I have been a corporate business ethics officer, investigated complaints from the confidential hot line, conducted many classes, and helped design and implement a culture change effort based on company values. In my experience, the key to effective business practices is to specify and agree on the behavior that is permissible and the behavior that is not, to keep those rules at a minimum, and to apply them consistently over time through effective management.

Why this focus? Because it is insufficient to depend on pledges of good intent even when those pledges are sincere - as most are; different people will apply the same principle in very different ways. More importantly, it is essential to recognize that there are some fundamentals that simply do not change just because we want them to. There really is no free lunch. The stock market moves down as well as up.

Unfortunately, it takes a crisis like the current one to restore credence to such things. But while moral turpitude may have contributed to the current situation (Bernie Madoff), it is important to remember that ethical behavior and management incompetence are not mutually exclusive. We ought to consider carefully whether ethics should be the primary focus.

Dictionary.com defines ethics as "that branch of philosophy dealing with values relating to human conduct, with respect to the rightness and wrongness of certain actions and to the goodness and badness of the motives and ends of such actions." This highlights at least three broad reasons to question a focus on ethics:

  1. The definition conflates the individual and the organization or group of which the individual is a member. Of course, individuals ultimately decide what to do and what not to do. But often individuals are part of larger groups and organizations. And groups or organizations "decide" to do things an individual might not. For example, most individuals probably would not believe that 40:1 leverage of their own personal assets is wise or safe. And yet they worked for organizations that promoted this behavior. But this is not any more unrealistic than the belief during the dot-com boom that there really was a new economy and it was immune to business cycles (except for the up part).
  2. People might know what they want to accomplish when they take an action, but that doesn't guarantee the actual result. For example, many believe deregulation is, by definition, a good thing. So is enabling people to realize the American dream and own a home. But the actions that flowed from these beliefs have had some very negative unintended consequences for the global economy. Of course the bankers and others could have chosen not to make the loans. But then those individuals might have lost their jobs. Being "right" does not guarantee financial survival or success.
  3. The definition assumes we are conscious of our motives. This seems overly optimistic. In my experience, motives often are recast after the results are in. It is at that point that many make sense of an action and its consequences and within that context, attribute clear motives: that executive was good; and that one was bad. Whether this attribution is accurate - or the individual was even aware of his motives - often is beside the point, especially if the results were negative and the public wants to demonize someone.

We can call people good or bad, but that misses the point. In my experience, most people say and believe they have positive intent. Unfortunately, positive intent by itself does not guarantee a "good" outcome. Why else, to take one example, are people - reportedly many organizations' most valuable resource - often treated so poorly, especially when they are laid-off?

What leads to a "good" outcome? A cooperative external environment certainly helps. But what matters most is effective management of yourself and the organization - knowing where you're going, thinking through the details, and planning and implementing effectively: the fundamentals. Many "bad" results come from incompetent management - people who ignore the boring details or don't bother with implications because they are so infatuated with the desired outcome - like getting rich through financial instruments they do not understand or refinancing yet again with a mortgage that soon will adjust to predatory rates.

Going beyond individual ethics

Whether we should view the current environment from an ethics perspective is debatable. Acting honestly and with positive intent is the right thing to do. But that is not enough.

To avoid crises like the one we are in now, ethical behavior must be combined with effective management, and that includes remembering that most fundamentals do not change - that is why they are fundamental. Unfortunately, in the current environment, it is clear that individual ethics and effectiveness are not enough. We all are connected. Organizations also must perform ethically and effectively.