A series of business scandals rocking various countries have sullied the image not only of the companies involved but the private sector as a whole and the magic mantra of laissez faire. In the past whenever something went wrong with companies, the public believed explanations like market fluctuations, labour unrest or even plain management incompetence. Today, no such benefit of doubt is given and there is a presumption of management dishonesty. ‘There will always be a few bad apples’ has given way to ‘this is only the tip of the iceberg.’ Apart from the conventional wisdom of double-locking the stable after the horse has fled, can these incidents at least teach us some good lessons?

Unseen hand of the corporate pickpocket
Adam Smith, himself a Professor of Moral Philosophy, implicitly assumed that even the free pursuit of self-interest would be tempered with a basic sense of decency and honour. His metaphor of the invisible hand did not refer to the unseen hand of the corporate pickpocket insensate to shame and guilt.
One’s first response to scandals is that these are the result of greed, arrogance of power and contempt for the law and represent a breakdown of corporate governance. Though one or more of the above is often the proximate cause, the phenomenon is really the convergent result of three trends: frenzied deregulation, a distorted concept of shareholder value and ‘winning for oneself ‘ ethic.

Traditional watchdogs became enablers of corporate greed
A rage for privatisation and deregulation has transformed traditional watchdogs such as accountants, investment banks and regulators into enablers of ‘getting away with it.’ Accountants and lawyers find that opposing questionable practices attracts scant business and that their own business prospers only when they advise how to get around the law and the norms. Accounting and legal advisers forget that they have a duty not only to the CEO who pays them, but to their own profession and the long-term interests of the whole company.
Worshipping shareholder wealth as the only thing that matters , distorting it to mean only the current share value and then linking the CEO’s compensation to it has resulted in the paradoxical simultaneity of bonuses and bankruptcy.

From ‘enlightened’ to ‘exclusive’ self-interest
The ethic of winning for oneself and at any cost has replaced the concept of ‘do well by doing good’ by ‘do well and forget doing good,’ This has created a new management skill of ‘gaming the system’ converting Adam Smith’s idea of enlightened self-interest into exclusive self-interest.
Corporate culture which makes every employee follow the same values and be a team person is often touted as a miracle ingredient of great companies. The same corporate culture without a good moral basis can easily promote group-think which makes employees surrender their individual consciences under the contextual pressure to conform. The same employee can be a compassionate, warm person in private life but a commercial cut-throat in the office.

The legal and moral propriety…
Milton Friedman said that being profitable within the bounds of legal propriety was the only social responsibility of business while Drucker said that it was the primary responsibility. But what about moral propriety? Law can only make it difficult for business to do something criminally improper but will it make people behave honestly and decently? Law marks the boundary between criminal and non-criminal behaviour and can only be the floor. It is not a substitute for the superstructure of ethics which marks the boundary between right and wrong irrespective of legality. Corporate Social Responsibility emphasises more the social welfare obligations of companies as an external concomitant to business activities rather than the internal concomitant of being above board, fair and decent even in business activities. Like microbes and medicine, the law and the criminals are engaged in a never-ending game of one-up-manship. Without an inherent sense of honour, can we really prevent scandals?

From guilt and inner shame to innovative and street-smart
It is now clear that free market capitalism is not a finished good but a work-in-progress with core moral values yet to be ingested by it. Cooking the books might have resulted in a sense of guilt and inner shame in the past but today most such people see themselves as innovative and street-smart by contemporary norms and entitled to the rewards thereof. What is needed is a new stage in the evolution of market capitalism in which honour and avoiding shame act as the main drivers of business governing all other entrepreneurial motivation. A free market knows the price of everything but the value of nothing. Values like openness, responsibility and trust are not naturally inherent in the concept but have to be the starting point of a business into which the values of free market have to be accommodated and not vice versa. If business does not do this, there is bound to be excessive state regulation making both regulation and entrepreneurship dysfunctional.

Ethical norms must be basic
Ethical norms should be made a central part of the curriculum of all management courses, basic and developmental. The board of directors should be an objective sounding cum screening board for the ideas of the CEO from whom it has a right to expect nothing less than total openness and trustworthiness.
“A great society,” said A.N.Whitehead, “ is one in which businessmen think greatly of their functions.” ‘Greatly’ here does not mean self-congratulatory or arrogant but ‘imbued with moral nobility.’ At the entrance to a Defence Services building are inscribed the words ‘service with honour.’ At the entrance to every corporate headquarters should be inscribed the words ‘ profit with honour.’