In a recent issue of the New Yorker, a cartoon caught my eye. In the cartoon, a wolf and a rabbit, both dressed in standard business attire, are negotiating a contract. In the caption, the wolf offers the following concession to the rabbit, "On point 15(b), we are totally prepared to give up the moral high ground."

While the cartoon made me laugh, it also struck me that this was how many people react when I first use the term "business ethics" in a talk. They often politely ask me, "Isn't that a contradiction in terms?" Sometimes I respond, "Oh, you mean an oxymoron like 'postal service' or 'military music'--concepts that we think are incompatible with each other?" Then we go on to have a serious discussion of the challenges of being ethical in business. I generally find that the people I talk to really do try to take ethics seriously in their business dealings.

This is not always easy, especially when it comes to being a pension fund manager or trustee. Since managers and trustees deal with other people's money, there is a strong ethical as well as legal case for managing that money prudently on behalf of the funds' owners. In other words, the ethics of being a pension fund manager may seem to leave little manoeuvring room for any additional ethical concerns, such as whether the investments are in ethical companies that have respect for the environment and human rights.

So, one strategy for being an ethical pension fund manager is to take what I call a turtle approach. Like the turtle under attack, the pension manager draws his head in when asked about investing in ethical companies. Turtle says, "My duty is to balance risks and benefits to provide the sorts of returns that my clients want. Trying to get performance in the top two quartiles is business enough for pension fund trustees and managers. Why complicate my life by adding this to it?"

A second way of dealing with this issue is to be a hare. Hares are faster than turtles. Hare says that trustees and fund managers don't need to think about the ethics of investment. Hare claims that the market takes care of ethics-- "Free markets are based on free choices. So why not rely on an efficient free market rather than on individual or collective moral conscience?"

While it is true that markets meeting the "ideal conditions" described in economic theory are maximally productive, real-life markets have their problems in meeting human needs and treating people fairly. Many "negative externalities" such as pollution and corruption aren't fully (or fairly) priced in the market, but are unfairly dumped on unwilling third parties.

I want to suggest that we need to be owls. Owls have good vision in low light and can, like the morally wise person, sort out the different shades of grey. Owls may well agree with hares that efficient markets have significant beneficial effects, but owls will ask about the moral and social conditions that sustain competitive markets and make possible good investments for pension fund managers. They will recognize that these underlying conditions for markets are linked to moral factors--honesty, trust, fairness, cooperation, a commitment to the rule of law and other moral and social virtues.

An owl strategy locates pension fund managers and trustees in the real world of complex and sometimes conflicting moral considerations. Fund managers and trustees must be the loyal and faithful agent of their clients; yet at the same time, they must also act conscientiously--doing good sometimes, but always avoiding or minimizing evil. Following this, there will be companies in which it is clear that one should not invest on moral grounds; to do so is to become complicit with their wrongdoing.

Most of the time, there will be moral pros and cons. Reasonable people will sometimes disagree about what parameters to set. So what should the responsible pension fund manager do? Talk to your clients. They should also take responsibility for their investments being ethical. With money purchase plans, it should not, for example, be hard to add options so that individual subscribers can act on own ethical preferences. With defined benefit plans, the options are more restricted, since trustees have a responsibility to all subscribers and often those subscribers have different moral preferences. Still, within the actuarial parameters set in the plan, there should be enough room to at least respect moral standards that command a deep consensus.

Beyond this, fund managers and trustees should be talking to leaders of the companies in which they invest. Better companies and better corporate leaders don't want to give up either the financial or the moral high ground. And if they are willing to sacrifice the latter, you should ask yourself about their trustworthiness on the financial side and your own integrity on the moral side.

Michael McDonald is a Maurice Young Professor of Applied Ethics and Director of the Centre for Applied Ethics at the University of British Columbia.