Posted on Sun, Feb. 24, 2002


Ethics policies worthless where greed is a virtue

Special to the Observer


The Observer's Business Monday cover story, "Set up an ethics code that works," (Feb. 18), listed seven tips for making sure a business is protected from ethical breaches. They were as good as you'll find, as far as legal protections of the CEO and senior executives are concerned.

Unfortunately, they omit the most basic prerequisite for ethical corporate behavior: a genuine commitment by the top brass to respect the rights of all constituencies -- employees, the environment, customers, stockholders, and, yes, even the government.

Ethical behaviors are more a result of corporate culture than of bureaucratic systems.

I'm afraid our dominant corporate culture is following Milton Friedman's famous maxim: "So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer is, no they do not."

This is probably the most frequently quoted justification for greed that today's corporate executives cite. If there is a profit in it, they not only feel no responsibility for how their actions and decisions affect average Americans or their country, they sanctimoniously claim a moral superiority for holding such selfish values.

Corporate executives have transformed greed from vice to virtue. Admittedly, a healthy self-interest is a virtue, essential to one's success and beneficial to society. But greed, an excessive self-interest, leads to behaviors that are devious, deceptive, manipulative, exploitative and, in general, detrimental to society -- although profitable to holders. It can even lead to behaviors that are legally fraudulent, as apparently happened at Enron.

By now it has become obvious. In the interests of profits and personal wealth, most modern corporations push all laws to their limits, and if the penalties are not sure and severe, beyond their limits. This applies to reporting income (tax avoidance), treatment of employees (pay, work conditions, rights of collective bargaining), protection of the environment (conservation costs money) and respect for customers (let the buyer beware).

In pursuing unrealistically high profit objectives, the sophisticated CEO can create pressures on subordinates to cut ethical corners, yet retain deniability of any ethical or legal wrongdoing himself. He may previously have proclaimed the very best behavioral standards, including the usual "tools" of organizational development: statements of corporate ethics, values, philosophy and mission. He may have set up a bureaucratic system to monitor behaviors.

But it's in his day-to-day business discussions where he demonstrates the values and expectations that actually count.

A chemical company president, for example, may meet with plant managers and announce a 5 percent cut across the board, "because competition demands it." But if a manager complains that the cost of toxic waste removal is already at the bare minimum, he's told: "If you can't do it, and do it legally, I'll find someone else who can."

The message is clear: Those who keep their jobs or get promoted are those who deliver -- and don't get caught. So the managers quickly figure out they can use a fly-by-night toxic waste disposal company that will do the job at a significant cost savings. The company's unidentifiable waste ends up alongside a rural road, and senior managers have deniability of any willful intent to violate environmental laws.

Of course, the term "ethics" suggests that the issue is much broader than adherence to law. It would also include doing what's right by society's moral standards. Is it ethical to hire accounting and legal consultants to skirt the obvious intent of tax laws? Is it ethical to reduce employee head count beyond reason to realize a huge personal financial gain?

When profit is the only moral standard, lower-level executives and managers are pressured to make cuts that adversely affect a company's least powerful or least noticeable constituencies. It's all done to increase the wealth of investors and top executives. That's usually legal, but it's not fair, and can easily lead to illegal behavior as competition intensifies.

The way top management goes about getting results, not sanctimonious protestations of ethical commitment, determines the morality of corporate behaviors.

Charles M. Kelly is a retired management consultant living in Tega Cay, S.C., and is the author of The Destructive Achiever: Power and Ethics in the American Corporation (Addison-Wesley, 1988).