Investing and the Separation Thesis: Part 1

The moral insight of this statement is simple: losing sight of people, abstracting reality to numbers, sits at the essence of finance, and this focus on numbers impairs moral vision. 

Yes, there is a profusion of talk about ethics and investing evident in the emergent movements of ESG (environmental, social, governance), CSR (corporate social responsibility), sustainable, impact, and even faith-based investing. But, while ethics certainly informs some investment decisions, these are ripples on the surface of the ethics of finance and the global investment pool. The vast depths of investment—hundreds of trillions of dollars—largely and deliberately elude moral direction.For high-level details on the size and allocation of the global asset pool, see the McKinsey Global Institute Report, “The Rise and Rise of the Global Balance Sheet: How Productively Are We Using Our Wealth?” November 2021. There are, of course, moral considerations codified in law and regulations covering the operations of markets, investments, and the conduct of businesses (fiduciary duties, audit requirements, etc.). Additionally, there are values of transparency, various self-regulatory bodies, and the requirements of the stock exchanges. Generally, in finance, these are the concerns of compliance departments (in some cases, exclusively so). Further, as professionals within these realms can attest, there is ample room for interpretation and exploration within these strictures. This article is concerned with the further ethical considerations arising from behavior within the boundaries of legal and other requirements. Here exists a vast moral landscape in which many assert a freedom from extralegal moral constraints.

Last spring, I took this perspective on finance along with 15 years of experience in the trenches of mergers and acquisitions on a month-long trip to Oxford to research the ethics of finance and investing.My thanks to Peter Heslam for occasioning this article through an invitation to speak in Cambridge, England, at a Faith in Business Leadership Retreat in May 2022 and to William Messenger, Benjamin Schmid, Lisa Lee, and Christopher Kim for their helpful comments. All faults remain my own, of course.

On this trip, I also carried a countervailing hope that finance can see people within the numbers. A decade back, I was conducting due diligence for a leveraged buyout. It was an attractive deal taking assets from a distressed seller. The promise of big returns for our client was palpable. Momentum was considerable. But the numbers did not add up and the books were a mess. One did the deal on faith or walked away. Frustrated and exhausted, my team got on a call with our client, managers of an infrastructure fund. I had the unenviable task of sharing that completing diligence was not possible. Our substantial fees would be a sunk cost. My client’s response surprised me: “Ben, we are investing peoples’ pension money. I’m responsible to them. We won’t do the deal if the data isn’t available to complete diligence. Thank you.” Many of my clients would choose to plow ahead, ‘get creative’ with the diligence, to ‘win’ the auction, get the assets under management and the associated fees, and to avoid the embarrassment of a busted deal with high expenses. But, this individual put the interests of others before his own. This response and others like it give me hope that the moral vision of finance is substantial and can be restored.

Two weeks into my trip, things took a troubling turn. A friend suggested I apply my findings to my own finances. What would I learn about finance if I compared my retirement and other savings to my charitable giving? My financial investments, it turned out, reduced people to numbers. The problem was not only “out there,” but “in here.” This had eluded my attention because my core beliefs about finance are deeply entrenched, more or less out of sight and mind. My friend had kindly forced me to consider the people behind the numbers. I saw that while I care deeply about ethics generally, in my investing these were largely set aside. In what follows, I detail my personal journey of discovery about this schism in my moral life.

My personal story highlights a broader issue, one many of us face personally and all of us face as a society. It is captured in the heated arguments over the proper role of finance and investing that play out in the financial press and popular culture. Should (my) investments narrowly focus on generating returns and profits? Or, should finance have broader goals in view? My inner schism is reflected in society’s divided approach, namely that its morals are not reflected in its investing. 

As I began to dwell on this issue, I saw that the elusiveness of my own beliefs about finance and investing was due to a peculiar hiddenness. Even as modern investment theory’s commitment to return and risk as the nearly exclusive criteria is an accepted part of investing common sense, its moral implications are “hidden in plain sight” or, as we will see, “Too often, what everyone believes, nobody knows.”Stephen Toulmin, Cosmopolis: The Hidden Agenda of Modernity (Chicago: University of Chicago Press, 1992), 12.

Clearly, a deeper understanding was needed. Yes, the abstraction of finance is critical to its work—it is a strength. But what happens when this abstraction causes moral blindness? Further, why is finance so susceptible to this particular moral peril? There was little possibility of finding a way forward when I had not done the hard work of diagnosing the problem. Surface-level analysis and the existing terms of debate would be insufficient here.      

This diagnostic work revealed that the moral malignancy of finance is multiform. This two-part article engages with only one malforming facet, the Separation Thesis, the idea that “the numbers” can be viewed without regard to “the people” behind them. I learned this notion was at the core of my internal division. 

Part I frames my introspective journey with a definition of the calling of finance and investing. It then explores the Separation Thesis through a review of the varied moral rationales at work in my financial and philanthropic investments. Part II further defines the Separation Thesis and suggests a path forward. The hope here is to create space for new ideas, motives, and actions within the existing conversation of directing one’s investments to moral ends, especially for Christians. 

I started my investigation by looking at the calling of finance. Augustine of Hippo wrote long ago that only good is inherent in God’s creation—sin and darkness are merely parasitic, deformations of original good. It follows, then, that any critical ethical analysis of finance must be grounded by a grasp of the essential good that is being distorted. 

Finance, as a field of work, is first a response to God. As a part of the created realm of work, finance and investing have their own integrity, purpose, and logic, but they also share in a general calling applicable to all work. This created realm of work is being renewed in Jesus and, as Colossians 1:16 makes clear, all things are ordered now to Christ. Dorothy Sayers, Creed or Chaos? And Other Essays in Popular Theology (London: The Religious Book Club, 1948), 64.  Sayers’ essay, “Why Work?” highlights that work is first ordered to God. She posits that in the commandment to love God and neighbor, the love of neighbor depends on loving God. So, work will only serve the neighbor to the extent it first serves God (the alternative, plainly, is serving something else, which is idolatry with all its attendant distortions). She concludes that we should “serve the work,” heeding and furthering the unique design and purpose of each field of work as a way of serving God and neighbor. Also, see the ontology of work in Darrell Cosden, A Theology of Work: Work and the New Creation, Paternoster Theological Monographs (Eugene: Wipf and Stock Publishers, 2006). Finance, like all work, is called to contribute uniquely to the establishing and sustaining of broad-based societal flourishing and justice. It is called to be a “mask of God,” to use Luther’s phrase, through which God provides and blesses. Winston D. Persaud, “Luther on Vocation, by Gustaf Wingren: A Twenty-First-Century Theological-Literary Reading,” Dialog 57 no. 2 (2018): 85. Also, Gene Edward Veith at https://pastormattrichard.webs.com/MaskofGod2 .pdf. Within this larger reality and purpose of work, finance is charged specifically with the stewardship and fruitful investment of capital.

This capital, entrusted to individuals and to finance, is the shared inheritance of humanity and represents the accumulated creation of value through our forebears’ work, thrift, creative differentiation, investments, and marshalling of the earth’s given abundance. John Paul II, Laborem Exercens, sec. 13 & 4, accessed November 2, 2022, https://www.vatican.va/content/john-paul-ii/en/encyclicals/documents/hf_jp-ii_enc_14091981_laborem-exercens.html. John Paul II writes of humanity’s two inheritances as nature and the work of those gone before us. Work certainly includes the resultant accumulated capital, but capital is listed separately here for heuristic purposes. Speaking of capital as an inheritance reminds us that it is ultimately from God, being rooted in the creative powers given to human beings, God’s sustaining power, and the resources and sufficient fecundity of the earth God placed under the care of humanity. 

This stewardship of finance involves allocation of capital to the best and highest uses, those investments that will best further societal flourishing and justice. These investments should support the engagement and unfolding of human giftedness and capacities and the maintenance and real economic growth of the capital invested.Why is “maintenance and real economic return” a moral good? Two points help us here. First, Cosden posits that work has three aspects, including: (a) instrumental —a means to an end: the provision of food, generation of wealth—(b) relational—service to others and to society, development and expression of one’s self—and (c) ontological—work being built into reality by the God who works and invites humans into this work (A Theology of Work, 12-17). Work produces wealth and this wealth is invested, making it, in a sense, an extension or continuation of one’s work made possible by finance (an idea perhaps contained in the phrase “putting money to work” for investment). The instrumental good of investing, then, is a means to an end, the return and preservation of capital. Second, Jeff Van Duzer expands on this instrumental good, writing, “Profit is not important as an end in and of itself. Rather, it becomes the means of attracting sufficient capital to allow the business to do what, from God’s perspective, it is in business to do . . . . Generating profits is critical. ‘No margin, no business.’ Without profit a business dies. . . . [Profit is] the means to service rather than the purpose of the enterprise itself.” Van Duzer writes from the “demand side” of capital, but these thoughts on business and profit can be mapped onto investment and return. Return is a good, but a relative good. It is a means, not an end—a tool, not a god. Jeff Van Duzer, Why Business Matters to God (And What Still Needs to be Fixed) (Downers Grove, Illinois: IVP Academic, 2010), 46. Individual investors are also implicated here as holders of capital, with a key additional challenge for this group being the cultivation of thrift.Thrift is the careful use of money, the avoidance of waste and prioritizing of savings. It runs counter to the consumerism and retail therapy of our time. Excessive spending is a wasteful use of capital. I recommend Peter Heslam’s booklet here: Transforming Capitalism: Entrepreneurship and the Renewal of Thrift, Grove Ethical Studies, no. 156 (Cambridge: Grove Books Limited, 2010).

The profession of finance properly carries out this calling as an intermediary, a servant, by bringing savers and builders of various things—ventures, offices, homes, educations, etc.—together to amass resources to facilitate scale and duration in public and private investment and by enabling flows of value to facilitate trading. To do this well, finance must refine its moral culture, processes, markets, modes of analysis, and ownership structures to conduct these tasks of finance efficiently and truthfully, orienting them in total toward their proper ends. 

This work of finance has a thoroughgoing moral frame. Every aspect of its work, including investing, despite its increasingly technical nature, is ethically contained within its calling and the moral frame common to all human activity. Capital, for example, like all parts of human culture, has an inescapable moral aspect and so can be put to either immoral or moral ends—in its omissions as much as its commissions—but it cannot be neutral. Capital, like work, like life, is first oriented to God and through God to humanity and the earth.Sayers, Creed or Chaos? 64. As goes work, so too capital. It will only serve the neighbor and the earth to the extent it first serves God. However, the tremendous complexity of finance and the sheer immensity of its power make the moral frame of finance difficult to discern.

To be fair, while the current ethos of the industry deviates from the true calling of finance in significant ways, it does not do so entirely.    

Finance has done and continues to do much good. 

However, the root causes of the moral deformity of finance should be of concern to us all. In ways often not noted, most professional and non-professional investors participate in, are marked by, and sustain this deformity.  

The Separation Thesis mentioned above, which posits that finance operates in a world of facts and rationality that does not require moral direction (outside of laws and regulationsSee footnote 1), is one such aspect of this deformity. Reflection on our personal investments can shed light on this abstract notion.R. Edward Freeman, “The Politics of Stakeholder Theory: Some Future Directions,” Business Ethics Quarterly 4 no. 4 (October 1994): 412. For Freeman, the Separation Thesis is “ingrained in all that we do in business schools to separate the discourse of business from the discourse of ethics.” He defines the thesis as follows: “The discourse of business and the discourse of ethics can be separated so that sentences like, ‘x is a business decision’ have no moral content, and ‘x is a moral decision’ have no business content.”

Here, I invite you to pause and conduct a brief audit exercise. Please list your investments, noting the cash, bonds, real estate, and equities you hold. There is no need for monetary values, but including these might make the exercise more meaningful. Next to each category, add a sentence detailing its rationale. Why this investment and this amount? 

Many will not have all this information top of mind; so, for purposes of illustration, let us consider my own investments. 

Here is my list along with the corresponding rationales:

• Cash (20%): Held at Synchrony Bank, which is convenient and pays high interest rates. The high allocation to cash reflects skepticism about the markets and savings for a down payment (you’ll note I lack any investment in real estate, residence or otherwise). 
• Equities (40%): Held primarily in low-fee index funds. Many feel index funds generally outperform actively managed mutual funds on an after-fee, long-term, risk-adjusted basis.  They are recommended by many for the “average investor.” 
• Bonds (20%): Held in mutual funds. This allocation, perhaps high given my age, again reflects my skepticism. But I recognize that in the current U.S. asset bubble and the associated turmoil of unwinding a decade-plus Federal Reserve experiment in outlandishly loose money there is “nowhere to hide,” not even in bonds.
• Cash balance pension (20%): I’m fortunate to have a cash-balance pension plan at my employer. I have no knowledge or control over where this “balance” is invested.

My investment approach is simple, focused exclusively on return, risk, and convenience. To explore a different approach to investing, let’s compose a second list detailing our philanthropic investments, again noting rationales. I call these “investments” rather than giving because in them I am most certainly seeking a return, albeit a non-financial one, namely a furthering and enriching of the good work the organization is doing.

Below is a list of my philanthropic investments from 2022:     

• My church, Restoration Anglican (70%): The Church plays an irreplaceable and good role in our cultures, cities, and families. We are proud of our local church.
• The disadvantaged and unfortunate (23%): Open Hands Legal Services provides free legal representation in New York City, pushing back against those using the law to abuse and exploit. Jericho Road Ministries and Community Emergency Service, in Minneapolis, Minnesota, each provide goods and services to those in need, physically or spiritually. Both stepped into the gap during the pandemic and the George Floyd protests. 
• Practical theology (7%): Christian Counseling Education Foundation, an intellectual think tank and counseling center in Philadelphia that addresses matters of the heart and head and supported the work of my favorite thinker, Dr. David Powlison. 
• Other: From bonuses and tax returns, we gave to a Christian formation center at the University of Minnesota called Anselm House.   

In constructing your own list or reviewing mine, what emotions or thoughts arose? What differences did you notice in the two approaches to investing? Moral discernment, to be sure, involves listening to these hunches and the resonances with Scripture and convictions that arise. I leave you with this important internal dialogue until next time.

Part II of this article further defines the Separation Thesis, explores how the allocation of my personal financial and philanthropic investments (and perhaps yours) illustrate its logic, and considers a way forward.