Honesty in Business-Part 2-Best of Meridian
by Marianne M. Jennings
Without a foundation of ethics, the society falters.
Honesty and the Laws of Probability
A frequent rationalization for a chosen compromise of values is “Who’s to know?” In an eternal sense, there is nothing that escapes the great recording of our lives’ deeds. Yet, with our mortal blinders on, we continue to believe that getting caught is the ethical breach and playing the odds on someone discovering our misdeeds is not a bad strategy for getting ahead quickly. Dostoevsky wrote in Crime and Punishment that lying is good, for it is the only way by which we get at the truth. With the wisdom of the ages, our Heavenly Father has structured our world so that the righteous are protected, shielded, and even given an advantage over those who choose to manipulate and deceive. The laws of probability are inapplicable when it comes to the discovery of our misdeeds. There is but one variable in the discovery of wrongdoing: the time between the deed itself and its revelation. In the words of Shakespeare through his character Hamlet, “the truth will out.”
Deception is short lived
Often as we glance around us and see successful but deceptive people getting ahead through moral shortcuts, we find ourselves concluding that nice guys do indeed finish last. But our glances at these successful sprinters are but a glimpse of one moment in time. We are unable to see the eventual consequences of their choices. Joseph Jett was a bright Harvard graduate with a position as a government bond broker in the Wall Street firm of Kidder Peabody. In 1993, Mr. Jett was Kidder’s man of the year, the toast of Wall Street, and the proud recipient of a $9 million bonus. Today, Mr. Jett’s life as a delivery boy earning $10 per hour is vastly different as he copes with charges by the federal government of falsifying trades as well as his own diary entries reflecting these trades.
The ease of deception is a tempting path. But deception is a ploy, a quick fix, and a temporary success. From the New Era philanthropy scandal, which initially brought its founders returns of fifty percent and more, to the charges of fraud in the savings and loans debacles, the inevitability of the demise of the dishonest is evident. We have a world still ruled in principle by its Creator, a world where the triumph of deception is only a temporary one. Deception’s inevitable discovery brings consequences for perpetrators who insist on defying the principles of the Creator in their business lives.
A good marriage is based on honesty and trust. The prophets have counseled for generations about the importance of candor, communication, and reliability in strengthening a marriage. The loss of trust in a marriage often leads to the loss of respect and the extinguishment of love. Business relations are no different from marriages. Whether the issue is the interrelationship of partners or the interaction between parties to a contract, the key component is trust. No matter how well drafted the articles of partnership or the contractual agreement, the success of business relationships turns off the parties’ relationship. Their ability to trust one another determines whether they can work through their differences and resolve ambiguities without litigation or disruption. There is no law nor any written agreement that can guarantee performance under the terms of a contract. A contract’s success or failure depends largely upon the ability of the parties to adhere to standards of fairness and to deal candidly with each other.
More than contracts in business are dependent upon honesty and trust. Entire economic systems turn on their presence. Investors are willing to surrender their funds as capital investment for a business because they trust that their investment and its terms will be honored. Customers purchase products because they trust that the quality of that product will be as represented and that the seller will hold true to his word. Businesses are willing to invest in plants and equipment because they assume governments will be fair in dealing with those assets and business’s rights to them. There is a circle of trust in the capitalistic economy, and to the extent that component of trust is lost, there will be a breakdown in the free enterprise system that affords opportunity for individual achievement.
In some countries in which the fall of the Iron Curtain has brought newfound political and economic freedom, there has been enormous economic growth and opportunity for citizens deprived for so long of the freedom to choose what they would buy. Yet, not all of the countries are enjoying strong economies, despite possessing rich natural resources and talented labor forces. In these countries, there remains a hesitancy on the part of businesses and citizens to commit funds for investment because of a lack of faith in the integrity of government and executives to honor their promises and commitments. Without trust, economic growth is stalled by a hesitancy born of fear of dishonesty. An official in Brazil, when asked to explain his nation’s slower economic pace, replied, “We’re an amoral society.” To him, morality was the central requirement for economic growth.
Honesty and Long-Term Success
It was in 1986 that a full-page ad appeared in the Wall Street Journal with the following words: “The Diamond Match Company. One hundred years of consistent dividend payments.” The ad was intriguing because this company had managed, through two world wars and a depression, to operate its business in such a way that it never reneged on its promise to pay its shareholder investors. Curiosity led Professor Louis Grossman and me to two questions: (1) What was the secret to this company’s success? (2) Were there other companies like it? In our work together, we found eight other companies with the same remarkable record. The companies were diverse in their product lines, but they shared a common thread of values that were strangely old-fashioned for modern business. Even more intriguing was that these values mirrored gospel principles. In an era when business financial wizards touted effective debt management as a key to success, those firms eschewed debt. Decades before “total quality management” became a business mantra, the executives of these firms continually reminded employees to treat customers with respect. The term “stewardship” was used by executives as they described their accountability to shareholders for their investment. And among the executives there was a quality of humility evident in their frequent road trips to meet customers and their Spartan offices. Success followed these companies because of their commitment to selflessness in their operations.
Dishonesty and the Addiction of Codified Law
In situations where distrust abounds and problems with dishonesty create the need for mandated performance, our tendency is to create complex laws and rights designed to bring about the standards of fairness that gospel principles would dictate regardless of codified law.
We have evolved slowly from a society grounded in religious values to one that remains detached and amoral. Codified law has become the sole determinant for appropriate standards of behavior. The lack of a specific statutory prohibition on behavior means that the behavior is acceptable. Rights are created to provide protection from the lack of compassion. Liability is imposed to prevent sales of harmful products. There are dangers in a dependency on laws and their use as our sole standard of behavior. In the maze of rules, the element of judgment is eliminated. Nicholas Leeson, a British trader, sat before a computer and generated highly leveraged stock deals that led to the bankruptcy of Barings Bank, a legendary institution in international trade that had financed the Napoleonic wars. Mr. Leeson did not violate any laws, but his judgment was clouded by the temptation of multi-million-dollar commissions. His focus on the legality of these instruments produced a block on the ethical concerns of their risk and the exposure of some individuals’ life savings to complete dissolution.
As the U.S. government struggles to write and establish complex guidelines on sexual harassment, the problem with the issue in the workplace escalates. “No, I didn’t violate the guidelines,” is the codified law justification for lack of virtue. Codified law is strained, complicated, and often ineffective. Simple manners could solve many issues. An apology is effective but not given for fear of liability. In the twisted maze of codes, our virtue is lost.
Codified law no longer has as its basis God-given or natural law. The very mention of the existence of universal principles of moral standards in the form of natural law incites ridicule and cries of bigotry. There is danger in this addiction to codified law, for our dependence upon it costs us dearly in the loss of our ability to analyze conduct from the perspective of “right” vs. “wrong.” Emotions, harm to others, duty, and fairness are surrendered to legalistic questions, “What does the law require?” “Is there any liability if I do this?” “Is there any liability if I chose not to do this?”
A young physician recounted his experience of witnessing a car accident as he made his commute to the hospital where he was completing his residency. Among the victims of the serious accident was a driver who obviously required a tracheotomy to survive. Traffic conditions precluded speedy delivery of medical assistance. The physician described his first thought as he saw the struggling driver as not one about the welfare of the dying man, but that of what would happen to his license and how much liability he would have if anything went wrong during the procedure. After he performed the tracheotomy, the young physician was relieved, not because he saved the driver’s life but because the driver was moving his toes which meant no neurological damage from the tracheotomy. Malpractice, recovery, litigation, and rights are creations of statutory law that reduce us to a society of confrontation. Forgiveness is a concept absent from the remedy-laden codified law.
The Role of Ethics in the Twenty-first Century
As the disaster at the nuclear plant in Chernobyl was analyzed, it became clear that engineers in the plant had overridden the safety policies and procedures at the plant. Within a small group of individuals was the power to bring about a mishap that will affect generations of Russians. The fallout from the reactor meltdown was measured around the world. Within that same small group of plant employees rested the trust of a world in the exercise of their judgment. That trust was betrayed as these plant operators opted to minimize costs. Concern for the safety was subordinate to business goals.
Joseph Jett of Kidder Peabody and Nick Leeson of Barings Bank, through the miracle of computers, were able to single-handedly destroy two companies and cost the trusting owners much of their investments. Both men placed their desire for increased wealth over the interests and property rights of their investors and fellow employees. Both men also had the sort of control over operations that was designed and awarded on the assumption of honor in execution.
Technology places greater control in the hands of fewer individuals. As we look back in history, it would be difficult to find a disaster of the level of Chernobyl. As we study even the robber barons of the late nineteenth century, we are unable to pinpoint conduct by one individual that destroyed international firms. With the individual autonomy and power that technology facilitates come the need for the highest standards of integrity in those individuals given the control of that technology. Yet, as we head into the twenty-first century, we witness not a strengthening of the role and importance of integrity, but an ever-declining level of morality.
On Kohlberg’s scale of moral development, we have declined from a level of choosing integrity because of our belief in its importance and its origins in spirituality to a level of finding an ethical breach only when one is caught. With technology affording greater ease of expansive business operations through one person’s conduct, the standard for behavior cannot remain at such a low level that is divorced from compassion. Technology calls for greater judgment and discretion, not blind ambition. The presence of the question, “Are you honest in your business dealings?” is yet another manifestation of the omniscience of our Heavenly Father. The presence of integrity in commerce is critical for its success and resulting continuation. Latter-day Saints must draw from the wisdom of the Savior’s teachings as they engage in commerce. Business ethics come from compliance with the Golden Rule: How would I want to be treated? And perhaps an extension of that rule: Am I willing to live in a world in which my standards of conduct would be the universal rules? For those who are honest in their business dealings, the answer is an unequivocal yes. All in all, this ethics in business is not a bad plan.
The foregoing articles, part 1 and 2, by Marianne M. Jennings, are excerpted from the book Charting a New Millennium, The Latter-day Saints in the Coming Century, Aspen Press, Salt Lake City, 1998, edited by Maurine and Scot Proctor.
Works Consulted
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Hansell, Saul. “Kidder Peabody Jolted by Phantom Bond Trades.” New York Times, April 19, 1994, C1, C13.
Jennings, Marianne. Case Studies in Business Ethics, 2nd ed. (Minneapolis/St.Paul: West, 1996).
Jennings, Marianne. “The Tony Bennett Factor,” Wall Street Journal, June 28, 1996, A14.
Kohlberg, Lawrence. The Philosophy of Moral Development (New York: Harper & Row, 1981).
Post, James E. “Assessing the Nestl Boycott: Corporate Accountability and Human Rights.” California Management Review. 27 (1985): 113-31.
Spiro, Leah Nathans. “What Joseph Jett’s Defense Will Look Like,” Business Week, June 13, 1994, 70.
2001 Meridian Magazine. All Rights Reserved.
