Creative Leadership

The Financial Meltdown and The Moral Aspect of Business

In the 80’s, a new word became the mantra of business schools across the country:  “profit.”  It became the guiding principle for a generation of business students.  It certainly makes sense – after all, isn’t profit why a business exists?  But in the last year, we’ve seen what happens when business pursues profit outside the context of a moral framework.  When a higher motive disappears, and then the government reduces the risk, it’s alarming to see just how far leaders are willing to go in the name of profit.

I had breakfast at the Regency Hotel in New York City Thursday with Chuck Stetson, managing director of PEI Funds.  Chuck made an interesting statement.  “When I entered the investment world in the 70’s, the idea of investing in cigarettes or gambling just wasn’t done.  There was a real sense of moral responsibility in business.  But today, as the culture has changed, we’ve lost that sense of personal values, and as a result, we’re experiencing this financial meltdown.”

Daniel Henninger, writing in the Wall Street Journal called it “moral hazard.”  The term was coined in the 19th century insurance industry.  The French call it “risque moral.”  Back then Henninger writes, it meant the hazards people suffered from poor moral judgments in business.  Perhaps it’s time we started re-considering the importance of moral hazard once again.

Actor Paul Newman got it right with his company “Newman’s Own.”  100% of his post-tax profits went to charity – $250 million total.  He understood the moral responsibility of business, and the world is better because he sold salad dressing.

Hopefully, this terrible financial situation will wake up business leaders to the importance of moral responsibly and social entrepreneurship.  And I would call on business leaders who are serious about their religious faith to speak out, because this is the time when people are listening.  I would even suggest that we consider the personal debt bondage most Americans live under to be a social justice issue.  And what is the legacy we’re leaving to our Children through the national debt?

Chuck Stetson is starting a speaking tour around the country to call attention to the role morality and values should play in financial decisions.

You can do it too.  We all need to do it.  America is listening.

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2 Comments

  1. There are just so many moral issues to the current crisis – its a train wreck of epic proportions. Here a just a few of my own observations:

    1. A good investment is a bad investment if its purchased "at any price". Buffet understands this. He's patient. He's been sitting on cash for several years now because asset values far outstripped their true worth. Its different story now.

     2. The moral hazard of rescuing failed banks is real. Very real. Lessons somehow get forgotten when the pain is transferred on the tax payer.

    3. We simply have to live within our means. Families may not understand double entry accounting or keep their own balance sheet, but they cannot escape it immutable laws. Consumers may not be able to "consume" the economy out of recession this time.

    4. Our economy actually runs on honesty, faith and trust. Go to work, do your job well and serve your customers with integrity. Value assets conservatively. The only thing we have to fear, is fear itself. 

  2. It's a multifaceted problem, enabled by technology, fueled in part by the population explosion created by the baby boomers, and exacerbated by a moral vacuum in which it has become boorish to suggest there might be any absolutes other than the widely accepted yet unspoken mantra – "there are absolutely no absolutes."

    As Michael Douglas preached in Wall Street, "Greed is GOOD!"

    Our history books have convinced two generations now that the government rescued the nation from the Great Depression. Instead of doing the hard work of researching and selecting our own investments, we shovel money into mutual funds where professional money managers and MBA's make those selections for us.  And as any good Wharton MBA will instruct you, the value of a stock is all about earnings per share.  

    Is it any wonder then that executives will do anything to keep that quarterly EPS number growing because that is the key to pleasing the fund managers who can then justify dumping billions of collective 401K dollars into your stock, pumping up its market value and making those executive stock options flourish like a home run champion on steroids.

    If you run out of qualified mortgage borrowers, then just lower the bar and call it providing affordable housing.  And since wise and prudent people won't back such a venture, call on the government and its unwitting investors – the taxpayers.

    $700 billion can't begin to touch what's really wrong here.  It may serve as a clamp on today's bleeder, but we somehow need to rediscover the role of moral fiber in sustaining economic health, like dietary fiber's positive influence on our collective colons.

    With such a lack of fiber in Washington, Wall Street and yes, even Main Street – should we really be surprised that a pervasive cancer has erupted?

    It's a moment for the church to speak into the void.  After all, nature does abhor a vacuum.

     

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