I am a 53 year old teacher. I have double major in Speech and Criminal Justice resulting in a Bachelor's degree from Northeastern State University in Oklahoma and a law degree.
According to a McClatchy investigation, Goldman Sachs begin creating a new form of security in 2006. These “investments” were placed off shore in the Cayman Islands. The investments were high grade securities based on home mortgages but there was a catch. They insured these collateralized debt obligations so that the investors were on hook to cover their losses. The investors thought they were getting good investments but instead they were investing in the real estate bubble. If they lost as Goldman Sachs might have concluded was highly likely, the investors were required by contract to cover the losses. The contracts literally converted the investors into insurers. They insured that Goldman Sach would make money whether the investments did well or collapsed.
I recommend you give it a read.
Collateralized debt obligations are the chief weapon that destroyed the financial security of millions of Americans as well as countless others around the world. The McClatchy articles are an excellent way to begin to understand these strange forms of investments.
I’ve been reading Garnett’s Wisdom in Conduct. He talks about Tolstoi and his five rules being an oversimplification. I admire Tolstoi but I have to agree with Garnett. These kind of platitudening (if you don’t mind me inventing a word) is all too common. If we just did this or that following these simple rules the world would be a better place. Most of the rules suggest that we need to be nicer than we are now.
I am strongly opposed to simple niceness. We can do things better not nicer. Niceness is not a cause worthy to fight for. Being a better and a kinder person has its place. For instance, I often tell my students that each of us has a story, the story of our lives. Few ever get to tell the story to anyone at any time, because most of us are too wrapped up in ourselves to listen the sounds of anybody else’s beating heart. Kind of a pity, really. We have a lot to say. On the other hand, we have a lot of nonsense we talk about habitually, time killers, social recognitions, maintenance phrases (how’s the weather, etc.) and sometimes we take the serious, (I love you), and make it trivial.
The story of one’s life we should encourage and pay attention to; the trivial and annoying we should ignore and discourage. Both involve strength and judgment. Neither are just being nice. In fact, nice, may be fairly pointless unless translated with more specificity, like kindness, caring, compassion, etc.
The Greatest Book Ever Dealing With Corporate Crime
In 1908, Gustavus Myers, published History of the Great American Fortunes. It’s a very large work but much of what it has to say is as relevant now as it was then. For instance, he talks about the transfer of the public domain to private interests as quick way to personal riches. That has not changed.
Project Gutenberg has the complete work unfortunately mistitled Great Fortunes From Railroads. If you’re serious about the study of business ethics, you need to read it, all 712 pages of it.
The impact of the new technologies, even something as ubiquitous as e-mail have only begun to be felt in many parts of society. For instance, take shareholder voting. Usually, this ratifies selection of the board of directors and takes place once a year. This is a reflection of the difficulty of getting all the shareholders together to vote or was. Really, it’s obsolete. Shareholders should be empowered by the new technologies and there should be multiple votes each year. For instance, the extravagant pay and benefits offered CEO’s and other officers of the company might require ratification by the shareholders instead of being chosen by a board of compensation often appointed by the CEO himself.
What about government? How many places could the government in this country empower citizens to make a difference in the decision making. Right now, floods of e-mails are fired in whenever a major issue appears. But we can do better. I believe right now we have the technology to eliminate fake e-mails and other nonsense from the process. If one of my websites can screen out spam and confirm my identity so I can download modifications to my video games, surely a congressional office can do the same. I don’t think they want to do this. Floods of e-mail enable a representative to vote anyway they like. Accurate e-mails reflecting the actual views of the citizens, particularly the most energized and interest citizens would likely reflect real public concerns and handicap a representative freedom to do any act they wish for any constituency for instance a corporation having made large campaign contributions.
We don’t think about these things. We act as if the world were connected by horse drawn vehicles from another age when people communicate with every part of the world in tenths of a second. Let’s start thinking and start building a society where people matter.
That’s the BBC headline. My question is how accurate is it? We aren’t talking about a Western Democracy. This is almost the last of its kind, a communist state. It is easy to find numerous web sites discussing the lack of accuracy and inflated claims made by the Soviet Government during its time. Eastern European Communits countries have a similar dismal record of accuracy. When China’s Great Leap Forward had already become a disaster (1956) government statistics showed it to be a great success. Now that foreign investment, exports and international agreements are on the line, is the temptation less? It was explained to me over and over again by many news articles and “analysis” (sometimes even by my Chinese students) that China would be the big winner during the world economic crisis, that it was immune to economic downturn. If that is so, why did the Chinese Government create a 586 billion (U.S.) dollar stimulus package for its economy?
Are Chinese economic statistics accurate? I have my doubts. What about the greater question? Is China going to be the next world superpower? My prediction is no. There are too many geographic, foreign policy, economic and cultural difficulties for the country to maintain its stability for even the next decade.
When I was in law school we were taught that when a business had to decide whether or not to break the law, if the penalty was a simple fine, you would just decide which was least expensive and pay that cost. So, if the fine were cheaper than your profits, break the law and pay the fine. I was always troubled by that, the assumption that a fine was just a part of doing business.
My perception is that this is major current of thought in modern business. Profit makes right, not as catchy as might makes right, but still probably what a great many businessmen have been taught, believe and put into action.
What does this have to do with my title? Excellent question. According to the research of Lawrence Kohlberg, children at around the age of ten progress to a higher level of moral understanding moving from consequence thinking to considering the intent behind the action. I quote:
So, catch my thought? When a businessman considers the costs of performing illegal or unethical acts only in the sense of money, he is reverting to the very first stage of moral development, that of less than a 10 year old child.
Now, there are six stages in Kohlberg’s theory:
1) Obedience and Punishment Orientation
2) Individualism and Exchange
3) Good Interpersonal Relationships
4) Maintaining the Social Order
5) Social Contract and Individual Rights
6) Universal Principles
Now, you could make a good argument that this kind of business thought (Milton Friedman, etc) actually falls into the second level where self interest and avoidance of punishment become primary concerns. However, making moral decisions at the second level of Kohlberg’s six stages is just about as insulting as reasoning at the first.
My second point is when business is considered only as a money making endeavor, all the other levels of moral development don’t just become irrelevant, they become a block and a hazard to making maximum profit.
People who hold values from the other four stages might very well have difficulty succeeding in a corporation.
Let’s look at level 3, Good Interpersonal Relationships.
It might be difficult to evade taxes, shift jobs overseas, to fire employees who are too old, if you try to live up to these expectations. Now, that generally that is not much of a problem, because if you want to do these things, you can get people (once again, Milton Friedman) to tell you that what you are doing is right and true. Not only is doing these things not wrong, they are in the long term good for everybody and in the long term will contribute to a more successful and happier society.
Now, as someone who professes and teaches ethics, I might point out that using wrong doing and “ends justify the means” thinking is more likely to produce more wrong doing and “ends justify the means thinking” than it is to produce a “good” or “successful” society.
Level 4 thinking means a person begins to consider “society as whole” as a factor in moral decision making. Breaking the law, damaging the environment, treating people badly, acting in the interest of a foreign government or corporation or trading partner to the detriment of your own country, etc. are acts that damage society as a whole. A businessman willing to maximize profit at all costs with this level of moral development has to believe that the long term benefits of illegal and unethical actions will produce in the long term a better society or embrace simple villainy as a way of life.
At level 5, you are essentially talking a language modern business on the Friedman model may have serious difficulty understanding. A “good society” might very well be one where real people with real influence might seriously believe that it is easier for a camel to pass through the eye of a needle than for a rich man to enter the kingdom of heaven. What makes for a good society might in some people’s minds to be things other than money. If the “free market” solves all societal problems in the long term, other thought is just childish rubbish that must be tossed aside as part of the debris of history.
One of the reasons for the absence and continuing decline of moral values in American business is the lack in this society of individuals at the 6th level of moral development. Nothing could be more detrimental to the profit model of societal success than the proposition that there are universal principles by which a society should function. I read a lot and I promise you that the great thinkers, leaders and holy men of history have not been friendly to profit as a primary goal of the good society.
Kohlberg’s six levels of moral development give us insight into how we might consider thinking about ethical problems. Presumably it is better to think at a higher level than a lower one. If you accept that thought than an alarm bell should go off anytime a belief system calls for ignoring higher values and using the earlier ones.
(The quotes for this article are from W.C. Crain. (1985). Theories of Development. Prentice-Hall. pp. 118-136.) With my grateful thanks!
I teach Business Ethics. What happened in the health care debate in the last few days is to ethics what a fire hydrant is to a dog. I am enraged. Does anybody at any time, talk ethics about this issue? And I am definitely absolutely not talking about joe lieberman’s, “I am standing for God and country based on how pettily I can act at the moment.” Revenge is not ethics.
How do I explain any of this to students? Health care reform makes them buy private insurance? Whose idea of reform is this? What do I tell them? Their government’s cure for rising health care costs is to make them buy insurance from private companies? How do I explain the importance of ethics, honor and duty, when it is not rewarded? What kindness, consideration and care have the insurance companies done to merit this? Have they been free of fraud and wrong doing?
Should I just re entitle the class Anti-Ethics: how to get ahead and don’t worry, God won’t get you later?
I can’t explain this to ME. There is no way anyone could have told me this debate would work out this way.
I believe in democracy, that people should have some kind of say in how the government functions. I believe that we are in a serious crisis in the field of health care and that it is severely damaging the country not to mention causing death and suffering for many people.
For decades, in poll after poll, the American people have said over and over again that this system is not working. In Congress over the last few days a consensus has been reached to strengthen the current system, essentially rewarding the same actors and fools who have created this crisis in the first place.
We as a free people will be forced to buy private insurance. Let me explain private to you. If the government does it, I can vote, I can complain and the government can make changes. Elected people like staying elected and even fairly small threats to their electability will motivate them. Private industry has a different motive, profits. I have no way of influencing their decisions. None. Zip. Zero.
You might say: Well James, you can buy another insurance policy, get something cheaper. Really? The insurance companies have an exemption from the anti-trust laws. They do not have to compete. With the government mandate that I have to buy insurance, I am being tied and fettered, thrown helpless into the profit making hands of an insurance company. I will be fined, possibly imprisoned if I do not. I can be relatively confident that the government and private industry will make sure I either pay or suffer.
I could go on for page after page, but what’s the point? I’m not a lobbyist. I don’t make campaign contributions in the thousands of dollars. I have e-mailed my representatives with no response at any time on these issues.
As far as I can tell in the minds of those people I had the misfortune to vote for, I don’t exist. My life has no relevance to the people in Washington.
This is another one of those stories. I am always reading them. Another company discarded ethics, fired those who would practice it and promoted those who “aggressively sought profit.”
According to McClatchy, Moody’s Investor Services, fired employees who warned the company of problems with their ratings of mortgage based investments and actively promoted those who helped create the second largest economic crisis in American history after the great depression.
When the company went public in 2000 it granted its middle managers stock options. This had a corrosive effect on the integrity of the rating process. To quote from the article:
Now, what do you say? As a teacher of business ethics, this is one of those real life examples, it might be best your students never heard about. After all, when the hero in the white hat is unceremoniously dumped and those who have damaged the economic fabric of modern civilization are promoted and enriched(from what I can tell, apparently very enriched). Given the example, you have to wonder why anyone would take business ethics seriously.
The article indicates that if you were willing to give investments whatever their actual value a good rating, in many cases a triple A rating, you were promoted and given more money. Thousand of people relied on these ratings to determine what to invest in. Those unfortunate enough to rely on these credit rating agencies lost large sums of money. We are talking about minimally billions of dollars. These are inconsequential investors like retirements funds, endowments for educational institutions, and charitable organizations.
Can you doubt for a moment that our civilization is damaged by this kind of behavior. Can you doubt that those who did these things and profited should be punished so that others might be deterred? I see an investigation in progress by the Securities and Exchange Commission but aren’t they the ones who didn’t see a problem in the first place?
Unless these people are punished, do jail time, have their profits taken from them and be socially stigmatized, there is no reason for my students and the rest of the public to say the right things to me and other do-gooders; and then take the money. After all, isn’t that what the “real world” says to do?
This is a clear situation where ethics and morality have a role to play. Okay, now, ask yourself, can you ethically sell chickens contaminated with bacteria? Let’s be clear about the consquences. We are talking about food poisoning. Let me quote from wikipedia:
So, we are talking about dead people and serious illness for thousands of others and since food poisoning can mimic other diseases like the flu, the numbers reported are too low.
Now, back to our moral dilemma. The bacteria from your chicken will kill some people often the elderly or the very young. On the other hand, you are participating in busines worth billion of dollars a year. (Tyson sold 26 billion dollars worth of food in 2005.) If your competitors do not act to fix the problem, they can sell chicken for less than you. You will lose market share and thousands of people might lose their jobs.
Now, you might say, “James, you have to draw the line here, we are talking about people’s lives.” I agree that lives are at stake, but I can’t help but point out that it doesn’t look like anybody is drawing a line.
Should we wait for industry to act? A study two years ago showed 80 percent of all chicken contaminated with bacteria. We’ve gone from 80 percent to 2/3 of all chicken sold. Isn’t that movement in the right direction? Don’t you know that incremental change is the responsible way to accomplish these kinds of goals? If you were to impose radical changes on the industry, everyone in American would have to pay a lot more for chicken. Don’t you want even the poorest in this country to have access to meat and the nutritional benefits it brings?
So, we come down to the usual questions. What are you willing to do as an employee of such a company? Where do you draw the line? What’s worth losing your job for? What’s the “right” thing to do?
Futher, as a society, what social costs are we willing to incur for low levels of bacteria in chicken: loss of jobs, increases in foreign competition and a greater price at the supermarket? What’s the social value of cheap chicken?
My conclusion is the following.
Selling chicken which you know to be contaminated with bacteria when you have the technology to eliminate some or all the bacteria is murder. I’m sorry about all the jobs. I’m sorry about the lost profits and danger of competition from foreigners but I just get upset about dead people, a personal weakness of mine, perhaps.
Since, it does not appear any chicken selling company is willing to make the first move to eliminate bacteria and endanger its bottom line, the government will have to mandate new standards.
Now, I realize that given time the free market will solve this problem. After all companies that sell chicken that kill will undoubtedly lose market share. Or will they? Reported levels of 80% didn’t stop people from continuing to buy chicken. On the other hand, this information does not appear to be common knowledge. It appears that the free market doesn’t function well when the consumers do not all have the same information. If death from chicken were certain instead of sporadic it would be easier for the public to make a good decision but food poisoning takes as long as a week to manifest itself. It’s hard to figure out what you ate over a seven day period and of course you might think it’s the flu. What do you think? Could this be an example of the free market yielding illogical or tragic results? Does the free market unfettered by government interference solve all problems?
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