Slide 1

Professor Michael Mainelli, Executive Chairman, The Z/Yen Group

[An edited version of this article first appeared as “Just Doing My Job: Intelligence Versus Integrity In Financial Professionals?”, Journal of Risk Finance, Volume 11, Number 2, pages 235-237, Emerald Group Publishing (March 2010).]

Long ago I developed an intelligence versus integrity balance test. In a dodgy or seemingly hypocritical situation, such as “I was not fully aware I was taking a bribe”, the subject can either be very intelligent in the way he or she wriggles, and thus demonstrate a complete lack of integrity; or people shall assume the subject has high integrity though innocently strayed, but clearly lacks intelligence. It’s tough to balance in the middle. And Graham Greene knew which was worse: “Our worst enemies here are not the ignorant and the simple, however cruel; our worst enemies are the intelligent and corrupt.”

Now well into the credit scrunch’s third year, as Bob Giffords and I term the recent financial crises, let’s have a look at the intelligence versus integrity balance of professionals in finance. There are numerous professionals whose very profession means that they are almost wholly involved in finance - accountants, actuaries, risk managers, securities traders, investment professionals, chartered financial analysts - all with their professional bodies and letters. There are numerous professionals from lawyers to engineers who have chosen to work in finance. As people involved in risk finance, we should be asking whether these professional qualifications reduce risk or increase risk.

There are a lot of professionals about. Most listed companies have CPAs or FCAs or FCCAs as finance directors. Lots of lawyers join corporate boards. In financial services firms, many people are CFAs or FRMs or MBAs (their new MBA oath - “I recognize that my stature and privileges as a professional stem from the respect and trust that the profession as a whole enjoys, and I accept my responsibility for embodying, protecting, and developing the standards of the management profession, so as to enhance that trust and respect.”). It’s probably certain that well over half of all financial services firms’ directors have a professional qualification, or two, or three. Yet the professions and the professionals failed us in the credit scrunch, all the while with an institute code of practice or code of ethics containing clauses about personal integrity reading something like:
“To strive to uphold the highest personal standards including rejecting short-term profits which may jeopardize your reputation and that of your employer, the Institute and the industry.”
[Chartered Institute of Securities & Investment -]

Ooops, that’s one of my institutes. Well, let’s look at another institute and another clause about personal competence and intelligence:
“The principle of professional competence and due care imposes the following obligations on members:
(a) to maintain professional knowledge and skill at the level required to ensure that clients or employers receive competent professional service; and
(b) to act diligently in accordance with applicable technical and professional standards when providing professional services.”

[Association of Chartered Certified Accountants -]

Ooops, that’s another one of my institutes. During the credit scrunch, where just about all credit ratings and financial audits have been a waste of time and money, i.e. not a lot of value in terms of balance sheet valuations or going concern statements or investment guidance, it’s worthwhile questioning value for money. Yes, a lot of money has been spent on quite useless auditing and actuarial advice, quite a bit too on professional fees and membership, but a key professional principle is to add value:
“Providing value: Auditors add to the reliability and quality of financial reporting; they provide to directors and officers constructive observations arising from the audit process; and thereby contribute to the effective operation of business capital markets and the public sector.”
[“The Auditor’s Code” - Auditing Practices Board]

So obviously professionals either saw the credit scrunch coming and violated their ethics, or many professionals were collectively incompetent and failed to provide value. Her Majesty, Queen Elizabeth II, visited the London School of Economics in November 2008, and inquired why had nobody noticed that the credit crunch was on its way? Well, one guaranteed way to make money is to convince people that you have a sure-fire way to make money when you know it’s a sham. Unfortunately, if you have self-esteem, you are likely to be hoist on an intelligence versus integrity see-saw. The British Academy felt compelled to respond to Her Majesty and create a little hole of calm reflection:
“Many people did foresee the crisis. However, the exact form that it would take and the timing of its onset and ferocity were foreseen by nobody. What matters in such circumstances is not just to predict the nature of the problem but also its timing. And there is also finding the will to act…”
[British Academy public letter to the Queen, 22 July 2009 -]

So some professionals saw it coming and did nothing? We’ve seen both ends of the intelligence versus integrity balance, with not a lot of intelligence, nor a lot of integrity. Thus the British Academy dug its hole a bit deeper:
“So where was the problem? Everyone seemed to be doing their own job properly on its own merit. And according to standard measures of success, they were often doing it well. The failure was to see how collectively this added up to a series of interconnected imbalances over which no single authority had jurisdiction. This, combined with the psychology of herding and the mantra of financial and policy gurus, lead to a dangerous recipe. Individual risks may rightly have been viewed as small, but the risk to the system as a whole was vast.”

Just doing our job. So some professionals did see it coming, but didn't want to risk their jobs. Others clearly lacked the intelligence to look outside the herd. Or are the professions in deeper trouble than we think? It’s fairly clear that the professions failed to see it coming and individuals within the professions saw the credit scrunch coming and took the money while they could. Yet, leaving Bernard Madoff to one side, I know of no professionals in their professional institutes’ dock for the credit scrunch. No disciplinary hearings on the credit scrunch. No professionals struck off their institutes’ registers.

So then the institutes must be at fault. Their members are innocent, having followed their principles and codes of ethics, and executed their professional skills perfectly. Leading to an uncomfortable implication that, perhaps, the great edifices of accounting, auditing, actuarial science (ahem), risk management and financial analysis are the shams. The professionals are following mystical alchemical rituals that have failed to bring the rains or revive the blighted crops.

Readers must ask what value these expensive professionals add to our calculations. In my opinion, if the professions don’t want to be weighed and found wanting on an intelligence versus integrity balance, then each one of them needs to conduct a review of the fundamentals of its own professional practices. Accountants to challenge fair value. Auditors and actuaries to study confidence accounting. Risk managers to incorporate leptokurtosis or quit. Financial analysts to remove their biased interests. Perhaps we professionals lack the imagination to rethink our professions. Or perhaps we just don’t know our place. Rather ironically in the same note back to the monarch by the same British Academy:
“So in summary, Your Majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.”


  1. British Academy public letter to the Queen, 22 July 2009 -
  2. GREENE, Graham, The Human Factor, Everyman’s Library, Part III, Chapter 3 (1978).
  3. MAINELLI, Michael and GIFFORDS, Bob, "The Road To Long Finance: A Systems View Of The Credit Scrunch", Centre for the Study of Financial Information, 62 pages, ISBN: 978-0-9561904-4-4, (July 2009).

Professor Michael Mainelli, PhD FCCA FSI, originally undertook aerospace and computing research, followed by seven years as a partner in a large international accountancy practice before a spell as Corporate Development Director of Europe’s largest R&D organisation, the UK’s Defence Evaluation and Research Agency, and becoming a director of Z/Yen (This email address is being protected from spambots. You need JavaScript enabled to view it.). Michael is Professor Emeritus and Fellow at Gresham College ( and a Visiting Professor at the London School of Economics & Political Science.

Z/Yen operates as a commercial think-tank that asks, solves and acts on strategy, finance, systems, marketing and intelligence projects in a wide variety of fields (, such as developing an award-winning risk/reward prediction engine, helping a global charity win a good governance award or benchmarking transaction costs across global investment banks. Z/Yen’s humorous risk/reward management novel, Clean Business Cuisine: Now and Z/Yen, was published in 2000; it was a Sunday Times Book of the Week; Accountancy Age described it as “surprisingly funny considering it is written by a couple of accountants”.