Ethics and Business

[pluckyduck]

I'm thinking that a lot of mothers did a lousy job of raising their kids-who-would-be-corporate-moguls, at least the moguls we've been seeing in the news lately.

It's not that hard to be a pure capitalist and be ethical at the same time.

I love capitalism. I love the thrill of the business game. I love the idea of crushing the competition.

Have a certain catalog going to press this week. Got hold of a competitor's catalog where they had "one pennied" me on a certain very high volume product. (They'd set their piece price to be one penny lower than mine across the volume price breaks.) All right then, lets play the game! My mid year catalog is going to press after yours, I'll fiddle with my prices and offers to make mine a better deal. Love this stuff.

I'm trying to squeeze the supply on another high volume product. There's just one industry source for a product that we all sell in a certain niche for the fall busy season. I got the heads up that it was going to be short supply, and I made sure that my purchase order for a quarter of a million pieces was at the factory first. It's my sincerest hope that there are only a quarter of a million pieces available and they are all sitting in my warehouse and other people have to turn their customers to me.

I'm a capitalist.

But I don't cook my books, and I don't screw my employees and I don't cheat my customers....I don't even squeeze my suppliers. I work every supplier deal that I can to get the best price I can...but I always provide something in return. (Get me a better price and I'll make sure our orders are more efficient so that you guys make even more profit off of us.)

The last year, I keep hearing that John Hausman commercial in my head "We make our money the old fashioned way. We earn it."

Did a bunch of mothers forget to teach that to their children? Is it possible that the good guys are going to be the ones left standing when the fallout of this corporate fraud is fully realized?

Andrea

[jenninca]

I don't know what to say other than "I hope so."

[sylvanb]

I have been wondering this for years. Specifically about our Public Servants. Specifically here in Rhode Island, where today this is HOT news.

Eight or 10 years ago there was a routine scandal in some state office, and the columnists started calling for an ethics course to be required of all public officials.

I looked at the people involved, and thought: Along with most of their colleagues, they were raised in religious homes, they went to LaSalle Academy and Providence College.

They know better



And it's not like RI has never seen an honest politician. Witness John Chaffee (and presumably his son Lincoln, who inherited his Senate seat), Claiborne Pell, Lincoln Almond, and plenty of other less visible folks.

I love your attitude!

[AuntieEmma[$]]

I think small businesses can be, and often are, ethically run. Wouldn't say the same about big business.

[poseidon]

Originally posted by AuntieEmma
I think small businesses can be, and often are, ethically run. Wouldn't say the same about big business.

Disagreed... I think there are plenty of large businesses run ethically, their story just isn't newsworthy.

[mnehr]

I think small businesses can be, and often are, ethically run. Wouldn't say the same about big business.

I could not disagree more... unfortunately this myth is all too common...

Large companies are generally more ethical than small companies simply for the fact that their records are publicly available and they have far more regulatory requirements (I am considering the difference between Sprint/Motorola size companies versus the mom and pop businesses.)

Large companies also have a lot more 'heads'.. thus, giving a lot more checks to their system and processes.. Even if a company has a bad apple, the more apples in it, the more chance of good apples finding a problem the bad apple created..

What would have happened if the internal auditor of Wcom not found the accounting issue.. the improper labeling of capital expenses would be hard to find and in the long run, could easily be masked back into the books and washed, thus, eliminating a future 'pay the piper' in their finances.. No one would have known..

In reality (at leased based on my experience) big business are far more anal about doing things right than small businesses.. with the fear of the SEC and investors coming down on them, and a large portion of their capital resting on shareholder return (which the BOD is there to ensure), books are generally kept very tight, often times, erring in the side of negative results versus positive (you never hear on the news all the times that big companies ‘restate’ their earnings to the positive… but it happens often)

[pluckyduck]

Matthew -

I kinda sorta agree with you and I kinda sorta don't. I agree that big businesses are generally much more transparent, and it is therefore much easier for small businesses to get away with "bad" things. A small business owner can steal the employee's pension fund and leave the country...and never really make a headline.

What muddies the good/bad argument, for me, is the difference in behavior of top dogs in publicly traded companies vs private companies. That's really the issue, not big vs small. The bad behavior that's made headlines the last year has been all about top dogs doing bad things with numbers in order to inflate/manipulate stock prices from which they privately profit (and profit big time). When the shit hits the fan, the top dogs have left a lot of folks holding the bag. Big impact.

A private company lives and dies by real numbers because anything else is worthless. The owners have to know how much they can afford to pay themselves, their employees, how to plan for growth, or the value they've built should they decide to sell.

Of course, I'm completely forgetting in that all of the manipulation that shaky private companies go through in order to prove to the bank that they are worthy credit risks so....sigh.

Maybe it is the same, only different. I guess it comes down to the sheer impact the big companies have when they play fast and loose with numbers and end up screwing a lot of people.

Andrea

[kurt_messick]

We have a business and ethics programme at my seminary. The number of attenders drops each year.

[brian_igo]

I agree with Matthew to a point. Large companies have better track records on enforcing safety and workplace behavior laws than smaller corporations or privately owned companies. A mom and pop outfit might not even know what the ADA, FMLA or sexual harrassment regulations actually say. But any corporation on the Fortune 500 list probably has individuals who do nothing but handle each of those affairs. That will make a huge difference in the culture of a corporation.

But only to a point, and the boardroom is where our opinions part. According to this CNN story, 39 members of the Fortune 500 are currently under investigation by the SEC for accounting irregularities alone. That does not include those under investigation for insider trading like ImClone and Apple. And, as that article notes, the SEC believes it has not yet discovered every case of accounting fraud among the biggest corporations.

Ten percent is not everyone, but ten percent of the Fortune 500 implicated in fraud has only happened once before, in 1929. Then the corrupt business leaders did not fear regulation because there was no SEC. Today there is no effective difference.

Look at what a corrupt CFO or CEO has to consider. Twenty-two years of deregulation and shifting to self-governance has gutted the SEC. When Boskey and Milken went to jail in the 80's it did bring a breif return of ethics to Wall Street. But who has had to pay a personal penalty since? A CEO or CFO who wants to be crooked today will not be ordered to return the millions he made on stock options and faces no real threat of jail time. And he could make enough money in just a few years to never work again. Add in some plausable deniability to protect you from civil actions, as we've seen between Andersen and Enron, and I'd be damned surprised if only ten percent of the top CEO's and CFO's played dirty.

Look at how the corporate culture has changed. Ever since Lee Iacocca's autobiography became a best-seller, it hasn't been enough to be a good manager or businessman if you want to reach the very top. The most sought after CEO's and candidates today are Rock Star Executives. A good executive knows the game. A Rock Star Exec thinks he is so fucking smart he knows things no one else has thought of in 4,000 years of markets and capitalism. Ego has always driven graft and corruption, and we have created a business environment that seeks out and gives the greatest rewards to the most egotistical.

And finally, look at how the market culture has changed. A good financial manager will tell clients to pick a good stock and never sell. But a good Baptist preacher in Louisiana will preach temperence before Mardi Gras and I think that has about the same effect. When I first became interested in business twenty-odd years ago, some old timers were bemoaning about the shift to a culture obsessed with the annual report. Good companies, they correctly noted, are looking more than twelve months ahead.

How quaint those times seem now. We've gone from that to judging companies based on their quarterly performance. Then to between-quarter events like forecasts, broker recommendations and conference calls. The price of a stock has always been whatever someone else is willing to pay for it. But we have totally abandoned the idea of fundamentals supporting that price. It has turned the stock markets into the biggest Ponzi scheme in history and the payoff for those at the top of the pyramid (corporate officers, brokers, investment bankers) are enormous.

It is not any single event that has led us to this place. Look, I'm a progressive and therefore my comments might be suspect among free marketers. But when I'm reading and learning about these things, I'm not reading Jim Hightower or Ralph Nader. This stuff is from the WSJ, Business Week, Barrons, Forbes and Fortune. If they are screaming that the system that governs the largest corporations is broken...consider the source.


Brian

[AuntieEmma[$]]

Power corrupts. I really think it's as simple as that.

[mnehr]

Power corrupts. I really think it's as simple as that.

I guess I just have more faith in people than that..
Also, a CEO generally is not as powerful than one would think. Far more power lies in the regulators than with the Chairman..

I believe if I had to choose a 'catch phrase' to describe my point it would be...

"to whom much is given much will be expected.."