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We are pleased to present the following excerpt from the book

Profit with Honor: The New Stage of Market Capitalism

by Daniel Yankelovich

Yale University Press - May 2006


Seven Deadly Norms

It would be wrong to imply that destructive norms have taken over the business community. This is emphatically not the case. Unfortunately, there is no reliable way to quantify just how far ethically pernicious norms have spread. The truth lies somewhere between "a few bad apples" and "a culture of corruption." The scope, magnitude, and frequency of the scandals do imply that something systemic is wrong. In 2004 the Corporate Fraud Task Force of the Justice Department charged more than nine hundred executives with fraud and obtained more than five hundred corporate fraud convictions. The SEC filed more than six hundred civil enforcement actions involving fraud. This is certainly more than a few bad apples, especially when one realizes that it represents a minuscule fraction of corporate wrongdoing.

On the other hand, there is strong evidence that the taint has not spread throughout business. In many companies, the dominant norm remains the smell test -- the conviction that staying within the letter of the law is not good enough and that the company must adhere to ethical standards of right and wrong that go beyond the law. Yet in recent years, a number of dysfunctional norms have crept into the culture, aided and abetted by groupthink. Seven destructive norms converge with one another to form an über-norm that might well be called unenlightened self-interest.

I will elaborate on these in later chapters, but here briefly are the seven deadly norms that are causing most of ethical confusion in the nation, particularly in the business community:

1. Equating Wrongdoing Exclusively with Illegality

To the extent that shame and guilt still operate in our society and are linked to wrongdoing, and to the extent that wrongdoing is linked solely to breaking the law, then one is off the hook simply by staying within the letter of the law. As noted earlier, there is no more corrosive deterioration in today's ethical norms than the conviction that "I didn't do anything illegal, so I didn't do anything wrong."

2. Win at Any Cost

The norm that winning is all that matters and that everything else is unimportant pervades the larger society but becomes particularly consequential in corporate settings. Since competition is a dominant theme in business, it reinforces the aggressive urge to win without fussing too much about the tactics for doing so. Corporations often deploy their resources in a zero-sum form of winning: if we win, you have to lose.

Because we have become such a highly individualistic society, the fierce need to win at all costs readily spreads from the company to the individual. We can see this norm at work in countless small instances in our society, from a driver who cuts another off in order to gain a few yards' advantage on a congested freeway to a parent screaming abuse at the coach when his or her child's soccer team loses a game.

3. Gaming the System is Good Sport

There are large elements of fun and game-playing in seeing how far one can go gaming the system. Enron was full of computer-savvy young people who spent days and weeks with their complex computer models figuring out how to drive up the price of energy artificially (for example, through deliberately closing refineries for maintenance and repair in California to create the maximum bottleneck).

When the desire to beat the system converges with the imperative to win, the result is a deadly combination, ensuring that the energies of gifted young people will be devoted to activities whose ethical consequences are easily shoved into the background.

4. Conflict of Interest is for Wimps

One of the deadliest norms in business today is the tendency to ignore or brush aside conflicts of interest as lily-livered concerns that should not interfere with making as much money as the traffic will bear. This norm is especially flagrant on Wall Street and in the insurance industry, where playing both sides of a transaction has become an art form. Practitioners protect themselves from shame and guilt by developing bland Orwellian language to describe their double-dealing transactions. The phrase "conflict of interest" is itself bloodless and legalistic. It carries none of the pungency associated with plain-talking phrases like "betraying the customer's trust" or "getting kick-backs for pushing clients into the worst performing funds."

The hypocrisy is obvious to Wall Street's own ethically concerned leaders. The celebrated Wall Street analyst Byron Wien has written extensively about "the breaking of the covenant between corporations and investors." Unfortunately, Wien's concerns have done little to change Wall Street's habits.

5. The CEO as Royalty

In the 1990s CEOs became celebrities, partly for their outsized paychecks and partly because of the dazzling performance of the stock market in the years leading up to the bursting of the bubble. Little need be said here about the corrupting influence of money, power, and adulation. It has all been said before. Power goes to people's heads. Few can handle it well. The usual response is arrogance and the conviction that your whims should be instantly indulged, no questions asked. There is no other explanation for the excesses of people like Kozlowski, the Rigas family, Lord Black, Kenneth Lay, Bernie Ebbers, Franklin Raines, and countless others.

The destructive norm here is the assumption that the power and grandeur of the CEO is so great that he (and sometimes she) is exempt from the norms that ordinary mortals are forced to observe.

6. Twisting the Concept of Shareholder Value

This deadly norm is specific to business, which I discuss at length in Chapter 8. The rationale usually given for putting shareholders first is that by serving the long-term interests of committed investors, the company also serves the interests of its other stakeholders -- employees, customers, suppliers, local community, the society at large. In practice, however, shareholder value does not live up to its rationale because it suffers from two crippling distortions. The more obvious distortion is the emphasis on short-term quarterly earnings reports -- the ones that clever accountants can most easily manipulate. The less obvious but arguably more serious distortion relates to the identity of the so-called "owners." The phrase conjures up images of Warren Buffet-type investors who buy and hold their stock for the long haul, or of Grandpa in Cleveland whose retirement is made comfortable by the dividends the stock pays. In practice, shareholder value has little to do with committed investors and owners of the company's shares, and everything to do with thirty-year-old mutual fund managers with zero loyalty to the company who can and do dump the stock without a second's hesitation. They are short-term renters of the stock, not committed owners. In both cases, there is a destructive shift from a long-term to a short-term focus.

In combination, these distortions make a mockery of shareholder value's stated intention of aligning the interests of management more closely with those of the company's owners.

7. Free Market Economies Require Deregulation

This is perhaps the subtlest of the seven deadly norms -- and some scholars believe it is the deadliest. It ties into the laissez-faire strain of the capitalist tradition. Executives hold highly abstract and theoretical assumptions about the nature of corporations and market economies. One such assumption is the image of the corporation as an impersonal machine. Driven by inexorable laws of profit maximization, these corporate machines cannot afford constraints like regulation or sentimentality about people's feelings and lives. This notion that the corporation runs according to inescapable, impersonal, and rigid economic laws has fostered a great deal of ill-advised deregulation, as well as rigidity, inflexibility, and undue suffering.

The experience of many nations, especially our own, has demonstrated that a market economy is not a machine with a fixed inherent nature but a system that can be remarkably flexible. The position of CEO in a large multinational corporation is the pressure point in the system. It is where all the conflicting and contradictory pressures of the modern global economy converge. This makes the job of the CEO immensely complicated. But it also makes it compelling and important. CEOs are the change agents of the emerging global economy.

A free-market economy is not well served by the automaton CEO who identifies totally with the notion of a market-driven enterprise as a machine that cannot, and should not, be constrained by regulation. It is well served by the very human CEO who brings his or her own well-developed ethical values into the job and calls upon these for guidance in juggling corporate cross-pressures.

Copyright 2006 by Daniel Yankelovich. Published with permission.

Daniel Yankelovich is chairman of Viewpoint Learning, of Public Agenda, and of DYG, Inc. He is best known for his work in the field of social values and public opinion and has served on the boards of numerous corporations, including CBS, Educational Testing Service, Meredith Publishing, Loral Space & Communications, and USWest. He is also the coeditor, with Norton Garfinkle, of Uniting America: Restoring the Vital Center to American Democracy, published by Yale University Press.

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