intersect in one life, since the explanation of any particular actions
requires reference to past and future complexes of intersections.... A person finds
himself looking backward toward those from whom he has come and forward
toward those to whom he is going, roles determined by the past correlative to
those that are forming for the future... Insofar as his behavior is intelligible, he can
give reasons for it and be responsible for explaining it in terms of his intentions,
which necessarily involve reference to setting and characters. (Carden 2006: 83)

An agent's actions can only be acknowledged by placing his intentions in a causal

temporal order in relation to his history, and by placing them "with reference to their

role in the history of the setting or settings to which they belong" (Maclntyre 1984:

208).

Because the actions of human beings have certain intelligibility, individuals must be

held to account for what they have done. The only way that we can make intelligible



85

sense of our own and others statements is by placing them within a narrative of some
sort.

"As intelligible social beings in communication with others, it is normal and natural

for us to ask for and give intelligible accounts of our actions. So accountability, a

universal element of morality, is built-in to the concept of an intelligible human act"

(Ballard 2000: 18). The reciprocal relationship between agents is an important part of
any narrative. If one's narrative were not accountable, both to himself and others, the

narrative would not hold the continuity to make it intelligible or integrated - that is, if

the narrative could exist at all without accountability:

Moral agents have to understand themselves as accountable, not only in their
roles, but also as rational individuals. The responsibilities that are socially
assigned to roles are defined in part by the types of accountability that attach to
them. For each role there is a range of particular others, to whom, if they fail in
their responsibilities, they owe an account that either excuses or admits to the
offence and accepts the consequences. Without such accountability the notion of
responsibility would be empty.... To whom are they to understand themselves as
accountable? To at least two sets of individuals and groups: those with whom they
have engaged together in critically informed deliberation and those whose hitherto
unquestioning reliance on the established standards of the social order they
challenge by their deliberation and their action. (Mac In tyre 2006b: 191)

The unity lies in the form of a narrative quest; a ideological quest for the good life

for man. This quest would not be able to commence without some conception of the

final telos. "It is in the course of the quest and only through encountering and coping

with the various particular harms, dangers, temptations and distractions... that the goal

of the quest is finally to be understood" (Maclntyre 1984: 219).



86

How can this quest be related to a member of the securities industry? As has been

seen, it is relatively effortless to cite examples of misconduct by Investment Advisors,

especially the more sensational occurrences that attract the attention of the media.

However one man in particular exemplifies an individual quest for the good of

mankind.

John Templeton was born in 1912 in Tennessee. After beginning his career on Wall

Street in 1937, Templeton bought a small investment advisory concern in 1940 that

became Templeton, Dobbrow and Vance, Inc. He entered the mutual fund industry in

1954 when he established the Templeton Growth Fund. Templeton excelled in the

investment industry creating some of the world's largest and most successful

international investment funds. However, Templeton did not limit his abilities to the

pursuit of self interest. As his success grew he shared his good fortune, becoming one

of the greatest philanthropists of modern time.

Templeton contributed a sizable amount of his fortune to the John Templeton

Foundation, which in 2008 had an endowment of approximately $1.5 billion and gives

out some $70 million in annual grants. The Foundation's mission is to serve as a

philanthropic catalyst for research. In 1972, he established the world's largest annual

award given to an individual, the £1 million Templeton Prize. The Prize is intended to

recognize exemplary achievement in work related to life's spiritual dimension. Its

monetary value always exceeds that of the Nobel Prizes; Templeton's way of

underscoring his belief that advances in the spiritual domain are no less important than



87

those in other areas of human endeavor. Templeton's progressive ideas on finance,

faith, and spirituality made him a distinctive figure in the endeavors he pursued.

Templeton is an example of an individual who recognized and based his narrative on

the creative tension between the pursuit of effectiveness and the quest for excellence.

Templeton was not a man who was shackled by compartmentalization; the various

social roles he embodied had an integrity and constancy that was directed to a better

understanding of both the material and incorporeal worlds. Maclntyre's provisional

conclusion about the good life for man encapsulates the life of John Templeton: "the

good life for man is the life spent in seeking for the good life for man, and the virtues

necessary for the seeking are those which will enable us to understand what more and

what else good life for man is" (Maclntyre 1984: 219). Like all individuals, part of

Templeton's narrative was set in his particular history, but as Maclntyre asserts "the

self has to find its moral identity in and through its membership in communities such as

those of the family, the neighborhood, the city and the tribe does not entail that the self

has to accept the moral limitations of the particularity of those forms of community"

(Maclntyre 1984: 221). John Templeton transcended the merely personal aspects of his

narrative and contributed to the good of the community.

Underscoring John Templeton's career also demonstrates the importance that the role

of moral exemplar plays in the development of a personal narrative of one's life.

Dobson (1997b) points out that emulating an exemplary role model is significantly

more effective in promoting ethical behaviour amongst peers as compared to codes of

ethics, mission statements and disclosing accounts of moral transgressions. Dobson is a



88

proponent of the Critical Incident Technique, an approach designed to provide

managers with a method to assist in the resolution of ethical dilemmas that arise in

business enterprises. This technique emphasizes the importance of learning through

personal narratives of others and the importance of role models in the pursuit and

realization of an ethically principled career in business. "The individual must be

educated in the virtues by a nurturing community and by the guidance of exemplars.

This approach takes ethics far deeper than merely a credo or code of conduct. Ethics

becomes integral to the professional's whole conception of what he or she is about"

(Dobson 1997b: 18). Sales management of the investment firm should embrace the

importance of role models and should recognize Investment Advisors who exhibit

outstanding ethical behavior. For example, BMO Nesbitt Burns, one of Canada's major

investment firms, has a successful mentoring program that incorporates training in

required technical skills and guidance in ethics and professional conduct. This program

matches new Investment Advisors with experienced peers at a branch office level and

seeks to enhance professional service to clients while at the same time reinforcing

camaraderie and a sense of community within the firm.

Moral particularities give us our starting point but it is through participation in the

community that the quest for the universal good can be found. Individual searches for

the good take place within the context defined by that person's traditions. Just as

26 The Critical Incident Technique for resolving ethical dilemmas is discussed in detail by
Dean, Peter J. 1992. "Making Codes of Ethics Real," Journal of Business Ethics
11 (April): 285-90.



89

practices are generally embedded in, and made intelligible through the history of our
traditions, so are our lives.

4.3. Tradition

The third and arguably the most contentious theme that provides a basis for

Maclntyre's virtue ethics is the concept of tradition. Many of Maclntyre's critics

predicate their arguments upon his conception of a living tradition27 (Freeman 1984:
Schneewind 1982: Solomon 1992ab: Wicks 1997). Since After Virtue, Maclntyre has

devoted much of his scholarship defending his notion of tradition and how modernity

represents the antithesis of a society bound by tradition. However, it is not within the

scope of this thesis to excessively scrutinize or evaluate Maclntyre's position on the

matter of tradition. This is not to say that thorough examination of his work is

unjustified or unwarranted, but the focus of this thesis is to apply the notions of moral

philosophy presented in After Virtue to the role of the individual Investment Advisor. It

27 Robert Solomon (1992b) argues that not only can ethics exist in modern business, but
specifically virtue ethics. Solomon distances himself from the notion of "tradition" and
"community" that is expressed by Alasdair Maclntyre. While Solomon does not agree with
Maclntyre's emphasis on the historical development of the Aristotelian tradition, he does
concur with the centrality of an Aristotelian paradigm for business ethics. .Solomon
emphasized the link between virtue ethics and the corporation as a nurturing community.
Solomon argues that capitalism is a complex Aristotelian practice which can enable people
to realize certain internal goods and to develop virtues. Solomon for example sees
corporations as the perfect environment in which to understanding the nature of the virtues
(1992b: 325).
R. Edward Freeman (1988, 1994) puts forward similar views, suggesting that "the bread
and butter" of capitalism is cooperation among parties seeking an array of goods and
ends—a balance between external goods and internal goods.



90

is in this context that the concept of tradition will be referred to, recognizing the

integral relationship that tradition has with the concepts of practice and the narrative

unity of a human life. If the IA expects accountability from himself and others, it is

part of his narrative to acknowledge and participate in the enduring evolution of the

tradition in which he advances to his practice. To adhere strictly to Maclntyre's

argument would be to acquiesce to his Utopian ideal of abandoning capitalism and

rejecting the tradition of liberal individualism which in turn would render the vocation

of Investment Advisor useless.

The final stage of Maclntyre's complex project is the elucidation of his concept of

tradition and how this concept is a vital component in an individual's quest for the

good of man:

A living tradition, then, is a historically extended, socially embodied argument,
and an argument precisely in part about the goods which constitute that tradition.
Within a tradition the pursuit of goods extends through generations, sometimes
through many generations. Hence, the individual's search for his or her good is
generally and characteristically conducted within a context defined by those
traditions of which the individual's life is a part, and this is true both of those
goods which are internal to practices and of the goods of a single life. (Maclntyre
1984: 222)

A living tradition links an individual to the wider community (polis) since the past is

present in each individual through traditions connected to the family, the state,

organizations and institutions. Traditions embody values and roles that characterize

what we are, but they are not necessarily the sole determinate of what we will become.

Traditions provide the starting point and context for the individual's quest. Practices

and narratives are embedded within traditions:



91

The history of a practice in our time is generally and characteristically embedded
in and made intelligible in terms of the larger and longer history of the tradition
through which the practice in its present form was conveyed to us; the history of
each of our own lives is generally and characteristically embedded in and made
intelligible in terms of the larger and longer histories of a number of traditions.
(Maclntyre 1984: 222)

Traditions are sustained or destroyed in relation to the "exercise or lack of exercise

of the relevant virtues" (Maclntyre 1984: 223). Maclntyre asserts that traditions are

dynamic in nature, requiring the individual to reflect on the individual narratives and

the practices contained within them in a critical manner. Traditions change over time,

some failing and fading into history, while others adapt and emerge from crises and

altered circumstances. Maclntyre' s position with regard to the dynamic nature of

tradition is particularly pertinent with regard to economic tradition considering the vast

crisis besetting the tradition of economic liberalism, which is a constituent of the broad

tradition of liberal individualism. Before the tradition of economic liberalism is

considered, an overview of Maclntyre's opinion on liberalism in general is warranted.

Maclntyre asserts that the foremost reason for the malaise of modernity is the fact

that the foundational ideology, liberal individualism, has defined itself in opposition to

previous traditions. The historical concept of tradition has been abandoned in favour of

the pursuit of universal and timeless reason:

It was a central aspiration of the Enlightenment... to provide for debate in the
public realm standards and methods of rational justification ... So, it was hoped,
reason would displace authority and tradition. Rational justification was to appeal
to principles undeniable by any rational person and therefore independent of all
those social and cultural particularities which the Enlightenment thinkers took to
be the mere accidental clothing of reason in particular times and places.
(Maclntyre 1988: 6)



92

As mentioned above, the ethical concepts advanced through utilitarianism and

deontological models have attempted to base moral behavior on universal truths or

timeless injunctions, while postmodern concepts are characterized by an emphasis on

subjectivity and particularities rather than objectivity and universals, resulting in the

emotivist pursuit of personal preference through manipulative means. Maclntyre

claims in Three Rival Versions of Moral Enquiry, that the "encyclopaedists" represent

the thinkers of the Enlightenment (deontology and utilitarianism) while the

'genealogists' represent the postmodern reaction against modern universalism and

absolutism. "Either reason is thus impersonal, universal, and disinterested or it is the

unwitting representative of particular interests, masking their drive to power by its false

pretensions to neutrality and disinterestedness" (Maclntyre 1990: 59).

The shortcomings of the liberal arguments are the consequence of the incompatible

and incommensurable premises that the culture of liberalism is based upon. Maclntyre

states that making any moral commitment would simply be the "criterionless choice

between such premises, a type of choice for which no rational justification can be

given" (Maclntyre 1984: 39). For Maclntyre, the liberal presumption of universal

ahistorical objective rationality is an illusion:

Liberalism thus a distinctive conception of a just order which is closely integrated
with the conceptions of practical reasoning required by public transactions
conducted within the terms set by a liberal polity. The principles which inform
such practical reasoning and the theory of justice within such a polity are not
neutral with respect to rival and conflicting theories of the human good. Where
they are in force they impose a particular conception of the good life, of practical
reasoning, and of justice upon those who willingly or unwillingly accept the
liberal procedures and the liberal terms of debate. The overriding good of
liberalism is no more and no less than the continued sustenance of the liberal and
social political order (Maclntyre 1988: 344-345).



93

This is not to say that Maclntyre does not consider liberalism as a 'tradition'. "The

inconclusiveness of the debates within liberalism as to the fundamental principles of

liberal justice reinforces the view that liberal theory is best understood. . .as itself the

articulation of an historically developed and developing set of social institutions and

forms of activity, that is, as a voice of a tradition" (ibid., 345, emphasis added).

Traditions are characterized by particular forms of social activity and what divides

traditions politically is the conflict between rival traditions. For example, in Whose

Justice? Which Rationality?, Maclntyre argues that Aristotelianism is a tradition of

reasoning about ends as well as means, whereas he regards rival traditions such as

those advanced by Hume and Adam Smith as being concerned with reasoning only

about means to ends. Hume for example believed that an individual's ends are dictated

by pre-rational passions, so that practical rationality was only instrumental in

determining the most effective means to those ends:

Property and the rules for its safeguarding and transmission — the rules which on
Hume's view specify the content of justice — thus are made the focus for pride,
love, hatred, and humility. Our passions according to Hume are such that they
produce in us a definition of our interests in terms of our relationship to property,
and it is as propertied or unpropertied in particular ways and to particular degrees
that we participate in those social exchanges and transactions whose outcome is
either the increase or diminution, or at least the sustaining or the undermining, of
the pride and love felt by particular individuals. The rights of property are
absolute. There is and can be no standard external to them in the light of which
some particular distribution of property could be evaluated as just or unjust.
Justice on this view serves the ends of property and not vice versa. (Maclntyre
1988: 295)



94

For liberalism the 'starting point' for rational inquiry into the ethical life is property;

where, Maclntyre asserts, the concept of property advances in priority coincident with

the diminishment of the status accorded to the concept of community. With respect to

the emotivist malaise affecting Western culture, Maclntyre argues that when language

is used as merely spatial reference points, void of social significance, the illusion of

objectivity is sustained which allows for inquiry to be based on a purely rationality

basis. When the social relations that constitute the real meaning of an object are

extricated from that lexicon, the only social relation remaining in which transactions

can take place is property. With property as the essential currency of debate it follows

that the goods of effectiveness would take priority over the goods of excellence:

Maclntyre' s account of rival traditions of practical rationality presents goods of
effectiveness and goods of excellence as the conflicting priorities of two such
traditions. The one tradition allegedly privileges the kind of activity exemplified
by the kind of competitive, manipulative and managerial relations fostered within
institutions, whilst the other privileges that kind of cooperative and emulatory
activity which Maclntyre says characterizes practices. The first encourages people
to think of their relations with others in terms of power, influence and
effectiveness. The second encourages people to focus instead upon the excellence
of themselves, their colleagues and their products. (Knight 2007: 165)

Within a living tradition there is conflict: a tradition that is stagnant and without

ongoing enquiry is a tradition that is dying. The internal debate within liberalism is, of

course interminable, which is the very attribute that liberalism possesses in which it

claims to sustain itself as a tradition:

For in the course of history liberalism, which began as an appeal to alleged
principles of shared rationality against what was felt to be the tyranny of tradition,
has itself been transformed into a tradition whose continuities are partly defined



95

by the interminability of the debate over such principles. An interminability which
was from the standpoint of an earlier liberalism a grave defect to be remedied as
soon as possible has become, in the eyes of some liberals at least, a kind of virtue.
(Maclntyre 1988: 335)

These underlying tenets formulate the principles of economic liberalism, resulting in

the institutions that dominate Western culture. The foundations of the liberal tradition

of economics are utilitarian: the maximization of happiness through individual

consumption concomitant with property rights and individual freedom. Maclntyre

précis his criticism of free market economics as follows:

The weight given to an individual preference in the market is a matter of the cost
which the individual is able and willing to pay; only so far as an individual has the
means to bargain with those who can supply what he or she needs does the
individual have an effective voice. So also in the political and social realm it is the
ability to bargain that is crucial. The preferences of some are accorded weight by
others only insofar as the satisfaction of those preferences will lead to the
satisfaction of their own preferences. Only those who have something to give get.
The disadvantaged in a liberal society are those without the means to bargain.
(Maclntyre 1988: 336)

This is the tradition in which the Investment Advisor finds himself, essentially 'in

the trenches' of free market competition. The polis in which the tradition of economic

liberalism is to be found is the modern day corporation. The corporation qua

community is a concept which has evolved throughout the history of economic

liberalism; coexisting with parallel subaltern traditions within a liberal society. Wicks

states that "the corporation is constituted by both itself as an entity—represented by the

set of formal and informal agreements among key stakeholders that evolve over time—

and the network of relationships in which it is involved (Wicks 1996: 528). Traditions



96

are dynamic: if they stagnate they perish. The liberalist tradition has demonstrated that

it is especially capable at adaptation and transformation. The evolution of classical

economics to neoclassical models, the constant political shifts in the social

democracies that make up the liberalist tradition of the Western world, are evidence

that liberalism is certainly not stagnant and capable of self-modification. The catalyst

for modification or revision is more often than not the occurrence of a crisis. The

banking catastrophe that global capital markets are experiencing concurrent with the

preparation of this paper is an example of such a crisis that puts into question the very

epistemology of the tradition of economic liberalism. All communities that have

contributed to liberal political economy and social sciences are dynamic systems that

have evolved in the response to crises.

Maclntyre envisions traditions as continuously evolving historical narratives that are

scrutinized by enquiry and as such provide the framework for rationality. When a

tradition's limitations and fundamental inadequacies create conflict, heuristic enquiry

generates reformulations and re-evaluations of the tradition paradigm. Maclntyre points

out the fact that a tradition is normally able to respond and to react to new situations by

using its own resources and that there is usually no interaction with other forms of

rationality. Progress is achieved when the inadequacies are indentified and resolved by

transformation of core beliefs:

The solution to a genuine epistemological crisis requires the invention or
discovery of new concepts and the framing of some new type or types of theory
which meet three highly exacting requirements. First, this is in some ways
radically new and conceptually enriched scheme, if it is to put an end to the
epistemological crisis, must furnish a solution to the problems which had
previously proved intractable in a systematic and coherent way. Second, it must



97

also provide an explanation of just what it was which rendered the tradition,
before it had acquired these new resources, sterile incoherent or both. And third,
these first two tasks must be carried out in a way which exhibits some
fundamental continuity and theoretical structures with the shared beliefs in terms
of which the tradition of enquiry had been defined up to this point. (Maclntyre
1988: 362)

If these three requirements are not achieved a capitulation to a rival tradition

becomes inevitable, motivated by the failure of the original tradition. That specific

tradition, which is able to answer the unsolved questions of the original tradition,

therefore becomes attractive.

The full consequences stemming from the current economic crisis being experienced

by most, if not all, participants in the liberal tradition have yet to be realized. At the

moment members of the investment community have failed to demonstrate

accountability for their actions and seem perplexed as to what strategies should be

employed to effectively solve the liquidity crisis and minimize the long term collateral

damage that is threatening global economies. The economic crisis has and will

continue to change the face of the economic polis, which no doubt will affect the

Investment Advisor in far reaching ways. The economic catastrophe of 2008 referred to

throughout this thesis may be a crisis of such enormity that it provokes an enquiry into

the epistemological foundations of the current economic paradigm. The ensuing

debates and traditional enquiry will either falsify the principles on which the current

economic tradition is based, or, will provide for the discovery or innovation of a

solution leading to reformulation and transformation of the current tradition.

Maclntyre claims that living traditions are constituted by evolving narratives;

historically extended, socially embodied argument that serve to sustain the tradition.



98

Does it not follow from this conception of tradition that the continued existence of all

living traditions throughout history entails interminable debate?

However, even if one was to concede that modernity in fact characterizes a tradition

per se, Maclntyre's concept of tradition remains very difficult to apply to the economic

polis. Maclntyre's critics have focused on his concept of tradition and he is not without

his detractors amongst proponents of virtue ethics. Maclntyre's moral philosophy has

been particularly anti-capitalist, asserting that "much modern industrial productive and

service work is organized so as to exclude the features distinctive of a practice"

(Maclntyre 1994: 286). Statements such as this have prompted Wicks to claim:

Maclntyre's views would effectively rule out any conception of business that is
remotely similar to capitalism as we know it. Just as I see Maclntyre's larger
thesis as entailing radical departure from current national and global cultural
practices, it would appear to require transformation of the economic realm as
well, towards something fundamentally different than what we would call
"business." Indeed, my sense of Maclntyre's writings suggest that the underlying
tension between business in modernity (i.e., capitalism) and his virtue ideal reflect
some deeper conflicts at work between "economics" and "virtue". (Wicks 1997:
133)

Wicks calls attention to the fact that Maclntyre has not offered a feasible alternative

economic paradigm, further suggesting that in his thesis "the stark contrast between

intrinsic (virtue) and extrinsic (economic) suggests that the two are conceptualized as

fundamentally as distinct and separate realms, making it a hopeless and thankless task

to show that they do (and can) work together" (Wicks 1997: 134). Maclntyre's radical

and categorical rejection of modernity is not shared with other contemporary

proponents of virtue ethics. Wicks points out that Robert Solomon's work (1992)



99

provides a more optimistic Aristotelian interpretation of business "which can enable

people to realize certain internal goods and to develop virtues" (Wicks 1996: 525).

Maclntyre claims that practice and the narrative of the unity of life can only thrive in
the milieu of a community founded upon a teleological tradition. According to
Maclntyre, that traditional paradigm was abandoned by the Enlightenment and the
tradition that symbolizes modernity is a mere veneer with no substantive justification.
This view is exemplified by his radical and unapologetic position concerning liberal
political economy and summarized in this bleak comparison to the doomed Roman
Empire:

A crucial turning point in that earlier history occurred when men and women
of good will turned aside from the task of shoring up the Roman Imperium and
ceased to identify the continuation of civility and moral community with the
maintenance of that Imperium. What they set themselves to achieve instead
was the construction of new forms of community within which the moral life
could be sustained so that both morality and civility might survive the coming
ages of barbarism and darkness. If my account of our moral condition is
correct, we ought also to conclude that for some time now we too have reached
that turning point. . . . This time, however, the barbarians are not waiting
beyond the frontiers; they have already been governing us for quite some time.
And it is our lack of consciousness of this that constitutes part of our
predicament. We are waiting not for a Godot, but for another—doubtless very
different—St. Benedict. (Maclntyre 1984: 263)

According to Maclntyre, what we are waiting for makes no allowance for the

Investment Advisor or for the capitalist institutions where he attends to his practice.



100

Conclusion

Recent developments (November 2008) in global capital markets have highlighted
the role that market regulation has played in sustaining efficient and fair markets,

whether the regulation is legislated by government agencies or self imposed by
participants in the investment industry. Trillions of dollars of market capitalization has
been lost in world stock markets while capital lending markets have ground to a halt,
frozen by the banking industry's inability and/or unwillingness to extend credit to both

corporate and individual borrowers. The foundations of the capitalist system have
come under increased scrutiny and criticism as leading economic indicators deteriorate

and corporations, that were once considered stalwart pillars of capitalism, teeter on the
brink of insolvency.

Considerable protestation has been made of the lack of regulation by government and
self regulatory bodies. Politicians, economists and consumer advocates have called for

severe punishment to those parties complicit in the activities that have led to this latest

financial catastrophe. These outcries merely reinforce the argument that regulation is a
reactive instrument as opposed to an effective proactive strategy in the administration
of financial markets. However, it must be noted that jurisdictions like Canada, where
markets and banks are vigorously regulated, have less of a problem with fraud and
corruption than jurisdictions such as the United States that have a less rigorous
regulatory system. Litigation and threats of reprisal are an unfortunate characteristic

of a society that has become accustomed to laws and regulation as the primary
instrument in the functioning of society. When resort to the law is the predominant



101

method of correcting injustice it is a noteworthy indication that the moral principles

that encompass trust, fairness and honesty have ceased to be important attributes of our
emotivist culture.

The public is rapidly losing faith in the economic institutions that have come to

affect so many aspects of modern society; a society that is predicated on material

consumption and the pursuit of self-interest. Unless the mistrust and cynicism that

permeates public sentiment dissipates, there will be dire consequences for Investment

Advisors throughout the securities industry. The fiduciary relationship the Investment

Advisor has with his clientele is based on trust and confidence; when this relationship

becomes strained the mechanisms that facilitate a fair and efficient marketplace

collapse and subsequently place the entire free market system in jeopardy.

Maclntyre's critique of modernity successfully elucidates the problems associated

with the principle based ethics of Kant's deontological approach and Mills utilitarian

approach to ethical conduct in the securities industry. Investment Advisors are

constantly faced with the dilemma of being subjected to the utilitarian methods of

corporate decision making while having to adhere to a deontological structure that

dictates acceptable behavior in their profession through regulatory bodies. The

utilitarian approach that embraces the maximization of profit and focuses on the ethic

of effectiveness is often at odds with the obligations and constraints imposed by the

principles of moral behavior sanctioned by the deontological basis of the IIROC

Regulations and codes of conduct and practices for its members:



102

The fundamental misconception that must be addressed in any organization is that
ethics codes constrain self-interest. This myth implies that the codes must be
ignored, evaded, or circumvented if one is to achieve one's goals. The truth that
needs to be made clear is that ethics codes actually define self-interest: They
define the true professional as one who has a genuine concern for others in his or
her professional milieu. (Dobson 2005: 63)

Maclntyre's assertion that Kant's assumption of the rational will to do right will not

necessarily motivate individuals when confronted by pressures to act contrary to such a
sense of duty is particularly applicable to the Investment Advisor who often finds

himself in such predicaments.

The manager, a character representative of emotivist culture, can be closely

correlated with the role of the Investment Advisor and the aggregation of experts that

comprise the securities industry. The claim to possess systematic effectiveness in

controlling certain aspects of social reality, in this case financial acumen, is based upon
the use of law-like generalizations through the auspices of social sciences which

include but are not limited to economics, psychology and marketing. The wealth

management industry claims to be able to successfully quantify risk even though the

risk associated with the valuation of investments is predominately based upon the
unpredictability of human behavior. The markets are a barometer of the mass

psychology that determines economic trends and valuations. Claims that one is able to

effectively quantify the various parameters and permutations of human behavior for

manipulative purposes are based upon a moral fiction. The questionable practices of

economic forecasting and the unexpected failure of mathematically engineered

derivative products attest to the fact that many of the law-like generalizations utilized



103

by financial professionals are prone to numerous counter examples and contradictions.

The ostensibly objective claims of the investment industry are often merely expressions

of will and preference.

Maclntyre's notion of a practice is particularly applicable to the position of the

Investment Advisor. The concepts of internal and external goods and the topic of the

creative tension between the individual and the institution in which the IA pursues his

practice are fundamental to the formation of a basic understanding of ethical behaviour.

A successful Investment Advisor understands the importance of risk management

which consists of maintaining balance in a portfolio between secure and speculative

investments. Similarly, balance is the key to maintaining a high quality clientele which

is essential in building a sustainable and lucrative business. The concept of balance is

also pertinent when consideration is given to the material pursuits, such as wealth,

fame and fortune, and the goods internal to a practice. The disciplinary proceedings of

the provincial securities commissions and IIROC are rife with instances where IA' s

have abandoned ethical principles in pursuit of material gain. Careers are not

sustainable without adherence to ethical standards and at the same time clients are at

risk if their advisor is not of honorable character. The investment business is based

upon personal relationships that hinge on integrity, trust and competence. These

standards of excellence cannot be achieved without a thorough understanding of the

notions of justice, courage and honesty; virtues that Maclntyre deems to be necessary

components of any practice.



104

The Investment industry must realize that character is the terminus a quo of

distinguished careers and the core attribute of respected companies: the pedagogy of

virtue ethics in educational programs is of vital importance if excellence in business is

to be achieved.

A creative tension must exist between the individual and the institution. A practice

cannot survive without the support of an institution and vice versa since together they

form a single causal order. Since institutions are concerned with external goods they

are structured around material goods and power. In order to not acquiesce to the

corrupting power of exclusively extrinsic reward, the practitioner must be able to

exercise virtue through his practice, unhindered by the extrinsic goals of the institution.

On the other hand, the institution must acknowledge the importance of virtue that is

inherent in a practice if it is not to become a deleterious apparatus of society. The

symbiotic relationship between the IA and the corporation that is representative of the

economic institution is essential for the individual to conduct his practice and the

corporation to flourish in a legitimate fashion.

Maclntyre argues that for human activity to become intelligible, an individual's

actions must be understood in terms of a narrative; a life that can be conceived and

evaluated as a whole. (Maclntyre 1984: 205) Narrative identity determines how one

lives and conducts oneself in the world; the roles in which people situate themselves,

how they understand themselves and others and how society is structured are entirely a

function of the narratives that are shared in human lives and in the communities to

which they belong. The concept of moral exemplars is rooted in the narratives of



105

people that exhibit qualities of virtuous character. The emulation of a role model's

narrative serves as a guide in the individual's narrative quest for moral excellence. It is

through the accountability, integrity and constancy associated with the narrative unity

of a single human life that the individual finds his moral identity. A life lived in terms

of a narrative is the nexus between practices that embody moral excellence and the

traditions of a community, and is not compartmentalized in specific social roles, but

encompasses all facets of an individual's life. Investment dealers should acknowledge

this concept and be encouraged to promote a mentoring program. This concept is vital

in promoting balance between goods of effectiveness and goods of excellence in this

extremely competitive business. Initiatives, such as the program at BMO Nesbitt

Burns, are also effective at balancing the IA' s quest for excellence in his practice and

satisfying the demands from the investment firm for productivity.

Perhaps the most contentious issue in the application of Maclntyre's tripartite notion

of virtue ethics is his concept of tradition. His profound anti-capitalist position that is

common throughout his writings renders the application of this part of his project

unworkable with regard to an exceedingly capitalist oriented vocation as that of the

Investment Advisor. That being said, there are some aspects of his thoughts on

tradition that warrant comment.

Maclntyre explicitly states that a living tradition is one which is a historically

extended, socially embodied argument and an argument precisely in part about the

goods which constitute that tradition. He asserts that all traditions are challenged

internally; citing three requirements to be satisfied if the tradition is not to be



106

superseded by a superior tradition. He also states that liberal individualism can be "as

itself the articulation of a historically developed and developing set of social

institutions and forms of activity, that is, as a voice of a tradition." (Maclntyre 1988:

344)

The liberal economic tradition has demonstrated remarkable capacity for

modification and revision to what can be deemed epistemological crises. It can be

argued that the state of economic liberalism is currently at such a juncture. The global

economic crisis stemming from the collapse of the investment banking industry,

potential bankruptcy of the American automobile industry and a myriad of other

concurrent financial quandaries in fact represent a crisis that threatens the fundamentals

of the capitalist paradigm.

If this is indeed the case, then perhaps a radically new and conceptually enriched

scheme, which includes an explanation of just what rendered the current economic

model dysfunctional, while exhibiting some fundamental continuity and theoretical

structure of the prior paradigm, will once again transform the tradition of economic

liberalism.

This crisis which currently besieges the global economy may provide the opportunity

for the free market economic system to adapt a ideological emphasis; an adaptation

that can take root at the level of the individual pursuing areté through business-as-

practice. If action based ethical models have failed, as Maclntyre' s critique of

modernity claims, perhaps it is time that virtue based ethics is given priority while the

ethical models of deontology and utilitarianism are employed as subordinate



107

instruments within the ideological paradigm. By fostering a virtuous practice through

education and the encouragement of moral exemplars, the profession of the Investment

Advisor can find balance between the goods of effectiveness and the goods of

excellence and thereby contribute to the transformation of an economic system that has

contributed greatly to the advancement of mankind. This thesis contends that the

Canadian securities industry should incorporate virtue ethics as an integral component

in the training, registration and continuing education programs currently ongoing.

Furthermore, it is my hope that this thesis will encourage scholars of political economy

to enquire into the concept of a teleologica! capitalist paradigm.



108

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