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We
are pleased to present the following
excerpt from the book
Profit with
Honor: The New Stage of Market
Capitalism
by Daniel Yankelovich
Yale University Press -
May 2006
Seven
Deadly Norms
It would be wrong to imply that
destructive norms have taken over the
business community. This is emphatically
not the case. Unfortunately, there is no
reliable way to quantify just how far
ethically pernicious norms have spread.
The truth lies somewhere between "a few
bad apples" and "a culture of corruption."
The scope, magnitude, and frequency of the
scandals do imply that something systemic
is wrong. In 2004 the Corporate Fraud Task
Force of the Justice Department charged
more than nine hundred executives with
fraud and obtained more than five hundred
corporate fraud convictions. The SEC filed
more than six hundred civil enforcement
actions involving fraud. This is certainly
more than a few bad apples, especially
when one realizes that it represents a
minuscule fraction of corporate
wrongdoing.
On the other hand, there is strong
evidence that the taint has not spread
throughout business. In many companies,
the dominant norm remains the smell test
-- the conviction that staying within the
letter of the law is not good enough and
that the company must adhere to ethical
standards of right and wrong that go
beyond the law. Yet in recent years, a
number of dysfunctional norms have crept
into the culture, aided and abetted by
groupthink. Seven destructive norms
converge with one another to form an
über-norm that might well be called
unenlightened self-interest.
I will elaborate on these in later
chapters, but here briefly are the seven
deadly norms that are causing most of
ethical confusion in the nation,
particularly in the business
community:
1. Equating Wrongdoing Exclusively
with Illegality
To the extent that shame and guilt
still operate in our society and are
linked to wrongdoing, and to the extent
that wrongdoing is linked solely to
breaking the law, then one is off the hook
simply by staying within the letter of the
law. As noted earlier, there is no more
corrosive deterioration in today's ethical
norms than the conviction that "I didn't
do anything illegal, so I didn't do
anything wrong."
2. Win at Any Cost
The norm that winning is all that
matters and that everything else is
unimportant pervades the larger society
but becomes particularly consequential in
corporate settings. Since competition is a
dominant theme in business, it reinforces
the aggressive urge to win without fussing
too much about the tactics for doing so.
Corporations often deploy their resources
in a zero-sum form of winning: if we win,
you have to lose.
Because we have become such a highly
individualistic society, the fierce need
to win at all costs readily spreads from
the company to the individual. We can see
this norm at work in countless small
instances in our society, from a driver
who cuts another off in order to gain a
few yards' advantage on a congested
freeway to a parent screaming abuse at the
coach when his or her child's soccer team
loses a game.
3. Gaming the System is Good
Sport
There are large elements of fun and
game-playing in seeing how far one can go
gaming the system. Enron was full of
computer-savvy young people who spent days
and weeks with their complex computer
models figuring out how to drive up the
price of energy artificially (for example,
through deliberately closing refineries
for maintenance and repair in California
to create the maximum bottleneck).
When the desire to beat the system
converges with the imperative to win, the
result is a deadly combination, ensuring
that the energies of gifted young people
will be devoted to activities whose
ethical consequences are easily shoved
into the background.
4. Conflict of Interest is for
Wimps
One of the deadliest norms in business
today is the tendency to ignore or brush
aside conflicts of interest as
lily-livered concerns that should not
interfere with making as much money as the
traffic will bear. This norm is especially
flagrant on Wall Street and in the
insurance industry, where playing both
sides of a transaction has become an art
form. Practitioners protect themselves
from shame and guilt by developing bland
Orwellian language to describe their
double-dealing transactions. The phrase
"conflict of interest" is itself bloodless
and legalistic. It carries none of the
pungency associated with plain-talking
phrases like "betraying the customer's
trust" or "getting kick-backs for pushing
clients into the worst performing
funds."
The hypocrisy is obvious to Wall
Street's own ethically concerned leaders.
The celebrated Wall Street analyst Byron
Wien has written extensively about "the
breaking of the covenant between
corporations and investors."
Unfortunately, Wien's concerns have done
little to change Wall Street's habits.
5. The CEO as Royalty
In the 1990s CEOs became celebrities,
partly for their outsized paychecks and
partly because of the dazzling performance
of the stock market in the years leading
up to the bursting of the bubble. Little
need be said here about the corrupting
influence of money, power, and adulation.
It has all been said before. Power goes to
people's heads. Few can handle it well.
The usual response is arrogance and the
conviction that your whims should be
instantly indulged, no questions asked.
There is no other explanation for the
excesses of people like Kozlowski, the
Rigas family, Lord Black, Kenneth Lay,
Bernie Ebbers, Franklin Raines, and
countless others.
The destructive norm here is the
assumption that the power and grandeur of
the CEO is so great that he (and sometimes
she) is exempt from the norms that
ordinary mortals are forced to
observe.
6. Twisting the Concept of
Shareholder Value
This deadly norm is specific to
business, which I discuss at length in
Chapter 8. The rationale usually given for
putting shareholders first is that by
serving the long-term interests of
committed investors, the company also
serves the interests of its other
stakeholders -- employees, customers,
suppliers, local community, the society at
large. In practice, however, shareholder
value does not live up to its rationale
because it suffers from two crippling
distortions. The more obvious distortion
is the emphasis on short-term quarterly
earnings reports -- the ones that clever
accountants can most easily manipulate.
The less obvious but arguably more serious
distortion relates to the identity of the
so-called "owners." The phrase conjures up
images of Warren Buffet-type investors who
buy and hold their stock for the long
haul, or of Grandpa in Cleveland whose
retirement is made comfortable by the
dividends the stock pays. In practice,
shareholder value has little to do with
committed investors and owners of the
company's shares, and everything to do
with thirty-year-old mutual fund managers
with zero loyalty to the company who can
and do dump the stock without a second's
hesitation. They are short-term renters of
the stock, not committed owners. In both
cases, there is a destructive shift from a
long-term to a short-term focus.
In combination, these distortions make
a mockery of shareholder value's stated
intention of aligning the interests of
management more closely with those of the
company's owners.
7. Free Market Economies Require
Deregulation
This is perhaps the subtlest of the
seven deadly norms -- and some scholars
believe it is the deadliest. It ties into
the laissez-faire strain of the capitalist
tradition. Executives hold highly abstract
and theoretical assumptions about the
nature of corporations and market
economies. One such assumption is the
image of the corporation as an impersonal
machine. Driven by inexorable laws of
profit maximization, these corporate
machines cannot afford constraints like
regulation or sentimentality about
people's feelings and lives. This notion
that the corporation runs according to
inescapable, impersonal, and rigid
economic laws has fostered a great deal of
ill-advised deregulation, as well as
rigidity, inflexibility, and undue
suffering.
The experience of many nations,
especially our own, has demonstrated that
a market economy is not a machine with a
fixed inherent nature but a system that
can be remarkably flexible. The position
of CEO in a large multinational
corporation is the pressure point in the
system. It is where all the conflicting
and contradictory pressures of the modern
global economy converge. This makes the
job of the CEO immensely complicated. But
it also makes it compelling and important.
CEOs are the change agents of the emerging
global economy.
A free-market economy is not well
served by the automaton CEO who identifies
totally with the notion of a market-driven
enterprise as a machine that cannot, and
should not, be constrained by regulation.
It is well served by the very human CEO
who brings his or her own well-developed
ethical values into the job and calls upon
these for guidance in juggling corporate
cross-pressures.
Copyright
2006 by Daniel Yankelovich. Published with
permission.
Daniel
Yankelovich is chairman of Viewpoint
Learning, of Public Agenda, and of DYG,
Inc. He is best known for his work in the
field of social values and public opinion
and has served on the boards of numerous
corporations, including CBS, Educational
Testing Service, Meredith Publishing,
Loral Space & Communications, and
USWest. He is also the coeditor, with
Norton Garfinkle, of Uniting America:
Restoring the Vital Center to American
Democracy, published by Yale
University Press. www.danyankelovich.com
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