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What’s Behind the Breakdown in Ethics?

The vast majority of Fortune 500 companies have codes of ethics, yet the spectacle of captains of industry being led away in handcuffs or shrinking under the bright lights of a congressional hearing is becoming all too familiar. Ethics professors and other Emory scholars say that business’s ethical problems may be deeper than they appear.

“I agree that certainly in any society, in any age there are always going to be a few bad apples, but this seems to go deeper than that. This seems more systemic, and I think it’s alarming that we’re reading new things every day in the newspaper,” says Diana Robertson, a professor of ethics at Emory University’s Goizueta Business School, “… it can’t just be a few bad apples.”

What is especially surprising and dismaying, Robertson says, is that these scandals have occurred in spite of the fact that over the past 20 years more and more companies have begun devoting time and energy to ethics training and reflections on their organizations’ social responsibility. “When I started teaching in 1980, there were not that many companies that even had codes of ethics, and now the vast majority of Fortune 500 companies have codes of ethics,” she says. Beyond that, Robertson says, many companies now have ethics officers, ethics hotlines, ethics committees, and even board-level committees who focus on issues of ethics, corporate social responsibility, and corporate governance.

Another Emory ethics expert says he thinks that most of that activity was just for show. “I think a lot of the hiring of ethics officers was just window dressing. They were usually given some sort of vice president title, and I think their mission definition in most corporations were really to work with persons below their rank,” says James Fowler, professor of theology and director of the Emory Center for Ethics.

At the highest levels, Fowler says, the ethics officer is usually either not heard or is “a muted or a less- regarded voice.” And because of the speed with which decisions are made and the complexity of those decisions he believes that ethics officers are typically not part of the dialogue.

The case of Arthur Andersen may be typical. Although the company spent money on ethics programs, and even had its own ethics consulting practice, one retired audit partner at Andersen thinks the crisis at his old firm was caused ultimately by ethical problems at the top. “I think that these top guys in the last few years at Andersen, it sounds like they went along with some of this stuff that was going on. And that’s what caused their downfall,” says Al Bows, the 88-year-old retired director of the firm’s Atlanta office, and a retired dean of what is now the Goizueta Business School.

Bows says he is unsure of the reasons Andersen managers appear to have gone astray. After a long career that brought him into contact with hundreds of companies, Bows says that in his experience, executives are typically tempted to commit fraud out of “desperation and concern about their own leadership.”

In an earlier Knowledge@Emory interview on deception, George Benston, a professor of finance, also noted desperation as a prime mover in most cases of corporate fraud. “One of the reasons that you get [today’s] accounting scandals is because the managers of those companies, not being able to sustain that level of growth that they had, start phonying up the books, to make it look as if they’d done that. People lie.”

What’s more, Robertson notes that business’s growing impatience for immediate results may have also contributed to today’s many scandals. “My perception is that we have become more and more short-term oriented in business and that…a partial explanation may be that people put the blinders on, that they’re so focused about what they want to accomplish that day or that month or that quarter that they don’t see the bigger picture until it’s hindsight,” she says.

Some social critics at Emory see the scandals not just as the mark of fast times, but of a more profound indifference to the public good in American society. “My view is that greed does not have to be explained in our system,” says Bradd Shore, a professor of anthropology at Emory and director of the MARIAL center that explores work/life issues. “What has to be explained are those cases where you don’t have greed.

“The real question is, how would a system like ours, which is based upon self-interest, the bottom line, profits, short-term profits in which CEOs make extraordinary amounts of money and are judged by stockholders for increasing the stock value of the company… how could such a system produce public good?” Shore asks.

Fowler, on the other hand, doesn’t blame the market economy as such, instead the culprit resembles what British political scientist C.B. McPherson called `possessive individualism,’ a corrosive selfishness that can occur when business and regulatory leaders don’t live up to their fiduciary responsibilities and undermine “the presumption of good faith that makes capitalism work.”

Why is this trouble emerging now? Fowler says globalization and technology are two factors. In today’s economy, instantaneous communications and global trading with unseen partners makes it much easier to try to take an unfair advantage of a customer or a partner. “In a world of shifting economic outcomes, it’s very tempting to think that you or your corporation are really in this for yourselves, and to grab opportunities that look promising, without thought to the long term impact on the relationships with other economic entities as well as your stockholders and people who have a stake in the company,” Fowler observes.

Building such trust was a key to the success of the Andersen firm. In 1935, when Bows began working for the man he still calls Mr. Andersen, the memory of a number of high-profile corporate scandals was still fresh. The Depression was on, and times were bad. “In desperation, companies would just report a lot of things that weren’t true,” Bows remembers. In such a climate, a reliable audit was an important factor in sustaining their investors’ confidence. “Our support meant a lot to them at that time because things were…scary, let’s put it that way.”

And Andersen’s ideas of looking after the client went beyond just working on the books. His firm was one of the first to use its perspective on the company’s finances to advise managers on ways to improve efficiency, according to Bows. “At that time, about all the other accounting firms did was pretty much just count the cash and say that everything was all right. And Mr. Andersen said, ‘look, when you’re going through these accounts, if you see anything that can help them, be sure you report it,’” Bows says.

But that helpfulness had important limits. Think straight, talk straight, was Andersen’s motto, and he made it the motto of his firm as well. In one famous example, he allegedly told a railroad baron who wanted him to attest to a false financial report that there wasn’t enough money in the city of Chicago to get him to sign.

Was that kind of heroism just necessary equipment for an auditor? Asked whether you needed to be a strong individual to be a good auditor for Arthur Andersen, Bows says that wasn’t necessarily the case. “You weren’t necessarily a strong individual, but you were with a strong firm. And through the training and what not, why, you just did things a certain way,” Bows recalls.

Creating such a culture where people “do things a certain way” requires building a sense of accountability that extends beyond maximizing one’s own salary or even maximizing the company’s stock price, according to Emory ethicists.

Indeed, there are still companies doing business the “old fashioned, honest, ethical way,” contends Earl Hill, a senior lecturer in organization and management at Goizueta. The difference he says is that these companies maintain an environment of the highest ethical standards by “immediately and summarily dealing with any violations.” This sends the message that the company guidelines are more than lip service. “When this is done, it can actually become a competitive advantage,” Hill notes.

But Fowler insists there are several issues that need to be addressed to reform today’s climate. He believes that high CEO salaries – some of them as high as 500 times those of the average worker, compared to 20 to 30 times in most other countries – need to be rolled back. Such excesses, he says, can leave the corporation gutted, its clients in jeopardy, and even destroy the heart of the corporation itself. The banking analyst scandals also bear scrutiny, as they undermine investors’ faith in the market. Finally, he says that business schools need to spend more time teaching students that interrelationships are really what make the economy thrive, not just individual successes. “It’s a very, very precious market bonus that we in free economies have, but it can be destroyed, it can be eroded,” he warns

Web Links

Emory University Center for Ethics
Emory University’s MARIAL Center
Accounting Under Fire
Are Analysts Playing Us for Suckers?
The Corporate Ethics Boom: Significant, or Just for Show?


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