Now, the gross corruption product
The names are as familiar by now as those of tennis stars: Dennis Kozlowski, former chief executive officer of Tyco International; Richard Scrushy, former boss of HealthSouth; and Bernard Ebbers, former CEO of WorldCom.
All are on trial for corporate crimes, getting news coverage each day, and prompting a few serious questions: Have American business leaders lost their moral compass? Were too few taught the Ten Commandments? Did parents and firms forget to teach ethics rules - or are executives simply targets of greater scrutiny?
Scandals have tripped up so many companies it's hard to keep track of them - from banks (Citigroup, Bank of America, Riggs) to mutual funds (Putnam, Janus Capital Group, Alliance Capital Management, and others). Mutual funds have paid more than $2.5 billion to settle charges. Marsh & McLennan Cos., a huge insurance broker, agreed last week to pay $850 million to avoid going to trial for fraud. If the annual revenues of companies tainted by scandal were assembled into a gross corruption product, it would top $1 trillion. "We have been through a tsunami in terms of ethics," says Keith Darcy, head of the Ethics Officer Association in Waltham, Mass.
Why so many business people got caught up in illegal practices remains something of a mystery. Some experts in business ethics say the problem has always been there.
"People are people and human nature is human nature," says David Gebler, president of Working Values Ltd. in Sharon, Mass. "I don't think the level of personal integrity is higher or lower than it ever has been."
Nonetheless, experts point to some factors that may have thrown temptation in the path of company officials, causing business scandal to spread. For example:
• The combination of corporate stock options and a stock-market boom in the late 1990s prompted a wave of get-rich-quick thinking, stimulating avarice.
• The media and Wall Street have painted CEOs as heroes or bums, depending on how their companies' stock has performed. This has pressured many CEOs to overemphasize regular earnings growth to please shareholders, while distorting accounting and paying insufficient attention to other corporate stakeholders, such as employees and customers. The cult of personality can also leave some CEOs with a sense of being invulnerable, even if they misbehave. "There are huge relentless pressures," says Martin Taylor, vice president of the Institute for Global Ethics in Camden, Maine.
• Top executives have become too separated from the rank and file, with poor communication between these groups. "People are told to find loopholes in the law - and just don't get caught," says Mr. Gebler. Seeing greed at the top, the lower ranks become more cynical. The loyalty of workers to their companies, and vice versa, has shrunk.
Some experts argue that scandals have become more prevalent partly because scrutiny has increased. For example, business has become more transparent. That's partly due to technical reasons, such as computers with their e-mail. But also firms face a host of nongovernment groups, regulators, and others snooping on their behavior, on executive salaries and perks, personnel and environmental policies, safety practices, and so on.
"In an age of information, there are no secrets," Mr. Darcy says.
Also, state attorneys general are cracking down on business practices once regarded as just old-fashioned back-scratching, or close to that. The ethics bar, in effect, is placed higher.
Despite the daily scandal news, Darcy sees "some legitimate progress being made. Ethics is about progress, not perfection." His organization has seen its membership of corporate ethics officers grow from 14 in 1993 to 1,200 today.
In part for legal reasons, the number of consultants and others helping companies establish good ethics has multiplied. Public attention to corporate ethical issues is at a higher level than in the past.
The popular emphasis today is on developing a corporate culture of integrity that prompts employees themselves to insist on good ethics - on top of sensible measures to enforce compliance with the law. "Culture trumps compliance," Darcy says.
"The most important strategic goal of this decade" for companies will be to persuade customers, employees, shareholders, and suppliers that they are dealing with a firm that has an ethical culture, says W. Michael Hoffman, executive director of the Center for Business Ethics at Bentley College in Waltham, Mass. These companies will enjoy a competitive advantage if seen as not only complying with regulations and laws, such as the Sarbanes-Oxley bill passed after the Enron scandal, but as having a firm stance on ethics. "Trust is the engine to drive business," Mr. Hoffman says. Capitalism depends greatly on trust.
Millions of employees and shareholders have lost huge amounts in investments and pension assets as a result of dishonesty. They'll be watching closely to see how severely judges will sentence guilty CEOs.
