Richard Godden: “The Social Licence for Financial Markets” by David Rouch

In the aftermath of the Global Financial Crisis, Mark Carney, the former Governor of the Bank of England, coined the concept of a “social licence” for financial markets and, in the Forward to David Rouch’s book, he commends Rouch for the progress he has made in defining a framework for this social licence.

Rouch’s basic thesis is concisely summarised in a six-page overview at the start of the book. He acknowledges that “Capitalism in one form or another is the only realistic option for meeting a host of human needs” (page xx). However, he also recognises that there has been a breakdown of trust of the kind that Mark Carney has identified and that “the usual toolkit of laws and regulations has been powerless to heal the fracture between the financial sector and surrounding society” (page xx). He suggests that the view that financial markets are really only about money-making is wrong and that recognition of a social licence is “both an observation about the relationship between finance and society and an expression of aspiration about how it could be at its best” (page xxii). Rouch wants to ensure that this recognition becomes universal and argues that paying attention to it “has the potential to help reorientate the individual relationships that comprise the wider relationship between finance and society, by strengthening positive reciprocity” (page xxiii). This, in turn, leads to various policy proposals designed to bring an overarching “social licence” narrative to financial market practice and regulation.

The resulting book is not an easy read. Rouch expresses the hope that traders, directors, lawyers, campaigners, regulators, academics, politicians and policy makers will approach finance differently as a result of what they read in it but even many of them will find it heavy going. Some parts are highly specialist (the 22 page “Written Standards Map” at the end of Chapter 5 being an extreme example of this), the language throughout is complex and a lot of the book is devoted to discussions of psychological, sociological and philosophical issues (e.g. theories of group behaviour and human motivation and concepts of human dignity and justice).

Rouch appears to be conscious of this issue and provides what he describes as a “Fast Track” summary at the start of each chapter, which sets out the key messages of the chapter and its main implications. He also frequently reminds the reader of what has been said earlier in the book and points to the direction of travel of his argument. Unfortunately, however, these devices do not completely solve the problem and they result in both a significant amount of repetition and an over self-conscious stress on the structure of the book.

Those who persevere will, however, find much food for thought and, probably, plenty to applaud in what Rouch says. Most fundamentally, he is surely right in asserting that markets are in fact, and should be, about more than simply making money. The knee jerk reaction of people (including market participants) to the effect that they care about nothing other than money can be proved to be wrong not only by reference to modern behavioural psychology but very simply through questions and answers posed to market participants. Moreover, the suggestion that markets should have a broader purpose is consistent with most major ethical systems, whether religious or secular.

Rouch is also surely right in recognising the power of ideas, or “narratives” as he calls them. If people believe that they are operating in a dog-eats-dog world constrained only by a jumble of complex regulations, they will behave differently and they would if they believed that they were working in an environment having a broad social purpose in which the relevant rules are, however imperfectly, reflections of that purpose. Furthermore, market and corporate culture exerts its own pressure for good or for ill. In part, these things explain why good people do bad things or, conversely, why even bad people may be constrained by the culture in which they find themselves.

In this connection, it is good to see Rouch acknowledge “the idea that legally enforceable regulatory rules that overlap with aspirational standards may diminish the force of the latter” (page 189) as well as the fact that “you cannot ultimately legislate for a sense of urgency. Nor can you force people to have a healthy relationship or to be trustworthy” (page 9). It is also encouraging to see his repeated references to issues of trust, which recognise that market behaviour comes down to the actions of individuals and groups of people and that relationships are key to the achievement of desired outcomes.

That said, there is a serious problem at the heart of the book: Rouch’s definition of “the social licence for financial markets” is vague. Indeed, he himself recognises that “Defining the substance of the social licence is … challenging” (page 133). He frequently says what it is not: It is “not a ‘mere’ metaphor” (page 113), it is not a “social contract” (page 115) and it is not to be identified with the “social licence to operate” that has been perceived in relation to other industries, particularly extractive industries (page 117). Furthermore, it is not to be identified with the legal authorisations which are required in order to be a market participant. It is, on the contrary, something that is granted by society as a whole and it “can be treated as granted to the extent that those in society have given their justified trust to financial operators, trust based on solid reasons for believing that those in financial markets will carry on business in a way that is consistent with the licence” (page xxii). It comprises “a freedom to pursue just ends by just means in financial markets, where justice is a situation in which the human dignity of market participants and those affected by their activities can be experienced most fully” (page xxii, italics in the original).

Almost every element of these statements gives rise to serious issues. For example, since most members of society (including many who are well educated) will have little idea of what the financial markets do let alone how they operate, in what sense can they be said to give “their justified trust … based on solid reasons”? In any event, what society are we talking about? Rouch appears to be having regard to nation states (or, perhaps, some super-national entities like the European Union) but is that realistic in a modern globalised world? Equally seriously, since there is no common understanding of the concept of “just” behaviour in society (see, for example, “What is Economic Justice?” by Andrew Hartropp), how can this form the basis of an adequate definition of the social licence?

Rouch acknowledges some of these difficulties, including the lack of consensus in relation to some key concepts such as the nature of “justice”, (page 135) but he believes that there is sufficient high-level consensus to render the concept of the social licence itself viable. Unfortunately, however, one may legitimately doubt whether this is true and ask whether the vague language of “social licence” has the effect of generating the appearance of agreement among those who use the term, without its reality. For example, as Hartropp demonstrates, an approach to justice that is based upon rights or needs will necessarily arrive at completely different conclusions from an approach that is based on due rewards or deserts and concepts based on justice in production will talk of completely different things from a concept based on justice in distribution (which, incidentally, Rouch appears to adopt).

There also seem to be problems in evaluating the role of laws and regulations in relation to the “social licence”. Rouch regards these laws and regulations as both evidence for such a licence and, to some extent, indicative of the terms and conditions of the licence. However, it is surely arguable that ever increasing regulation is indicative of the withdrawal or, at least, restriction of the terms of the “licence” rather than evidence of its grant. Furthermore, Rouch relies heavily on written materials produced by a variety of sources as the evidence of the terms of the licence and one is left with the impression that he has simply included “soft law” and related matters within his concept without really altering the regulation-based framework which he has previously recognised to be inadequate.

Some other questionable aspects of Rouch’s underlying analysis are less fundamental but nonetheless important in relation to the impact of his proposals. In particular, he places great stress upon the need to promote “other regarding behaviour” in contrast to “self-interest”. This is obviously morally right but, as Adam Smith long ago famously demonstrated, the two categories are not completely discreet. The building of trust may involve “other regarding behaviour” but, as Rouch recognises, it is absolutely necessary in business relationships and even the most self-interested person will need to have regard to this in order to advance their own interests. Similarly, most people have a desire for the approbation of others and this too may involve behaviours that, from one perspective, are other regarding but, from another perspective, are self-interested. In places, Rouch appears to acknowledge this and he clearly does not believe that the pursuit of profit is wrong in itself but, if his goal of widespread recognition of the “social licence” is to be realised, it would be desirable to avoid an undue bifurcation of motivations and instead to ensure that the narrative recognises that self-interested and other regarding behaviour are not in opposition as often as may sometimes be thought.

As one reaches the end of the book, one is left with a nagging feeling that the concept of a “social licence” is too vague and hard to get hold of for it to be capable of comprising the compelling narrative that Rouch rightly believes to be necessary to replace the distorted narrative of unbridled self-interest that is often wheeled out even by those within the financial markets. Might it not be better to focus on a simpler narrative?

Such a narrative might commence by focussing (as the book does) on the clearly evidenced positive role of financial markets within society, thus addressing both self-esteem of those within the markets who desire to be doing something worthwhile and the misplaced hostility of some outside; it might demonstrate how the aspirations of organisations operating in the financial sector and the personal aspirations of those who work for them (including financial aspirations) are advanced rather than held back by “other regarding behaviour”, which (as Rouch also agrees) is thus not code for abandoning the pursuit of profit let alone a demand that financial institutions turn themselves into quasi-charities; and it might stress some simple ethical values that are neither obscure nor disputed among reasonable people. 

In doing this, the narrative could build on concepts that are well understood, widely accepted and of proven worth such as the hard monetary value of trust and brand reputation, the role of client/customer focus in developing this, the need for long term business sustainability and the motivational impact on staff of being an organisation that is known for its high standards, including ethical standards.

Such an approach would focus on the culture of financial services organisations rather than metaphysical concepts. It would avoid the obscure language of the “social licence” with the negative over-tones of constraint and implicit threat that may be perceived in it and replace it with a simpler and more positive narrative which invites participants in the financial markets to take pride in what they are doing and recognise that they will best prosper, both financially and otherwise, in an environment that is ultimately beneficial to society as a whole.


“The Social Licence for Financial Markets” by David Rouch was published in 2020 by Palgrave Macmillan (ISBN 978-3-0-30-40219-8) 327pp excluding bibliography.


Richard Godden is a Lawyer and has been a Partner with Linklaters for over 25 years during which time he has advised on a wide range of transactions and issues in various parts of the world. 

Richard’s experience includes his time as Secretary at the UK Takeover Panel and a secondment to Linklaters’ Hong Kong office. He also served as Global Head of Client Sectors, responsible for Linklaters’ industry sector groups, and was a member of the Global Executive Committee.