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The Four Hundred

OS/400 Edition
Volume 11, Number 13 -- April 1, 2002

As I See It: The Ethical Face

by Victor Rozek

I saw a picture of Kenneth Lay recently. He hardly resembled the self-assured kingmaker and dictator of public policy who only recently commanded envy and respect. His skin looked blotchy and his face showed an unnatural puffiness. His little fringe of gray hair looked lifeless, and his body weak and undisciplined. But perhaps most telling were his eyes, which reflected a profound weariness of spirit. They were the eyes of a man who was physically tired and spiritually debilitated.

They say that at the age of 20 you have the face God gave you, and by 50 you have the face you've earned. If so, what Mr. Lay earned was not pleasant to behold. And the picture suggested he knew that. It was as if he had been forced to take a long look--a really long look--in the mirror and was conscious of not liking what he saw. Too much had been lost, too great a price paid. I couldn't help wonder if, in the residue of retrospection, he saw the silent scream of his long-abandoned Ethical Face.

The Ethical Face is the one I wear when I'm living my life in a state of integrity, when I act accountably and do not cause others pain or suffering. It is the face I wear when my "accounts" are paid in full, my relationships are squeaky clean, and I am worthy of trust. I wear my Ethical Face when I can speak my truth without blame or evasion and take full responsibility for the outcomes I create. It is a face that has no need for secrets.

As the disclosures of ethical meltdowns continue in the media, I've become fascinated by the faces of people recently stripped of ethical pretense: the regulators and the regulated, the arrogant and the penitent, the bellicose and the contrite. They testify before Congressional committees, grant interviews to TV's talking heads, proclaim their ignorance and maintain their innocence, while reluctantly admitting that "mistakes were made." Most of the faces appear to me to hover somewhere between being marginally ethical and severely compromised.

So what happened? We know that all of the disgraced companies publicly espoused the highest of ethical standards. And surely the vast majority of Enron's, or Andersen's, or Global Crossing's employees (or any company's employees, for that matter), believe they are ethical people and hold honesty as a value. So if ethical standards are professed by corporations and embraced by individuals, why are they so easily abandoned? Why are people so frequently willing--as was once said of Eliot Richardson--to rise above principle?

Self interest, we know, has the power to override idealism, and legal remedies exist to address the more egregious breaches of ethical conduct. But the larger problem may be systemic. Robert C. Hinkley, a corporate securities attorney writing for Common Dreams NewsWire, summarily defines the problem thus, "America's most powerful citizens...," he argues, "have no values at all." Note the word "citizens." Hinkley does not use it to describe the legal status of individuals, but of corporations. He argues that the rank of corporate citizenship, granted by the Supreme Court in 1886, which accords corporations constitutional protections previously limited to individuals, has created an ethical conundrum. For example, direct participation in the political process and the loosely constrained distribution of money has become protected as a form of free speech. As a result, policy manipulation simply reflects the aggressive pursuit of corporate interests as prescribed by state charter with limited regard to larger impacts. The purpose of corporations, Hinkley argues, was defined by law, but the means by which that purpose should be achieved was not.

Hinkley explains, "Each of our fifty states has its own corporate law allowing corporations to be formed and establishing the rules for how such corporations are to operate. Each of these laws has something in common with each of the others. Each says that the only goal of corporations formed in that jurisdiction is to maximize profits for shareholders. In effect, each state does something for corporations that it does not do for its individual citizens--it dictates their purpose. This purpose, the pursuit of corporate self-interest, drives all corporate action. Every act carried out by a corporate employee can be traced back to this purpose established in the corporate law."

Thus the courts created entities that could acquire vast resources over an indefinite life span. They could use these resources as they see fit, for the singular purpose of maximizing profits, without an accompanying set of values or principles that an individual would likely have to guide his actions. "This lack of values," Hinkley writes, "is in evidence every time a corporation makes money at the expense of the dignity of human beings, the welfare of our communities or the protection of our environment."

Such evidence suggests that business ethics have become conditional, and the prime condition is that they don't cost too much. When ethical behavior conflicts with the prime directive to maximize profits, ethical standards are at a distinct disadvantage. Standards may adversely impact profits, shareholder value, and jobs. Ultimately impacted are the jobs of management decision-makers.

Although Hinkley does not directly address it, demands on top management underpin the second systemic obstacle: the expectation of perpetual growth. Each quarter must look better than last year's, and even a short pattern of decline will prompt investor demands for new management. During times of economic expansion, even slow growth is looked upon suspiciously.

Given the mandate to grow or die, corporate managers have been swept up in an escalation process, which frequently runs contrary to the company's published ethical standards. One method of boosting profits is by escalating the externalization of costs. For example, it is cheaper to dump toxic waste in a river and socialize the cleanup cost than it is to dispose of it properly. It is less expensive to settle a handful of injury lawsuits than it is to order a massive automobile recall. Once a company learns it can maximize profits by externalizing costs, it has little reason beyond self-imposed ethical constraints not to accelerate the practice. And every reason to do so.

Likewise, the manipulation of money and all of the attendant creative accounting practices were driven by the same demand for ceaseless growth and profitability. They have escalated to the point where they now threaten the integrity of the entire financial reporting system. The escalation in fraud is not surprisingly paralleled by the increase in lobbying efforts to end or circumvent existing regulatory constraints. In many cases the targeted regulations only limit business activity in so far as they seek to protect the public interest by prescribing ethical behavior. Thus the intent of deregulation is not solely to increase competition, but to decrease accountability.

Escalation, as we have seen in many contexts, usually ends badly. By definition, escalation gets bigger. When unethical businesses succeed, ethical ones are swept up in questionable practices, because, like athletes who do not use performance-enhancing drugs, eventually they feel a competitive disadvantage. It happens one choice at a time. From mistake, to evasion, to lying, to cover-up. From compromise, to short cut, to sellout. From slow growth, to manipulated grow, to illusionary growth. From making a profit by ethical means to making a profit by any means.

But sooner or later we all sit down to a banquet of consequences. Mr. Lay did. The mirror awaits us all. What we see depends on how hard we look. It was psychologist Nathaniel Branden who noted, "There is no such thing as a small breach of integrity."

He was right.

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As I See It: The Ethical Face

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