Righteousness, Transparency & Education

David Wagner, Managing Editor | 8/23/2011 | 10 comments

David Wagner
When you read that this article is about Guns N Roses bass player Duff McKagan, youre probably going to check your calendar to see if it is Friday. I dont blame you for thinking this is a Geekend post. But actually, this is about financial services. Specifically, this week, Duff McKagan opens up Meridian Rock, a financial services firm designed to help rockers and other high-profile clients manage their money.

The whole concept came when Duff was reading financial reports for the band in the 90s and realized he didnt understand a word. Not only was he frightened that he didnt know if the band had any money, but he was also intimidated to ask for help. Duff ended up enrolling in finance courses to get more informed. Ultimately, this led to giving advice to friends and eventually a business.

The reason Duffs company is interesting, however, is not because hes famous. What I keyed on was Meridian Rocks three tenets -- righteousness, transparency, and education.

Many of the people I come across in technology, engineering, and science have chosen their fields because of lack of moral ambiguity. The great thing about technology is that, for the most part, they behave the exact same way every time. And unlike people, technology is neutral. What is done with it can be good or bad, but the tool is neutral.

Of course, when you enter IT in the financial services, this changes. You accept trust from your customers and stakeholders to create secure infrastructure and safe investments. You can use technology to move (and therefore steal or hide) millions of dollars in an instant. Nearly all banks have some sort of moral language in their mission statements and marketing. They trade on words like trust. However, few are so simple and explicit as Duff McKagans concept of what a financial services firm owes its customers. Lets look at all three as it pertains to the IT department in financial services firms and other IT departments as well.

Righteousness: Many people point to failures in subprime lending and mortgage-backed derivatives and assume greed-clouded judgment. Personally, I agree with E2 blogger Tom Redman that, in many cases, these errors werent necessarily greed-driven but mistakes with learning how to manage data. Most executives seemed to have honestly thought derivatives were a great way to spread risk rather than increase it. But as early as 1994, people were warning that mortgage-backed derivatives could be a problem. In 2007, the warnings rose to a crescendo.

Who was best-placed to say that we werent mitigating the risks as advertised? IT professionals and data experts who put together the tools in the first place. Yet a combination of pressures from the business side and an unwillingness to step out of ITs cubbyhole led to disaster. As financial services get more and more complicated, data driven, and focused on technology, it has to become ITs responsibility to create righteous tools that do what they claim theyll do.

Transparency: In many ways, transparency and righteousness can be the same thing in financial services. So much trust is built into believing the foundation of the financial services is solid. And that solidity is demonstrated through transparency. The most frustrating part of the financial industry lately is that many people have not learned anything.

The infamous $2 trillion error in S&P Americas credit rating calculation is the obvious example. When it was shown to them, they could have gone back and done the math again. Or they could have shown how the error didnt effect their formula by demonstrating the formula. Instead, they stuck to their guns as though being questioned was above them. There are no bond ratings, no large scale stock purchases, no compliance reports, no transactions of any kind that do not go through the IT department. Yet, the black box continues in the industry. Who is equipped more than IT to lift the shroud?

Education: When Duff talks about education, he talks about educating the client on financial decisions so they can be a part of the effort. What I mean is that IT needs to explain its limits and capabilities better to management. Returning to those mortgage-backed derivatives, the main issue is that the process and the technology that was in place couldnt really parse the risk as well as believed. There was a point in the construction of any new financial instrument where IT is brought on board to execute it. At this point, IT needs to more vigilant than ever about explaining the limitations of the new instrument to management.

Of course, please dont mistake my urging you to take a larger role in handling an accusation that more could have been done before. IT has always been treated like a child that is to be seen but not heard. But the time for silence is gone. Technologists can no longer afford to just watch and remain neutral. It is time to take an active role in the deployment of technology in a morally and economically viable way. An awful lot of peoples jobs and livelihoods depend on it. I know it seems funny to take morality advice from a guy who once put out an album called "Appetite for Destruction," but just roll with it. Destroy your preconceived roles and find a new place for IT.

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Immocafamy   Righteousness, Transparency & Education   9/4/2011 4:44:01 AM
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DBK   Righteousness, Transparency & Education   9/1/2011 8:45:56 PM
Re: Time to Step Up and be counted....

The decline of morality is a significant contributing factor to the decline of sustainable business.  If you buy into the theory that immorality is okay in business then your business is doomed.  With a solid business operate from a point of accountability and honesty.  Pick customers that have a similar point of view and in the end you will end up with great customer satisfaction and valuable trade references.  You do need to keep in mind that there are ad vendors and bad customers.  There are good vendors and good customers.

zerox203   Righteousness, Transparency & Education   8/31/2011 1:39:59 AM
Re: Time to Step Up and be counted....
I do agree with this on a personal level, but the common knowledge I've picked up seems to say otherwise (at least, to an extent). Many people in finance and similar industries tend to have the attitude that you should 'leave morality out of business' - not that it's okay to do something wrong, but that when your work is making money, there's no such thing. I've heard a variation on this applied to IT as well, as David points out, and there is some credibility to it  - morality is, after all, subjective.

So I am curious; When you (that is, all of you) say that these people ought to change their tune, are you disagreeing with that perspective outright, or do you think it's acceptable to a point, but that recent (or, certain) practices are a step too far?
DBK   Righteousness, Transparency & Education   8/25/2011 7:07:49 PM
Re: Time to Step Up and be counted....
Great comment net nutrality has not place it IT or technology at all.  Have a POV and stick it out. 
Joe Stanganelli   Righteousness, Transparency & Education   8/25/2011 12:06:42 PM
Tools for musicians
There's a famous book by well-renowned music lawyer Donald Passman called "All You Need to Know About the Music Business."  It's more focused on organizational, structural, and legal aspects, but it's an invaluable tool for any musician who wants to actually understand what is going on.

 
MarshaSt   Righteousness, Transparency & Education   8/24/2011 12:31:08 AM
MarshaSt
Re: Time to Step Up and be counted....
This raises an important issue - that of the complex relationship between IT and the user.  Often times, they may as well be speaking different languages.  There is a tremendous need, across all industries, for the IT liaison - the bilingual person who can bridge the gap.  The problem is often, however, that the user won't acknowledge that they don't understand the complexities of IT. Give them an Excel spreadsheet and they think they're IT savvy.  

Have you ever tried to explain to the users about an API or even logic?  If you're like me, you usually see the glazed over look of a person that not only doesn't understand but doesn't really want to understand.  How many times have we heard, something like, Okay, but can you just make it do...?

I wouldn't be surprised (though I'm purely speculating) that managers were told about flaws in the technology, but as Technocrat said, were so enthused by the results that they didn't want to hear that the bubble would burst.

Aside from the technological side, there were many economists who were warning financial institutions about the impending catastrophe (and those who chose to benefit from it).  In hindsight, to those of the financial industry "in the know" it should have been obvious that eventual disaster was inevitable.

I suppose money can allow just about any situation, no matter what the moral consequences, appear through rose-colored glasses.
Technocrat   Righteousness, Transparency & Education   8/23/2011 11:07:04 PM
Re: Will you or Won't you - Do the Right thing ?

@David   I agree this is very important and touchy issue. Especially in the Financial Sector, where millions are paid to those who could wield this type of influence. We are not talking about the department as a whole, though that should certainly be of concern, what we are talking about is the individual or team that brings a competitive edge to life.

Will Management ever heed the advice of IT ?    Only to a point, the arrogance of management will always think they are responsible for and should miro- manage success.   When many times the very “success” they are trying to manage - they had absolutely nothing to do with creating in the first place.

It is like management has a “Royalty Syndrome” going on, where they feel they are above the very personnel whose intellect is fueling the very engine of progress.

Yours is a noble cause David, but when greed and arrogance mix, nothing good ever comes of it. We have seen it before and I hate to say, we will see it again.

David Wagner   Righteousness, Transparency & Education   8/23/2011 7:18:50 PM
Re: Will you or Won't you - Do the Right thing ?
@Technocrat- I think the programmer should say something, but given the attitude towards IT in the past, I don't really blame someone for not saying anything. But this is exactly the kind of situation we should be discussing now. i want to create an atmosphere were technologists trump management on decisions where technology is at the center. Or at the very least, where they can explain to business what they are doing wrong. If they are going to be central to creating the financial instruments, they have to be central to deploying them safely.
Technocrat   Righteousness, Transparency & Education   8/23/2011 7:12:12 PM
Will you or Won't you - Do the Right thing ?
@David   This whole issue about the mortgage industry and the IT people behind it is very interesting. I recently saw a documentry on this very topic and the programmer essentially said, it was not the program he wrote that cause the problem, but those who knew nothing of the technical side of things and  loved the results and kept pushing the programs until it reached the boiling point that caused the crash.  

Should IT have said something ?  Well I guess it depends on your own personal morals and ethics.  The programmer in the documentary, retired just before the end came crashing down.
Technocrat   Righteousness, Transparency & Education   8/23/2011 6:54:06 PM
Time to Step Up and be counted....
@ David    I agree it is time for those within IT to stop allowing themselves to play second fiddle.  IT has never been more important to business success as it is today.   People within tech need to take charge of the uncertain future and work to educate decision makers to deal with the ever widdening choices they must consider while conducting business.

As you say, "Technologists can no longer afford to just watch and remain neutral."  

Absolutely not, these are exciting times and IT professionals need to heed and act on your words of wisdom.


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