The legal and historic roots of the modern corporation reach well back into the eighteenth century, but it was in the Industrial Revolution of the nineteenth century that this truly extraordinary form of human organization came into its own and, the twentieth century, became the dominant economic force on earth. Consider its amazing characteristics concentration of management, accumulation of capital, shielding of ownership from liability, and being granted a legal existence not necessarily bounded by either space or time—both ubiquitous and eternal! As well, however, consider its fearsome prospects vis-à-vis its lack of accountability, its deficit of democratic governance, its often-uncivilized competitive engagement with all other sectors of society, not to mention its transcendence of both national sovereignty and legal jurisdiction. And there you have it. Is the Trans-national Corporation the answer to the fundamental issues of human survival, or the fundamental threat to life itself? In short, will the corporation of the twenty-first century be a corrupt Robin Hood, or a virtuous Sheriff of Nottingham?
Corporations are not natural persons. Corporations are fictitious, corporations are juridical persons created by law. The point is this: the ethical considerations one might use when dealing with a friend, associate, or stranger, are significantly different when the subject is the corporation.
Getting this straight is critically important to an adequate understanding of business ethics. People—their behavior and the products of their work and intellect—are judged ethically and legally based chiefly on their intentions. Ethical analysis of the behavior of natural persons begins with considerations of what a person meant by what he or she did, said, or produced. In contrast, ethical analysis involving the entity we call “the corporation” must forever begin and end in law and public policy. With reference to the political economy that brought forth the beast. The legal entity, known as the corporation, was created to shield investors from liabilities beyond the limit of their investment (a result that neither sole proprietorships nor partnerships could accomplish) with the legislative intent of facilitating the aggregation of private capital. This legal experiment begun 19th century has succeeded spectacularly.
For people to survive, they need physical and emotional nourishment, and familial and social support. Corporations survive solely by their ability to return value to their shareholders. Hence, corporations are consequential critters, Utilitarian to the core. A friend may forget a lunch date and hurt your feelings, but when he says, “I’m really sorry, I can’t believe I forgot.” You say, “Hey I missed you, but it’s OK. Let’s try again next week.” When a company launches a new product and if the 100 million dollar venture tanks, shareholders do not want to hear about how sorry management is that things did not work out, or that management meant well. It will do the CEO no good to say, “My heart was in the right place.”
When we talk about the ethical criteria for judging the behavior of corporations we speak not of intent, but responsibility: quite literally, the capacity to respond. Corporate ethics is the ethics of corporate social responsibility (CSR), not corporate personal responsibility. The responsibility of a corporation is shaped by two realities: the obligations created by society through (1) law and public policy (legal responsibilities), and (2) the obligations created by corporate culture, i.e. stakeholder (customers, employees, neighborhoods, natural environments) obligations. The two overlap and reinforce each other, but their limits lie within the boundaries of a company’s tangible capacities.
Corporate ethics is really about gaining understanding of what are called “mixed motives”. When natural persons have mixed motives—you give a hundred bucks to the opera because you want your boss, who supports the opera, to think well of you—we somehow know that this is not an unambiguously laudable act. But when a company that makes computers gives 100 laptops to the public school system, and does so with the hope that exposing children to their brand of computers will lead to increased sales—this “doing good to do well” is not only laudable, it is responsible—responsible both to shareholders and the stakeholders.
Corporations as a matter of fact, can only act with “mixed motives”. By law, they are created to serve the bottom line of returning wealth to investors. The law says corporations have a fiduciary responsibility (fiduciary = the highest standard of loyalty and trust owed by agents to principles) to their shareholders, who are the legal owners of the corporation. To do good, a corporation must do well. As a business ethicist, I argue the reverse: to do well, a corporation must do good. People have consciences, and some would say souls; corporations have neither. Corporations are creatures of law and public policy, they are cultural creations; as such, they have unique cultures of their own. Corporate ethics is therefore really about the creation of a culture of responsibility within the corporation.
Dr Lynne Payne of Harvard University has made a major contribution to the understanding of CSR and how it is achieved in her distinction between compliance based organizations and integrity based organizations. In reality, CSR is a product of both compliance (legal and regulatory constraints) and integrity (the internal culture and self regulatory environment). This is underscored by new laws such as Sarbanes-Oxley Act of 2002 and the almost two decade old US Federal Sentencing Guidelines (policy guidelines established in part to determining corporate criminal punishment in US Federal Courts).
Sarbanes Oxley is particularly interesting given Payne’s compliance/integrity construct, in that it requires both integrity structures (such as a corporate board of ethics, and internal protections for whistleblowers) and increases fines for violation of anti-trust and other federal statutes regulating inter-state corporate behavior. Thus, corporations are creatures of law and policy and are regulated externally. Corporations have no conscience per se, but like any social system can develop a guiding culture, maintained through education and reinforced by the habits and interactions of the people within the corporation.
In a world of over six billion people, there is little alternative to large and complex organizations designed to feed, house, heal, and help meet basic human needs. The multinational corporation is here to stay; the issues of how these behemoths are guided and controlled is far from settled. How the humans who work and manage these organizations maintain their own integrity within the Utilitarian cultures of the multinational corporation is a chapter of history we are only beginning to write.
The Social Contract between society and the multinational corporation today is being radically renegotiated. The cascading collapses of the Dotcoms, the Enron, Worldcom, and Aldelphia scandals, and now, the meltdown of capital markets across the globe portends a turbulent future indeed for both the corporation and the business professional. Yet, it is in such times that fundamental changes most often emerge. Those who dare to ride these currents of change will emerge in a new order of political economy.
In 1912 Louis D Brandeis addressed the graduating students of Brown University. Tradition dictated that the graduating class was divided between those receiving learned degrees in the professions of law, medicine and ministry from those in the skill based disciplines, such as business management. The future Supreme Court justice did an interesting thing that graduation day: he turned away from the professional degree candidates toward the business degree candidates, and said:
Each commencement season we are told by the college reports the number of graduates who have selected the professions as their occupations and the number of those who will enter business. The time has come for abandoning such a classification. Business should be, and to some extent already is, one of the professions.
Brandeis minced no words in defining what professionalism was all about. It was:
An occupation for which the necessary preliminary training is intellectual in character, involving knowledge and to some extent learning, as distinguished from mere skill; which is pursued largely for others, and not merely for one’s own self; and in which the financial return is not the accepted measure of success.
Spoken to clergy, physicians and lawyers in 1911, these words would have had a familiar—if unheeded—ring. But to businessmen? Brandeis’ intuition about the decisive character of business management for human welfare has been borne out across the tortured years of this past century. His argument, however, that business management was essentially professional in character is debated still.
The three characteristics of professionalism cited by Brandeis address detail the nature of the requisite responsibility, and are the crux of why it is still controversial to call business management a profession:
First. A profession is an occupation for which the necessary preliminary training is intellectual in character, involving knowledge and to some extent learning, as distinguished from mere skill.
Second. It is an occupation which is pursued largely for others and not merely for one's self.
Third. It is an occupation in which the amount of financial return is not the accepted measure of success.
Within Brandeis’ three paradoxical pronouncements lies the answer to what it means to be a professional in business.
All professions require unique skills. While demonstrated proficiency in particular skills is necessary for admission into a profession, skill mastery alone is not sufficient to define the professional. If it were, a surgeon would be simply a plumber employed to mend human pipes and valves; a lawyer simply a carpenter crafting together legal words and phrases into motions, wills or contracts; a teacher simply an actor skilled at presentation or lecturing. While the surgeon must be extraordinarily skilled in the crafts of incision and suturing, while the lawyer must be adept at the craft of legal word-smithing, and the teacher a master of the practical arts of communication, such skills are not the essence of who they are as professionals, nor are they the be and end all of their practices. Understanding this difference is the key to the classic distinction between a trade and a profession.
Both trades and professions require the practice and perfection of significant skills, but a trade is completely defined by its commensurate skill; a profession is not. As Brandeis explains: “A profession is an occupation for which the necessary preliminary training is intellectual in character involving knowledge, and to some extent learning, as distinguished from mere skill.” I would add that it is not just in “preliminary training” that intelligence and learning are required, but in all aspects of the practice of the continuing professional life.
In a time when everyone wants to be called professional, a real danger lurks in Brandeis’ distinction, an elitism (‘mere skill’), a snobbery, a class bias that is inappropriate both to the tradesperson and the professional. Once, the trades were a source of enormous pride and distinction. Through Medieval guilds a revolution in human worth and work was set in motion and the foundations of the industrial and technological revolutions laid. Through the guild structure, the skills of trades were passed from generation to generation, and the pride of association with quality and integrity maintained.
But the professions were something else entirely. Called The Learned Professions as the Middle Ages yielded to the Renaissance, the Priesthood, Law, and Medicine obviously required rigorous training in particular skills, but the application of these particular skills required a dimension of commitment and integrity not necessitated of a trade. The wisdom to counsel human beings in the midst of spiritual, emotional, physical or legal crisis necessarily requires more than technique. It requires a learned and practiced wisdom: an ethic. It is one thing to entrust your bathroom to a plumber, another thing entirely to entrust your life to a heart surgeon. Those willing to assume the unique burdens of the spiritual, physical, and legal care for humans in existential need were designated, or set apart, as learned professionals.
As I write this chapter, I am in the process of recovering from open heart surgery. The experience of putting my life in the hands of a physician is vivid. I am also sitting in my home that is being extensively remodeled. I am fortunate to have a relationship with two excellent persons: Dick, my heart surgeon and Craig, the skilled construction craftsman (carpenter, plumber and electrician) restoring our home. Both are highly skilled and wise men. Dick, however, is integral to the care and counseling that guided me and my family through my decision to “go under the knife”. Craig is full of sage wisdom about the public and foreign affairs of our times, but in no sense is my life vulnerable to his lively and wise insights that we share while he restores my kitchen and replaces the bedroom window.
Exactly three weeks ago Dick, sat on the side of my bed in a Denver, Colorado hospital surrounded by twelve members of my family and talked to me about the alternatives for dealing with a most unexpected heart problem. He showed me the very worrisome pictures of several partially blocked arteries, and told me that, in his opinion, I had no choice but to have quadruple bypass surgery. Dick said he would send my file to anyone I wished for a second opinion, but felt I should reach a decision soon. My kids asked all sorts of nervous and caring questions and he responded openly and fully. Never have I been with someone as obviously open and trustworthy at a time when so much was at stake for me.
As I made my decision to move forward with this personal ordeal, I would learn from friends in the community that Dick was one of the most skilled surgeons in the country. That was reassuring. But I already knew he was a professional: a person wise and caring enough for me to trust my life to.
A profession is literally so called a profession because the aspirant to the office is orally sworn to specific public commitments—he/she professes publicly legal and ethical obligations unique to the vocation of lawyer, physician, counselor or priest. The public pledge is the portal condition into the unique relationships afforded the vocation. Be clear, it is not primarily a privilege the professional assumes, rather it is fundamentally self-imposed burdens. No one is forced to swear they will put another’s interest above their own, yet this is the condition of all professionalism.
There is a tension between a profession’s public responsibility and its commitment (also made publicly) to the private, vulnerable client. Brandies includes both in the observation that, “A profession is an occupation which is pursued largely for others and not merely for oneself”. The paradox of “the other” is the paradox of the public pledge.
Quite a great deal is made of the special relationship between professionals their parishioners, patients, or clients—the sanctity of the confessional, the doctor patient relationship, or the lawyer client relationship—each special, private and protected both in law and ethics. Thinking of the confessional booth, the examination room, and the lawyer’s office the idea of a uniquely protected privacy, of almost a sacred space, emerges. Assuredly the priest, doctor and lawyer are sworn to hold sacred the disclosures within this zone of professionally protected communication. Being a professional means nothing less than willingly and publicly affirming that the client’s, patient’s or parishioner’s interest shall come before one’s own interests.
For many professionals the matter stops with the pledge: “I swear the patient’s interests comes first, end of discussion.” Yet this commitment to the vulnerable client is only half the issue, as the business and professional crises of our times illustrate. Not only is the priest sworn to care for particular souls, he is also sworn to see to the care of “the people of God”, the moral welfare of the parish, the salvation of the world. Not only is the doctor sworn to put the interest of the patient above his own, but the health of the patient’s family, neighborhood, and the public is also his professional obligation. The lawyer is not simply employed to represent the particular client, but also sworn to be an “officer of the court”. While accountants may be employed by Arthur Anderson to do the books for the Enron Corporation, they also are sworn to keep the interests of the public uncompromised (after all, we call the profession Certified Public Accountants).
I know of no professional comfortable with the tension inherent in this public pledge. No one likes hard choices; no one likes moral ambiguity; each of us wishes to live in a world where things can be reduced to some least common ethical denominator (for example, a single duty). When teaching business students, the mantra of Milton Friedman is the droning undertone of almost every class discussion: “the business of business is business”, the sole responsibility of the business executive is to increase shareholder return.
Yet, the very essence of professional responsibility is to address the difficult and unavoidable ethical tensions between public and private interest—the priest who hears the confession of a disturbed and homicidal parishioner intent on killing yet again; the lawyer who discovers that a client has misrepresented the facts of his case, and is asking for a plea to the court based in lies and distortions; the doctor who is asked to prescribe extraordinarily expensive treatments to a patient too ill, or old to have any reasonable chance of curative benefit; or the engineer who is told that she is bound by a confidentiality agreement, in spite of her certain conviction that a plane, bridge, or space shuttle is likely to fail and potentially cause extensive loss of life. These are not plot summaries for Hollywood; in an infinite variety, they are the stuff of professional life in the complex world of the twenty-first century.
It is by design, and not by accident, that professionals are thrust continually into such Hobson choice predicaments. The professional’s public pledge is an acceptance of ethical burdens not incumbent on the rest of society. It is an acknowledgment of the reality of human existence where things do not come out even, where real ethical insight must be exercised and where benign outcomes are far from assured. Someone must live in the land between the rock and the hard place, and those who do so are designated “professional”.
I think of professionals as the value bearers for society, those particularly burdened and practiced to address the most difficult and sensitive human ethical dilemmas. I do not mean to imply that a business person, lawyer, doctor, psychiatrist, or teacher is better in some moral sense than anyone else. Instead, that they have agreed to assume a unique ethical burden, to work at the transaction point where issues of significant human value are on the line. The professional is sworn not to desert this post, to be there to counsel, reflect and bear with the human condition in the midst of transition and crisis. This is, to me, the essence of professional practice—the practice of raising the value content of human decisions and choices. That is the professional’s sworn burden, it is the very nature of the ethic that defines who the professional is.
All this said, it astounds me that anyone would want the title of professional. But to make sure this point is underlined, let us consider the “Paradox of pay”, perhaps the most complexing of all to the business professional.
I am watching a sports show on the evening news. A local sportscaster is interviewing a member of the Harlem Globetrotters, who are in town for a game. The interview goes something like this:
Sports Guy: Al, I was surprised you never turned pro.
Al: What do you mean? I am a pro, I get paid pretty good for playing ball.
Sports Guy: Well yeah? But I meant you never tried out for the NBA.
Al: Oh, well I like playing for the Globetrotters better ...
Almost everyone assumes that being professional means getting paid (and paid well) for one's work. There are professionals and there are amateurs, the former get paid, while the amateurs do it for the love of it. Well, no. Originally, the professions were too important to receive wages in the usual sense. Professionals were not paid for their work; instead, professionals received an honorarium, a gratuity from the community intended both to honor and disassociate the vocation from the necessities of the market, to free the vocation for the selfless task of caring for others.
Three days before my heart surgery I happened to watch a Sixty Minutes piece on a cardiology group in California which was prescribing and performing unnecessary bypass surgery in order to increase their practice’s revenues. It was chilling. I thought of a case we use in business school about how Sears some years ago pressured employees in their auto servicing division to increase revenues by pushing unneeded air filters, mufflers, and break re-linings, etc. But, heart surgeons re-aligning ethical responsibility due to market dependency? I think the Medieval notion of honoraria for professionals may make a lot of sense in this time of triumphant capitalism. There are some values the market is not designed to dictate.
I love to tease business students about the matter of pay and the power of money. I ask, “Considering the ‘oldest profession’ what had you rather be known for: doing it for money, or doing it for love?” In the realm of love making, most us prefer to have non market forces determine the dimensions of our intimate lives. Let us hear it for true amateurs!
In a real sense, professionals indeed do it for love. It is difficult to imagine bearing the burden of a physician, lawyer, counselor, or a professor without having a deep and effusive passion for what one does. Professionals cannot leave their work at the office, because what they do is who they are. As I have discovered, teaching is the most rewarding thing I can think of doing. I do not just teach; I am a teacher. I am glad I am paid for my work, but truth be known I would do it for free. I walk away from a class where the students and I have really “lit it up”, and I do not even have words to say how good it feels. I can describe historically and intellectually what a professional should be, but even better, I also know what it feels like. No amount of money can compensate for that feeling.
Consider the burdens of true professionalism that skill alone is not sufficient to qualify: one is publicly pledged to work on the unrelenting tension between the welfare of the client and the good of the society; and that is not the criteria by which success will be judged—why would one choose to “turn pro?” I have only one answer: professions are rightly designated as vocations. We become priests, lawyers, physicians, professors because we cannot do anything else; who we are cannot be achieved outside the realm of what we are impelled to do.
-The first link refers to a news story on Dunn's resignation from the Hewlett-Packard board. It is taken from PBS's Online NewsHour in a report delivered by Margaret Warner on September 22, 2006. -The second link provides background information on the Hughes Aircraft case profiled just below.
Once a highly respected company, Arthur Andersen no longer exists having gone bankrupt in the wake of the Enron disaster. Arthur Andersen provided Enron with consulting and accounting services. The consulting division was more successful but the accounting division, with its long tradition of outstanding ethical service, was the corporation's backbone. Arthur Andersen signed off on Enron's use of mark-to-market accounting which allowed Enron to project optimistic earnings from their deals and then report these as actual profits years before they would materialize (if at all). They also signed off on Enron's deceptive use of special purpose entities (SPE) to hide debt by shifting it from one fictional company to another. With Arthur Andersen's blessing, Enron created the illusion of a profitable company to keep stock value high. When investors finally saw through the illusion, stock prices plummeted. To hide their complicity, Arthur Andersen shredded incriminating documents. For federal prosecutors this was the last straw. The Justice Department indicted the once proud accounting firm convinced that this and previous ethical lapses (Sunbeam and Waste Management) showed a pattern of unabated wrongdoing. Arthur Andersen was conficted of obstructing justice on June 15, 2002 and closed its doors shortly after.
McLean and Elkind provided background for this profile on Arthur Andersen. See below for complete reference.
1913--Founded by Arthur Andersen: "think straight, talk straight"
Stood up to Railroad company in early years. When asked to change accounting standards, Andersen said, "There is not enough money in the city of Chicago [to make AA give into client demands]"
1947-1963--Leonard Spacek became president of AA succeeding Arthur Andersen.
Spacek helped motivate the formation of the Financial Accounting Standards Board. AA also served as conscience of accounting profession criticizing the profession and the SEC (Securities and Exchange Commission) for "failing to square its so-called principles with its professional responsibility to the public."
1963-1989--Slow erosion of standards and development of competition between accounting and consulting divisions. (Consulting division was developed to take advantage of a profitable direction in the financial induistry.)
1989--Consultants achieve relative autonomy as "separate business unit." (McLean: 144)
1997--Consultants break from firm.
1988-1991--Arthur Andersen receives 54 million in fees from Enron
2000--Enron pays AA 52 million. The lion share of this was for consulting fees.
June 15, 2002--AA found guilty of obstruction of justice. "Today's verdict is wrong....The reality here is that this verdict represents only a technical confiction." (McLean: 406)
Howard Hughes founded this company at the beginning of the twentieth century. Hughes became a regular supplier of military hardware to the U.S. military. In the 1980's this