Last week, Sears, America’s leading retailer through most of the 20th century, filed for bankruptcy protection under Chapter 11 of the US commercial code. You might have thought this was just another instance of the competitive pressure on conventional retailers posed by online shopping. The full story is more interesting

In 2005, companies associated with an American financier called Eddie Lampert took control of Sears. Mr Lampert began his career – of course – at Goldman Sachs, but left to set up his own hedge fund. He bought into the bankrupt Kmart, and used that as launching pad for a debt fuelled takeover of Sears

Lampert is a follower of Ayn Rand, the high priestess of American individualism, and one-time mentor of Alan Greenspan. You may know her as the author of the novel Atlas Shrugged, but if you don’t I wouldn’t bother to read its turgid prose. Lampert’s yacht is named after a less well-known novel of Rand’s, The Fountainhead. Lampert’s approach to business is data driven.  Sears headquarters is in Chicago, but Lampert does not, as great retailers such as Simon Marks did, walk the floor. Lampert communicates by video link and data downloads from his residences at Greenwich Connecticut, Florida, and Aspen Colorado.

In line with Ayn Rand’s philosophy, Lampert favours decentralisation and competition. 30 different business units within Sears not only compete for scarce cash for inventory, but compete with each other when necessary for the same customers in the same stores.

If you find this approach to business unappealing, the same seems to be true of Sears customers. Since he took control of the business, 60% of the stores have closed. Following the bankruptcy, there will be clearance sales of anything that is left on the shelves. And so an American legend dies.

If this reminds you of a story from our own shores, then here is a picture of Sir Philip Green’s yacht.  Sir Philipp’s equipment is in fact 2 m longer than Fountainhead. And since I found myself in the business of collecting yacht photographs, I cannot resist showing the Trump Princess. Trump’s tool is, by a small margin, the shortest of the three.

It is however no longer called the Trump Princess, or owned by the US president; Trump was forced to sell it in the course of one his numerous bankruptcies. But I think I can safely predict that Mr Lampert’s Fountainhead, and Sir Philip’s Lionheart will still be riding the ocean waves even if the organisations they once controlled suffer the fate of the Titanic.

I want to draw three lessons. One is that businesses whose only purpose is profit do not in general make much of that in the long run. The organisation that notoriously proclaimed we mean nothing but money was Bear Stearns and it turned out that in the end it didn’t. Great businesses are run by people who are motivated to build great business. George Merck Sam Walton,

Second, the photographs of  the yachts of Lampert and  Green illustrate  a modern development; people can make a great deal of money for themselves while damaging the businesses of which they are in charge. With some trepidation in this venue I hesitate to remind people that before 2008 the last Scottish bank was the City of Glasgow bank in 1879, and that within a short time of its collapse all directors were in jail. I recall Samuel Johnson’s remark No man will be a sailor who has contrivance enough to get himself into a jail; for being in a ship is being in a jail, with the chance of being drowned. But perhaps times have changed. He did add that’ a man in a jail has more room, better food, and commonly better company.

A third lesson from these events is that the financialisation of business over the last 40 years has been bad for both finance and business. Some say that the era of shareholder value maximisation began with Jack Welch’s speech at the Pierre Hotel in 1981 on becoming CEO of General Electric and ended in 2009 when he told the Financial Times that shareholder value is the dumbest idea in the world. But actually the story began earlier and continues.

From time to time I still use slides which were first deployed for a talk I gave in 1996. They describe the change of direction at  ICI, the company which had been for most of the 20th century the largest industrial company. In 1987 its mission statement was ‘ICI aims to be the world’s leading chemical company, serving customers internationally through the innovative and responsible application of chemistry and related science. Through achievement of our aim, we will enhance the wealth and well-being of our shareholders, our employees, our customers and the communities which we serve and in which we operate’               

In 1994 the mission had become ‘Our objective is to maximise value for our shareholders by focusing on businesses where we have market leadership, a technological edge and a world competitive cost base’

Observe the differences. The first contains a statement of business purpose, the second an assertion of financial objective. The first embraces a variety of stakeholders, the second focuses attention on shareholders. The first looks to the future and to new businesses, the

Second to the present and to existing businesses. And these changes in declared mission were reflected in behaviour.

ICI had begun as a company specialised in dyestuffs and explosives, had in the interwar period diversify into fertilisers and petrochemicals. After the Second World War the company perceived, correctly and presciently, that the future application of chemistry and related sciences to business was in the pharmaceutical industry. The new division lost money for two decades until in the 1960s the discovery of beta-blockers gave it one of the first blockbuster drugs and in due course pharmacology became the driving force of the company’s revenue.

Under its new mission statement began a programme of financial reconstruction, divesting the pharmaceutical division, and attempting to sell off the older cyclical chemical businesses in order to buy a portfolio of speciality chemicals. A year after I gave that talk in 1996 in what seemed the bright new dawn of the new Labour government, the share price reached its peak – and from there began a relentless decline. Not quite the relentless decline to 0 that characterised the share price performance of Eddie Lampert’s Sears, but relentless nonetheless. In 2007 the rump of ICI was sold to the Dutch Akzo Nobel and ICI no longer exists as independent entity. I could tell a similarly sad story of Britain’s second-largest industrial company of the late 20th century, GEC.

In 2006, a year before ICI’s demise. I recounted part of the story – only to receive a pained letter from ICI’s director of corporate social responsibility. To paraphrase only a little, the letter said that ICI might have messed up its business, but it had done a great job in corporate social responsibility. No doubt, in its own terms, it had. The brochure which came with the letter was printed on recycled paper, displayed the obligatory photographs of happy minorities, and emphasised the company’s commitment to the environment.

Sometimes when I go to conferences such as this, the terms corporate social responsibility and now ESG have become the modern equivalent of mediaeval indulgences. The idea that the excesses of the trading floor can be remedied if the traders take a day to paint the walls of a school in Hackney.

The people who devised ICI’s corporate social responsibility strategy conceived of corporate social responsibility as relating primarily to the concerns of a liberal elite who were not really interested in business. And who judged performance in relation to diversity, environmental impact and charitable activity. But for me ethics in finance and business involves the incorporation of ethics into finance and business. And that is the issue we need to address.

Advanced economies need finance. Finance is needed to enable businesses and households to make and receive payments – to manage the utility without which social and commercial life would grind to a halt. Advanced economies need finance to enable individuals and households to manage their finances over their lifetime; through education when young, enabling house purchase and the nurture of families, and saving into retirement. Advanced economies need finance to channel capital from savers into infrastructure and investment, and secure the efficient management of that infrastructure and investment. And finance can help individuals and households manage the risks inseparable from modern life.

The measure of the effectiveness of the financial system is its effectiveness in fulfilling these necessary functions, and an ethical financial system is one which sustains the trust relationships needed for each of these functions to be performed. The era of financialisation has, above all, been characterised by a focus on transactions rather relationships, and has given us an industry which largely trades with itself, talks to itself, and judges itself by criteria which it has itself generated.

I do not want to see a business sector or financial system dedicated to doing good. Adam Smith once remarked that he had never been impressed by businessmen who are affected to trade for the public good, and that the very few words need be expended in dissuading from it. He was right on the first point, but wrong on the second. Indeed the American Nobel prize winner George Stigler pertinently wondered what these very few words had been. It is not appropriate in a democracy that business people should be arbiters of the public good. Today we should be more concerned that the engagement of business with political issues is too great, not that it is too small. The shareholders of Sears will have the minor consolation of being spared Eddie Lampert missives on the evils of regulation but Goldman Sachs and the Koch brothers will continue to lobby for their conception of the public good. It is not mine – or I suspect yours.

Milton Friedman was wrong when he said that the corporate social responsibility of business was to maximise its profits, but he was right when he said that the business of business is business. That first mission statement of ICI encapsulates what the public can and should expect business to do. It begins from an understanding of the competitive position of the business in the economy – the responsible application to business chemistry and related sciences.  It goes on to acknowledge that successful business must provide satisfying employment, make profits and serve the communities in which it operates. Great businesses, whether in the financial or the industrial sector, are businesses which adopt these goals – delivering goods and services which people want, doing so profitably, and enhancing rather than diminishing the social, cultural and physical environment in which they function. That is what we should mean by ethics in business and finance.