Performance Perspectives Blog

Words matter

by | Aug 24, 2011

In yesterday’s WSJ, William McGurn wrote about adhering to codes of conduct, and began by citing West Point’s code: “A cadet will not lie, cheat, steal or tolerate those who do.” As a former Army officer who served with many “ring knockers,” I was already familiar with this code. As McGurn points out, it’s the last few words that may be the most difficult to uphold. He cites the recent University of Miami football scandal as an example of folks who prefer not to say anything, when they are aware of improper behavior. Bernie Madoff’s firm might be the greatest example of individuals who knowingly allowed illegal, unethical, and improper behavior to occur in their midst, and even to be knowledgeable and willing participants.

Earlier this week I participated in a panel discussion regarding the GIPS(R) standards (Global Investment Performance Standards). Someone asked “what does it take to claim compliance.” In reality, it doesn’t take anything but a willingness to make such a claim; the important thing is what it takes to achieve and maintain compliance. I have witnessed cases where firms who claimed compliance when they knew that they weren’t. On one occasion, I told a firm’s chief compliance officer that her firm was not compliant, and said that they have two choices: continue to claim and hope that the SEC doesn’t find out, or stop claiming and get their house in order, fully expecting that she would dismiss the first. But to my surprise, that was her choice. We dropped them as a client.

McGurn mentioned how Miami’s code states that violations “should” be reported. As a former member of the GIPS Investment Performance Council and Interpretations Subcommittee, I know how word choices are important. There is a big difference between “should” and “must.”  Weighing our choice of words is important. But beyond the words is the character of the individual. We admire those individuals who, in the face of what appears to be acceptable (though in their eyes, poor) behavior, say “no.”

TSG is formalizing our standards of practice, to make it clear to our team what we expect. It is based on the CFA Institute’s standards, which are arguably “best practice” for our industry. Perhaps codes of conduct shouldn’t have to be written down, but at a minimum they convey our beliefs and rules. And not only won’t we lie, cheat, or steal, we also won’t tolerate those who do.

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