Markkula Center of Applied Ethics

Where are honest business leaders when this country needs them?

By Rob Elder

Can Americans really count on the ethics of the nation's business leaders to protect the average investor?

President Bush says we can.

His "corporate responsibility" speech included some proposals to strengthen government's ability to prosecute wrongdoers, and to stiffen the punishment of those convicted.

But in terms of government policing, Bush would do less than Democrats in Congress are proposing; most of what he asked for was already sure to be approved, with or without him. In true Republican form, he looked to the private sector -- and individual leaders -- to do what needs to be done.

The health of the American economy depends on "ethical standards ... upheld by responsible business leaders,'' he said. He argued that "ultimately the ethics of American business depend on the conscience of American business leaders.'' And, as he has done repeatedly, Bush insisted that "the vast
majority of business men and women are honest.''

If he is right about that, how do we account for the recent scandals in which investors in half a dozen respected corporations lost hundreds of millions of dollars because executives and their accountants cooked the books?

Is it just coincidence that all this skullduggery is coming to light now? Or is it a sign that business in general is riddled with corruption?

My guess is neither. I suspect that corporate accounting practices became more than normally elastic during, and because of, the technology boom. Stock prices were rising so fast that if you cut corners to meet the
projected number for a given quarter, you probably thought you were doing your stockholders a favor. And there was always new money pouring in to make up the difference.

During the bubble period, the economy resembled a pyramid scheme, taking in money from new suckers to pay those who invested earlier. Now it won't work, without new money flowing in to cover up so-called creative accounting. The bubble economy rewarded the businessman willing to gamble with his and other
people's money. The present economy makes him look like a crook.

Tougher laws and longer prison sentences may have less of a deterrent effect than the economy itself. If crooked business practices don't pay off, a lot fewer people will take the risk of using them.

But bubbles burst quicker than a business climate can change. The challenge now is to create a new business culture which matches the economic realities we have today, not those we had two or three years ago. Only then will people once again feel confident about investing their savings in the stock market.

I believe the president is correct that business leaders themselves must do much of the job. But I also believe we must create a culture which rewards and reinforces the honest and careful businessman just as the bubble culture made heroes of those willing to gamble.

My colleague Kirk Hanson, director of the Markkula Center for Applied Ethics, says that it may be business executives themselves, acting through some sort of new coalition, who will sow the seeds of the new culture. It also is going to require changes in what is taught in business schools, and who gets promoted in the business world.

After a downturn in which many Americans lost their boomtime gains and more, the country's faith in corporate capitalism is damaged. A stronger Securities and Exchange Commission and tough punishment for white collar crooks will help restore that faith, but it will also take leadership by business executives of impeccable integrity. If they're out there, it's time for them to speak up.

Rob Elder is the retired editor of the San Jose Mercury News and senior fellow at the Markkula Center for Applied Ethics at Santa Clara University.

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