If you’ve been watching TV recently, especially Fox Financial Network or CNBC, you’ve heard so-called experts justify the millions that bankers and Wall Streeters are making. After all, they point out, America’s “best and brightest” have been going into the financial industry, and therefore their huge incomes are justified. In addition, it would be a shame if cutting their pay would mean we would lose their services.
If the last decade has proved anything at all, it is that America’s greediest and least principled—not the best and brightest—have been dominating our financial and securities markets.
After 35 years as a management consultant, I’ve come to two conclusions: First: the closer a person is, and wants to be, directly connected with providing a product or service that benefits the public, the more that person’s behavior is likely to be moral. Second: the more a person’s goal is simply to make more money, and the more removed from the product or service, the less moral that person’s behavior is likely to be.
For example, the best and brightest engineers and scientists are usually found doing what they enjoy most: engineering and science. If they are politically sophisticated, some actually make it into the upper levels of management. However, as a dean of an engineering school once noted: “the best way to succeed in engineering is to get out of it.”
Too often, politically oriented and technically mediocre engineers and scientists seek to improve their standard of living by succeeding in corporate management. When they associate career success primarily with profitability, they are more likely to make decisions based on expediency, and not on what is in the public interest, or even in the corporation’s long term interest.
The Space Shuttle Challenger disaster is a classic example. In a famous meeting, the scientists and engineers directly associated with the technology angrily shouted their warnings that the Challenger should not be launched under the predicted weather conditions. Senior managers, however, because of political pressures within and outside NASA, chose to take their chances.
The demise of Arthur Andersen Accounting is another classic. At one time, Andersen was managed by executives who cherished professional accounting principles, and it was considered the gold standard among accounting firms. When it certified a corporation’s quarterly report or profit and loss statement, investors could “take it to the bank.”
However, executives who chose personal wealth and corporate profitability over professional accounting standards rose through the ranks, and Andersen began to use its expertise to help corporations improve their stock prices by deceiving the investing public. The result: some top executives retired incredibly wealthy when Andersen tanked, but thousands of professionals who still believed in honest accounting—truly the best and brightest—lost their jobs. And that’s not even considering the devastating effects that Andersen’s practices, as well as the degenerating standards of the accounting industry, had on the nation’s economy.
Fast forward to today. There is probably no profession more removed from genuine products and services than financial arbitrage traders. By inserting themselves between investors and corporations in the securities markets, and under the flimsy excuse of providing liquidity, they took billions out of the market for themselves—money that should have gone to long-term investors and corporations.
The traders who specialized in derivatives were especially
removed from genuine financial products and services. By selling and
re-selling securities that had no intrinsic value, they created genuine
wealth for themselves, but phantom wealth for their clients—and came
close to destroying the world’s economy.
The savings & loan crisis, the dot.com bubble, the sub-prime meltdown and the countless corporate disasters are the result of greed and corruption, and not of our best and brightest making honest mistakes. Those who say that greed is essential for the success of capitalism deliberately confuse healthy self-interest with greed, which is excessive self-interest.
Self-interest drives individuals to work harder and to be more creative and productive in order to provide for themselves and their families. It is, indeed, a requirement for a good economy. Greed, on the other hand, leads to behaviors that are deceptive, exploitative, and even fraudulent and illegal. There’s a reason it’s considered a vice in all the major religions of the world: it destroys societies. And, if not regulated, monitored, and controlled by a wise government, it will destroy a strong economy.
Chuck Kelly is a retired management consultant living in Burnsville, and is author of “The Destructive Achiever; Power and Ethics in the American Corporation” and “Farewell Fantasyland; Time for Political & Economic Reality.” He can be reached at email@example.com.