While this new edition was going to press, the recession that began late in 2007 was growling its way to the bottom of a bear market. I’d been following that development through my weekly columns for Ethics Newsline, the electronic newsletter from the Institute for Global Ethics. The case I found myself making was straightforward: What started as an economic recession was fast becoming an ethics recession. Over the summer and early autumn of 2008, the recession was still being discussed as a phenomenon related to money, wealth, and markets. But somewhere around October the tone began to shift. By early December—just as the revelations of Bernie Madoff and his gargantuan Ponzi scheme were coming to light—the conversation had already shifted to issues of dishonesty, irresponsibility, and lack of integrity. By mid-spring of 2009, the title of a small book published by the Institute that collected these columns—The Ethics Recession—drew nods of grim recognition from those who heard about it. Yes, they kept telling us, that’s what this is: a recession driven by selfishness, deception, and greed.
Over those months, something unusual happened to the language of public discourse. Ordinarily, America’s public conversations are carried on through what might be called the two “default languages” of journalism. Left to their own devices, journalists use either the language of economics or of politics to explain the world. The former, which is broadly about revenue and expenditure, has behind it the overriding question, What’s the bottom line? The latter, focusing on influence and opinion, asks, Where’s the power? You’ll see what I mean if you pick up any newspaper, examine its front page, and ask what implicit queries the reporter is trying to answer. Unless journalists deliberately adopt an alternative language—if they’re sportswriters, say, or arts journalists or science columnists or book reviewers—those two questions are foremost in their minds.
And so they were in the public’s mind during the opening months of the recession. By late autumn, however, a third language was forming itself, first in columns and blogs, then in the news reporting, and finally in the public square. It wasn’t the language of economics or politics, but of ethics. It didn’t ask about power or the bottom line, but about values. Its central question wasn’t “Where’s the power” or “Where’s the bottom line” but “What’s right?” So salient was that third question that it kept cutting through the other two. And so broadly based was the universe of those doing the asking—since, after all, the language of ethics is far less specialized and more accessible than the other two—that it gave voice to everyone. In sports bars and high-end restaurants, malls and boutiques, barbershops and faculty lounges, words like integrity and trust were in the air—along with rip-off, irresponsibility, unfair, and just plain wrong. The college-bound high schoolers whose wage-earning parents had suddenly lost their factory jobs were just as apt to speak the language of ethics as were the coiffed and poodled matrons whose entire future had been swept away in the Madoff tsunami. Yes, it was a language of outrage, especially when public attention turned to the federally funded bonuses paid by the troubled Wall Street firms to their star performers. But it was moral outrage, cast not only in terms of political chicanery or economic cost but of the core ethical values of honesty, responsibility, respect, fairness, and compassion.
As the crisis evolved, it invited introspection—as crisis often does. Along the way, the language of rectitude and turpitude, character and greed, caring and selfishness rose to a prominence that, in twenty years of focusing on this topic, we at the Institute had never seen. Increasingly, a baffled and affronted citizenry found it natural to talk about ethics—not as an option or a bolt-on, nice to have but inessential to success, but as an inviolable requirement without which capitalism, free enterprise, and democracy itself couldn’t flourish. Increasingly it became easier to make the case that ethics wasn’t about righteousness but about survival.
What were we learning through that language? For answers, we need to look at the underlying causes of the recession. Of course there were powerful political forces at work, traceable back through a growing deregulatory climate that took root in the Reagan years. It played out across both parties until, following the Enron debacle, Sarbanes-Oxley struck back in the summer of 2002. Historians will long weigh the politics involved in the decisions that carved out special relationships for Fannie Mae and Freddie Mac—and that so toughened the requirements for board membership on publicly traded corporations that many seasoned and respected leaders found they couldn’t serve. Clearly, the language of politics helps us understand the recession.
So does the language of economics. In the decades leading up to this recession, Americans had educated themselves about economic issues in innumerable ways. They did so by reading economic news for themselves, joining investment clubs, becoming their own stockbrokers, plunging into day-trading, arguing learnedly with one another about 401(k) rollovers and private equity and real estate investment trusts, and paying regular attention to the stock ticker that became a standard superscript on television screens. The language of economics was becoming part of the daily national discourse, perhaps as never before.
How, then, did the language of ethics secure such a foothold and rise up with such authority? I suspect because three deeper forces were at work: demography, relativism, and technology.
Late in the first decade of the twenty-first century, with these trends converging like three lasers focused on the global economy, the recession began to take shape. Fortunately, a mitigating factor was also in play. A great number of corporate and public leaders brought to their careers a residual sense of a social and moral conscience. For some, that conscience grew out of religious and spiritual teaching. Others found it handed down within families that, with or without a tradition of worship, equipped the coming generations with a moral compass. For still others, it came through civic and social organizations focused on scouting, sports, performance, and dozens of other activities that taught strong lessons of responsibility, mutuality, diligence, and trust. And for a great number—perhaps many more than a cynical age wants to recognize—that moral sense was actually reinforced within the workplace, where honest and well-meaning leaders set a thoroughly professional tone of high standards, genuine courtesy, and dedication to serving others. Yes, there are aberrations. Yes, their list is long, from Enron’s Ken Lay and Jeffrey Skilling to Illinois governors Rod Blagojevich and George Ryan, and from financiers Bernard Madoff and Alan Stanford to sports idols Barry Bonds and Floyd Landis. But despite these miscreants, and despite the pressures of demography, relativism, and technology, there is a ballast of ethical probity in our public, corporate, and community life. There are, as this book’s title suggests, a very large number of “good people” at work in the world today. Were that not so, three things would already be evident:
In fact, the recession grew ugly but not catastrophic. Individualism receded and a sense of community grew—even in hard-hit poverty areas. And the media recounted numerous tales of moral outrage from a citizenry that, far from shrugging off reports of corruption and deceit, viewed them as egregiously wrong.
If this analysis is accurate—if what we experienced in the final years of the century’s first decade was indeed an ethics recession—how do we keep from sliding into another one? The arguments over the economic measures and political accommodations put into place in this period will remain at a full and rolling boil for years to come. But there’s a residual recognition that you don’t resolve an ethics recession through economic or political fixes alone. More government regulation and tougher compliance measures, better economics education and deeper political savvy—while these may be necessary, they aren’t sufficient for a permanent remedy. A recession driven by ethical lapses needs an ethical corrective.
But we’ve also learned that it’s not enough to focus solely on personal ethics. The creation of a stronger sense of individual integrity, the development of a finer sense of character in our top leaders—while these are laudable, they won’t do the trick. Why? Because the public is coming to understand that corporate greed, fraud, and deception aren’t caused by a few bad people at the top. They’re the product of pervasive atmospheres of irresponsibility far larger than any single individual. If the problem lies not only with leadership but with fol-lowership, not only with individuals but with communities, then what’s needed is not a moral makeover at the top but an ethical climate change throughout the organization. What’s needed, in other words, is a wholesale effort to create cultures of integrity.
Why does this matter? A simple thought experiment makes the point. Imagine two graduates from an ordinary American high school who enter the workforce the same day. Both are typical of their age cohort—which, sadly, means that, in keeping with statistics presented earlier in this book, they are among the majority of high school students who think that lying and cheating are acceptable means for getting ahead in life. One goes to work for a company with a solid culture of integrity. The other goes to work for the modern equivalent of Enron. Where would you expect them to be after six months?
The student at the ethical company will be found to have a rising personal moral barometer—if, that is, she’s still employed. Why? Because whenever she has defaulted into corner-cutting and prevarication, those around her will have taken her aside and explained that “We don’t do things that way around here.” She’ll have learned, no doubt to her surprise, that people here actually don’t cheat on time sheets, pad expenses, pilfer office supplies, cover up for each other, or lie to superiors. By contrast, where will her colleague be over at Neo-Enron, Inc.? Give him six months, and his sense of ethics will have slid right down to the bottom of the barrel. With nothing to correct him, he’ll merrily import his high school ethics into the workplace—and find a happy fit. Lesson: The power of a culture is enormous, and its impact can be revolutionary or catastrophic.
But does that imaginary experiment play out in real life? Can a culture of integrity really address the organizational misconduct that characterized some of the leading institutions during the ethics recession? There are faint signals of encouragement. The Federal Revised Sentencing Guidelines of 2004, designed for use in cases of corporate crime, encourage judges to reduce sentences for companies that “promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law [italics added].” Promoting compliance, while important, is not itself enough to win a reduced sentence. Nor is the presence of an ethics training program for a few individuals. The focus must be on culture-building.
That view finds strong support in the National Business Ethics Survey, a longitudinal series conducted by the Ethics Resource Center (ERC). The 2007 report finds that “the strength of the ethics culture is the single factor with the greatest impact on misconduct.” The report suggests that the presence of a strong culture of integrity effectively curbs misconduct, whether in such large-scale wrongdoing as altering financial records, taking bribes, and misusing confidential information or in smaller issues involving conflicts of interest, lying to employees, and employee pilferage. The survey also shows that
All of which is encouraging—until you ask how prevalent such cultures are in the corporate world. By the ERC’s standards, only 9 percent of U.S. companies in 2007 had strong ethical cultures.
The task ahead, then, is significant: to build ethical cultures in the remaining 91 percent of companies. That task begins by asking what we mean by “a culture of integrity.” The best definition of culture I’ve heard so far is the most colloquial: How we do things around here. That first word, how, is an adverb. So an organization can do things meanly, efficiently, ruthlessly, carefully, cleverly, scrupulously—the list is nearly endless. But when it does them ethically—when, in other words, it puts into practice the shared moral values that define the standard of ethics—it is building toward a culture of integrity. Nor is it about the things we do, but about how we do them: A company whose product is universally revered for the social benefit it produces may or may not have a culture of integrity. Doing the right thing doesn’t automatically mean you’re doing things right.
But culture is also about how we do things. How I do things is style, not culture, and the list is long of organizations that have confused the two—imagining that, by installing a charismatic new head or imbuing the executive echelons with flair and panache, they will somehow create a new culture. Culture is more than simply the reflection of a leader’s style. In fact, it’s more than the sum of its parts. Larger than the totality of the attitudes and beliefs of the employees who happen to work within it at any given moment, it is shaped by years of history, tradition, and intention.
Finally, culture is local and specific: It’s about what happens around here, not over there. That point, often overlooked, reminds us that many different cultures can exist side by side within an organization, and that all of them can be good and ethical in different ways.
As we move into the coming decades of the twenty-first century, there will be no more important task than to create organizations with cultures of integrity so sound that they will naturally and easily resist the pressures that created the ethics recession. That’s not an easy task. It requires dogged persistence, a commitment of resources, and a recognition by executives, directors, and stakeholders that the game is worth the candle. The fact that by 2007 fewer than one in ten companies had cleared the bar established by the ERC suggests, sadly, that many may never get there. Those setting out to do so should be aware of ten prominent characteristics that, in our observation, are common to organizations that have rich cultures of integrity. Such organizations, we find,
This list, while more provisional than conclusive, points the direction for our future. While more research needs doing in this arena, it is already clear that the most promising direction for the field of ethics lies in developing from the personal into the organizational. This book has unapologetically focused on the former: It is about how good people make tough choices. Without good people, good organizations will never develop. But without a focus on the organizational, ethics risks being little more than “the lengthened shadow of a man.” The words are from Ralph Waldo Emerson’s definition of the word institution. The problem, of course, is that shadows are insubstantial, evanescent, and vague. So, too, will be the result of any attempt to build strong organizations solely around strong individuals—who may retire, quit, lose heart, grow corrupt, find other interests, or settle into routines. In the twenty-first century the task of good people must be to build ethical cultures larger than the individuals who currently inhabit them. There is no better defense against a reprise of the ethics recession.