Wednesday, November 17, 2010

Leadership and Virtue

Greetings LIFEers! We were joined once again this week by Professor Jason Moulenbelt for a class all incoming Congressmen should take; business ethics. Business ethics is a bit of an oxymoron, like jumbo shrimp or military intelligence. The two words just don’t seem to go together. But in this era of Enron, Tyco, BP, Wall Street, Magnetar, etc… a little refresher course on business ethics might be good for all of us.

If you take a business ethics class at a business school, you are more likely to study business law, not morality or ethics.
· Law – our democracy votes to make laws, which can have little to do with morality
· Ethos – what you do day-to-day, your actions
· Ethics – what you should do, morality
Example: Let’s say you are at a intersection with a stop sign and no one is coming from any direction. The law says you have to stop, but no one is coming, no one will be hurt or inconvenienced if you run the stop sign. If you break the law and run the stop sign, your actions are not immoral. But the spirit of the law is ethical – requiring people to stop at a crossing to avoid accidents and injuries. But many of our laws do not take ethics into account. Enron hiding their business dealings in phony companies was actually legal. Magnetar driving the sale of sub-prime mortgage CDOs while placing bets on their failure was also legal. So why are our laws seemingly not interested in morality?

First we need to understand utilitarianism, which is a principal many of our laws and economic system are based on. Utilitarianism is the idea that the greatest amount of good should be created for the greatest amount of people. The trouble is this theory measures happiness through money; every man will endure some amount of pain (work) for a certain amount of money. But this equation fails to take into account externalities; things you can’t put a price on. How much is your child’s smile worth, or a clean sunrise, or time with your family? At some point, utilitarian equations leave out our very humanity, which is what our ethics are based on – treating each other humanely.

Read Jason’s excellent slideshow below to see how this economic and law-making theory fails to take morality into account via the Ford Pinto. Also, check out ProPublica’s segment on the company Magnetar and its role in the housing bubble and wall street collapse here. You can also read the book or watch the film Smartest Guys in the Room which chronicles the rise and fall of Enron.

Aristotle said “in all things, moderation”, and this quote applies also to business ethics. Knowing that our business practices exclude the human element, remember to always look for the hidden externalities when putting together a cost-benefit analysis. You may find that the human costs are greater than you think.

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