Wall Street has always been a place that prides itself on smoke and mirrors.
The "players" on Wall Street have designed confusing language and structures to create a barrier to entry to the average person. Even the most basic language used is absurd. You don't buy - you "go long". You don't sell - you "go short". You don't buy-then-sell - you "flip". A commission is a "clip". An investment is a "ticket". Even as a person who worked at one of Wall Street's biggest institutions for many years, it's almost impossible to follow the myriad of constantly changing acronyms. This confusing framework has contributed to the divergence between the real economy and the financial economy.
It's this divide that has encouraged a system where many company executives are directly or indirectly compensated for "short-termism". That is, a focus on short-term (quarterly) company results and "earnings estimates" over long-term value-driving initiatives. Laurence D. Fink, Co-Founder and CEO of the world's largest investor, BlackRock, last week wrote a letter to 500 chief executive officers urging them to refute today's "culture of quarterly earnings hysteria". This isn't the first of such letters - the drum continues to beat louder.
However, for us to truly focus on long-term value-driving initiatives, we must consider the underlying ethical impacts of where we invest our money. The institutional investing world is finally starting to take notice, at least when it comes to climate change. During the recent United Nations Climate Change conference in Paris, over 400 of the world's largest investors representing $24 trillion signed a statement of intent to contribute to the transition to a low carbon economy. Truly a step in the right direction, but a much broader framework of ethical corporate behavior is required.
For example, consider that one signatory of the statement, BNP Paribas, was fined almost $9 billion (with a "B") a little over 18 months' prior for, in particular, providing "...rogue nations, and Sudan in particular, with vital access to the global financial system, helping that country's lawless government to harbor and support terrorists and to persecute its own people", as noted by Assistant Attorney General Caldwell of the Justice Department's Criminal Division. BNP Paribas is one of the largest banks in the world. And $9 billion is a sum greater than the Gross Domestic Product of approximately 28% of the world's nations.
Contrary to conventional wisdom, the majority of people working on Wall Street are not unethical people, in fact in many instances quite the contrary. Yes, there are obviously bad apples, but these are the exception rather than the norm. The challenge is that the system in which people operate on Wall Street is designed to disregard broader repercussions of individual actions. It was this incentive misalignment which was the underlying driver of the housing market collapse in 2008 (check out the movie The Big Short, if you haven't already).
So what's the solution for us? Well, it's definitely time for everyday people like us to start voting with our feet, so to speak. Start scrutinizing who's investing your money and truly question which companies you're supporting.
And what's the solution for Wall Street? It needs to combat the deep-seated culture of opacity. It needs to embrace values of simplicity, diversity and sustainability. It needs to stop creating barriers to entry through financial mumbo-jumbo. Simply put, Wall Street needs a healthy dose of Sesame Street.
Jay Lipman is a former Wall Streeter, an advocate for ethical investing and Co-Founder of Ethic. Find out more at WeAreEthic.com