Collapse of corporate ethics is deep-rooted and enduring

The Argument

The new literature of executives' greed and crimes does not offer hope for a quick cure.


February 15, 2004|By Larry Williams | Larry Williams,Sun Staff

"Any man who tries to be good all the time is bound to come to ruin among the great number who are not good. Hence a prince who wants to keep his authority must learn how not to be good and use that knowledge, or refrain from using it, as necessity requires."

-- The Prince,

Niccolo Machiavelli, 1469-1527

If there is any truth to the saying that a man's character can be assessed by observing what he reads, then it is easy to understand the current sad state of business ethics in America.

Time and again, those who wish to succeed in business are counseled to seek wisdom in books on leadership written by great thinkers like Machiavelli, Sun-tzu and Carl von Clausewitz.

There they learn to never put too much trust in friends, get others to do the work and take the credit, to conceal their intentions and to crush their enemies totally.

The frightening consequences of this accumulated wisdom taught in business schools across America have been detailed in a number of recent books produced by thoughtful observers of modern business ethics.

Their conclusions: Raw greed, fear and the collapse of regulatory oversight have led to a devastating moral and ethical breakdown in corporate executive suites and on Wall Street. And, they say, moral ambivalence continues.

The recent collapse of Arthur Andersen, one of the most respected public-accounting firms in the nation, is a classic story of corporate rot, as told by four former employees of the firm. They trace its gradual transformation from its role as a conservative auditor to an institution aggressively pursuing profits by consulting for the companies it audited.

Inside Arthur Andersen -- Shifting Values, Unexpected Consequences (Financial Times Prentice Hall, 208 pages, $24.95) describes the cultural changes that accompanied that transition and made it possible for Andersen employees to start shredding thousands of Enron documents in the fall of 2001.

The authors, four former Andersen insiders -- Susan E. Squires, Cynthia Smith, Lorna McDougall and William R. Yeack, conclude that in a struggle between public interest and private profit, private profit won.

The power of corporate arrogance and the dangers of a herd instinct -- on Wall Street and among financial journalists -- are detailed in Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (Portfolio, 435 pages, $26.95), by Bethany McLean and Peter Elkind, two Fortune magazine journalists.

In the late 1990s, the Houston energy company seemed, in its own mysterious way, to define the so-called new economy. Its stock price climbed as its profits rose, and its executives were praised for their innovative business model.

Then McLean wrote an article for Fortune posing a simple question -- How, exactly, does Enron make its money? -- and the company's house of cards began to collapse.

For a broader perspective of the decline of corporate ethics, readers would be well advised to read veteran financial journalist Roger Lowenstein's Origins of the Crash -- The Great Bubble and Its Undoing (Penguin, 270 pages, $24.95)

Lowenstein argues that the current corporate ethical train wreck had its beginning more than a dozen years ago when business-school professors argued that corporate leaders were massively underpaid.

What came next, says Lowenstein, were excessive executive stock options, irrationally exuberant shareholders, friendly auditors, short-term focus by financial professionals, overemphasis on shareholder value and ethical disaster.

Lowenstein paints vivid portraits of all of the characters of the great boom and bust: Alan Greenspan, Jack Grubman, Jack Welch, Abby Cohen, Henry Blodget and a wide array of dot-com pioneers.

He concludes that Greenspan and other regulators took a dive when confronted with the irrational exuberance of market traders and corporate wheeler-dealers eager to stretch and even break the rules.

Even after significant warning signs, like the failure of the Long-Term Capital Management hedge fund, which forced a billion-dollar bailout managed by the Fed, Greenspan continued to toy with the idea that a new economy with new rules made traditional regulation less important, Lowenstein points out.

He also notes that when the Financial Accounting Standards Board sought to force corporations to accurately account for the extraordinary costs of stock options, Greenspan was blocked by bipartisan pressure from congressional fans of the booming stock market.

While Lowenstein paints a broad-brush exposition of the ethical collapse that accompanied the boom of the '90s and was exposed in the bust that followed, we are reminded that we all share responsibility for the growing greed that feeds the ethical collapse.

If the market boom dislodged America's ethical compass, we're still paying the price.

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