Invest for a Change Conference, by Epoch Times, June 29, 2017, Tel Aviv University
Invest for a Change – Invest in Change, Invest Differently, Make a Change!
“I would like to share with you why we chose to partner with EPOCH TIMES for this important evening, an evening designed to focus on and commit to creating change within the business and investment world, and to encourage us all to act in accordance with a moral compass.
From the perspective granted me by dint of age and experience in the business world, both in Israel and abroad, I see it as a personal mission to be part of a group that is going to make a real change in Israel’s business community.
The past few years have been extraordinary in our real estate world, with investors enjoying exceptionally high returns. So what exactly needs to change?
King Solomon in the Book of Proverbs says: “Eminence is transitory” – wealth, greatness and power do not last forever.
The extraordinary returns real estate investments have achieved in recent years will not continue, and therefore my advice to you is to exercise caution in the face of temptation – even Madoff’s investors profited in the early years, and substantially. The purpose of investing is to profit. This is also our goal as an investment firm, but not at any price. Unfortunately, we live in a society that sanctifies personal gain, money and power, and does not attribute sufficient importance to the way in which this profit is achieved. In such an environment it is hardly surprising that public funds are squandered by controlling shareholders. Nowadays it’s clearer than ever that improving the business environment must be considered a matter of vital necessity. The change that many of us wish to see is a combination of profitable investments and ethical conduct, a combination that will lead us as a society on a better path.
While the legal system’s efforts to solve the problems of fraud, deception and dishonest conduct are most welcome, the law alone is not enough for it can never cover every situation. In any case, the wheels of justice move slowly, and thus there is no substitute for ethical responsibility, especially in an environment that lacks enforcement and deterrence.
Conducting business with integrity does not attract the import it is due from lawmakers, the media and regulators.
Perhaps if honest conduct in business received the attention it deserves we would at least be aware of fraud and deception and could reveal it before it is too late, saving us from having to pick up the pieces only after the damage has been done and investors have already lost their money.
And as we are dealing with the law, I want to turn to the most venerable legal and ethical system – Judaism, the Judaism I was raised on and not the one so poorly presented in public.
Judaism not only demands that we proactively refrain from forbidden acts, it also calls upon us to avoid acts that involve conflicts of interest or exploitation of a person’s weakness, as detailed in the Bible portion of Leviticus: “Do not curse the deaf, do not place a stumbling block before the blind. Do not pervert justice; do not show partiality to the poor or favoritism to the great, but judge your neighbor fairly. Do not stand idly by the blood of your neighbor. Do not hate your brother in your heart. You must surely reprove your fellow so that you do not incur sin on account of him.”
We have a duty to take action, to warn a person who is committing a sin, and prevent him from continuing in this manner.
The mitzvah or command to “not stand idly by the blood of your neighbor” – which has even been partially adopted by Israeli law – forbids us to do nothing while some one is in mortal danger. This mitzvah has been interpreted by our sages to apply to any case in which a person may be harmed, including suffering financial damage, and one does nothing to warn him.
Our sages interpret the verse “do not place a stumbling block before the blind” to apply to any person who lacks information about a particular subject. Professor Nechama Leibowitz expands the interpretation of the verse, calling it a positive commandment to proactively prevent a person from failing.
This means if we know of a person who, due to a lack of knowledge or experience, may enter into a bad transaction with dishonest people, we must take action to prevent him from making this investment.
Maimonides (“Rambam”) interprets the verse in such a way whereby blindness may also refer to a low moral level, and the obstacle is the temptation of something forbidden. Which means that we, as a society, must create an environment in which legislation, enforcement and punishment do not place a stumbling block before the blind.
We need a society that condemns fraudulent acts and exploitation, a society that has other norms and wields tools to reward different behavior.
Several years ago I became aware of a person who was set on investing public funds with parties that I knew to be disreputable. Since I felt a responsibility to warn this person, and since I knew his neighbor, I sent a message to him via that neighbor.
The person in question responded that he was indeed aware that these people were shady but that he was confident that he would make a profit with them. Incidentally, this same person was recently released from prison.
Integrity or lack of integrity can never be relative, it’s a matter of black and white.
In a properly functioning society, fraud or acting exclusively for one’s personal advantage should be “successful” only once but unfortunately this is not always the case. The practice of serving one’s personal interest has long since become legitimate and normative in our society.
So, is it possible to make a profit honestly?
Yes, it’s possible – but not easy. It requires that we work much harder and the challenges that stand before us, as difficult as they may be, are not the domain of those who do not adhere to these fundamental values. But in truth, this is the simpler case. I want to focus on another, more challenging, situation in which the choice to act with transparency and integrity may seemingly contradict making a profit, which is not unusual in the world of business.
I use the term “seemingly” due to my belief that preserving our values should not cost us money but, rather, should create value. When we provide a service or manufacture a product, we have a profound obligation to stand behind that service or product and to take responsibility for it even during difficult times. If you are an authority in a specific field, then your responsibility is tenfold. The good news, if we allow ourselves to take a different view, is that transparency and ethical and moral management of our businesses are not at odds with making a profit. On the contrary, ethical business conduct makes excellent commercial sense. Whether you call it “smart ethics”, or “enlightened egotism”, taking the moral path is good for business and makes sound long-term economic sense. This is certainly desirable for those among us who think long-term.
The financial crisis of 2008 was the most serious in the past century: companies were obliterated and securities and bonds were rendered worthless. From within this challenging environment, we did not abandon our investors. Rather, we worked hard – without compensation – to minimize losses. To my regret, we did not manage to prevent them all but for many investments that were in real danger of losing money, we did succeed in preventing losses and even making a profit for our investors, and that while other investment managers worked only to protect themselves.
This cost us, and continues to cost us, considerable resources. And this, perhaps, is the most important point. Similar to the Law of Conservation of Energy, I believe in the Law of the Conservation of Value. Hard work that has been done, even at a considerable cost, will never have been made in vain, it will never be for nothing.
The value is not lost; even if we eat into our profits, the value is preserved: in our reputation, in our investors’ increasing trust in us, and in the extensive experience that we accumulated during and after the crisis.
Therefore, despite these and other cases that we continue to hear about, I refuse to give in to pessimism. I believe that consistent honest conduct is the most effective and rewarding, certainly in the long run, and I see it as our shared mission to expand the sphere of those who are guided by these principles.
If everyone plays his part, whether out of religious conviction, private conscience or pragmatism, together we can leave to our children and grandchildren a more decent country and society grounded in ethical business conduct and a healthier commercial world.
My hope is that we will have the merit of seeing a better, more honest business world, and be part of a group that leaves a legacy for future generations, in which business values and ethics are, indeed, inseparable.
Opening remarks by Elchanan Rosenheim (Translated from Hebrew)
For the EPOCH TIMES Invest for a Change Conference
June 29, 2017, Tel Aviv University