The issues surrounding Goldman Sachs highlight many of challenges facing the business ethics industry. There has been a public furor over the integrity of certain industries, such as finance, even though the leaders of those companies can state categorically that they acted legally, and ethically, within the guidelines they have worked within for some time.
However, our common sense notions of what is ethical and what is fair are determined by social norms. What then are the responsibilities of leaders in firms, and in industries whose ethics have been challenged, to acknowledge changes in how our society perceives them? Is it better to batten down the hatches and wait out the storm, or to develop the means to engage in an effective dialogue with these external stakeholders to maintain trust?
Much of the furor over Goldman Sachs rests in our collective ambivalence over Wall Street itself. Is there something inherently unethical about the entire trading industry?
The Senate hearings highlighted a mismatch in how Wall Street sees itself and how it is seen. Goldman’s witnesses said a market maker—someone who matches buyers and sellers—has an obligation to describe accurately the product being traded, but needn’t disclose his own position. Are we surprised that a trader can take the stand and simply say that we were doing what we’ve always been doing?
Maybe they have, and it’s us that are changing our expectations?
Does the nature of the federal bail-out change our definition of what is ethical?
While it may sound trite at first, this gets to the heart of the perceptions of trust and the commitments that were broken. Big boys on Wall Street can do what they have been doing for 200 years. Caveat Emptor.
But when Wall Street is financed by Main Street, new relationships are formed. Firms now have new sets of stakeholders, and they are required, if not by law, then by social convention, to maintain a relationship based on trust.
Trust requires a whole set of expectations that run counter to the caveat emptor trader culture: predictability, looking out for the other person’s interest, etc. It’s when these values clash with our independence and freedom values that drive our entrepreneurial trader side that we see the fireworks.
Carter McNamara of Authenticity Consulting, LLC, provides organizational development, consultant training and Action Learning services, and is developer of the Free Management Library.
David,
Thanks for a very thoughtful post; it helps me formulate my own thinking. Your take on changing perceptions feels very right to me.
It is the caveat emptor culture vs. the fiduciary culture. The exchange yesterday about “do you or do you not have an obligation to keep your clients’ best interests at heart’ crystallized it. Senator Dodd gave up a few weeks ago (under intense industry pressure) on a clause that would have held the brokerage industry to the fiduciary standard that the Financial Planners Association (think CFP certification) holds itself to. The brokerage industry adheres to the “appropriate” standard–a much lower one.
What’s interesting to me is that very technical issue was played out in plain English terms, and the world could judge for itself which view sounded most sensible. On that issue, it seems to me, Goldman was the loser. That has nothing to do with the very valuable and utterly legitimate role of market-maker; but everything to do with the morphing concept of “client service” within Goldman over the years.
I’ve been reading an interesting book, “What Would Google Do?”, that mentions how some companies now have their employees reading relevant blogs about their industry and, where the blogs are questioning a particular practice of a company, the company’s employees respond in those blogs. That discourse often includes admitting where the company made a mistake and what it’s doing to recover from it, especially in terms of how the customers will benefit.
Companies have greatly benefited from listening to their constituents’ very public Web-based complaints — even when those complaints are not about illegal matters, but matters of ethics — and have even greatly enhanced their stature accordingly.
The key principle at play is that companies that admit it when they’ve transgressed the public’s trust, very often emerge with yet more trust from the public.
I suspect that very smart business people know of this phenomena — but the urge to still cloak themselves in secrecy must be overwhelming, probably from feedback of the lawyers and PR people who still underestimate the intelligence of the public.
I want you always make new articles like this. I hope you will read my this comment.It is the caveat emptor culture vs. the fiduciary culture. The exchange yesterday about “do you or do you not have an obligation to keep your clients’ best interests at heart’ crystallized it. Senator Dodd gave up a few weeks ago (under intense industry pressure) on a clause that would have held the brokerage industry to the fiduciary standard that the Financial Planners Association (think CFP certification) holds itself to. The brokerage industry adheres to the “appropriate” standard–a much lower one.
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Daniel01