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
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Analysts Playing Us for Suckers?
The
Corporate Ethics Boom: Significant, or Just for Show?
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