Whorehouse Morals and Business Ethics
In May, Mitt Romney suggested a new eligibility test in the U.S. Constitution requiring that the President first "spend at least three years working in business." It was bad enough that America's would-be second Harvard MBA President forgot the disastrous record of the first. Now, Mitt has chosen the worst possible week to announce that President Romney's Cabinet will feature people who had "real jobs" and "have experience in the real world, in the private sector." After all, while Romney's campaign was getting battered by mounting questions over his AWOL tax returns and mysterious tenure at Bain Capital, some of the biggest banks on both sides of the Atlantic were revealed to be cheats, gamblers and frauds. And as it is turns out, recent studies suggest those abysmal business ethics are not exceptions to the rule.
To be sure, the Republican nominee and his former firm weren't the only ones to be on the receiving end of headlines like "50 Shades of Bain" and "Did Romney Make a False Statement on His Financial Disclosure?" The mushrooming scandal over Barclay's rigging of the crucial London Interbank Offered Rate (LIBOR) came to the U.S. with word that the New York Fed knew of manipulation in the UK dating back to 2008. (That scandal has already claimed the job of Barclay's CEO Bob Diamond, a man who was to have co-hosted Mitt Romney's upcoming fundraising event in London.) On Friday, JP Morgan once again found itself the under the microscope as the bank reported its growing losses from bad bets placed by the notorious "London whale" may have cost the firm $7 billion. That same day, the New York Times reported that "MasterCard, Visa and major banks, including JPMorgan Chase and Bank of America, agreed to pay more than $6 billion to settle accusations that they engaged in anticompetitive practices" in processing credit card payments to retailers. Meanwhile, the nation's largest bank, Wells Fargo, beat earnings expectations on Friday even as it announced a $175 million settlement with the Justice Department over "accusations that it discriminated against some minority homeowners seeking loans from 2004 to 2009."
Reflecting on the LIBOR scandal, University of San Diego Law School professor Frank Partnoy lamented, "I wish I could say I'm shocked, because it is shocking, but regulators have not been particularly effective or aggressive in the past two decades of finance." Simon Johnson summed up the banking scandal that may have impacted $800 trillion worth of business and consumer credit transactions with this powerfully simply headline:
"Lie More, as a Business Model."
For the global financial sector, that business model appears to be a feature, not a bug. According to a new study released Tuesday by the law firm Labaton Sucharow, a quarter of Wall Street executives see wrongdoing as a key to success. As Reuters explained the findings:
In a survey of 500 senior executives in the United States and the UK, 26 percent of respondents said they had observed or had firsthand knowledge of wrongdoing in the workplace, while 24 percent said they believed financial services professionals may need to engage in unethical or illegal conduct to be successful.
Sixteen percent of respondents said they would commit insider trading if they could get away with it, according to Labaton Sucharow. And 30 percent said their compensation plans created pressure to compromise ethical standards or violate the law.
Another recent study seemed to shed light on Financial Times economic columnist Martin Wolf's conclusion that "banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff." Simply put, the richer people get, the more likely they are to cheat. As USA Today reported in February:
The "upper class," as defined by the study, is more likely to break the law while driving, take candy from children, lie in negotiations, cheat to increase the odds of winning a prize and endorse unethical behavior at work, researchers reported Tuesday in the Proceedings of the National Academy of Sciences.
Taken together, the experiments suggest at least some wealthier people "perceive greed as positive and beneficial," probably as a result of education, personal independence and the resources they have to deal with potentially negative consequences, the authors wrote.
Although the tests measured only "minor infractions," that factor made the results "even more surprising," said Paul Piff, a doctoral candidate in psychology at the University of California-Berkeley and a study author.
Or as LiveScience contributor Charles Choi put it, "The cream of society may rise to the top, but so might the scum."
For those who to come exhibit these pathologies in the professional lives, the rot may start early. In 2006, a study of 5,300 students at 54 institutions by the Center for Academic Integrity at Duke University found that 56 percent of MBA seekers acknowledged cheating, more than those in fields such as education (48%), social sciences (39%) or even law (45%):
"Business schools have a significant problem that should be addressed," said Donald McCabe, the study's lead author and a professor at Rutgers University.
Cheating is a problem at all schools, "even if deans at leading schools don't want to concede it," he said.
Those results have been sadly consistent over time. In 1997, McCabe similarly found that undergraduate business students (84%) topped their counterparts in engineering (72%) and other majors (66%) in admitting to having cheated at least once. That echoes a 1964 study by a Columbia University researcher who found that "66 percent of business students surveyed at 99 campuses said they cheated at least once."
McCabe's warning was a prescient one. In the wake of the 2008 Wall Street meltdown that triggered a devastating contraction of the U.S. economy, a 2009 Marist poll found that a majority of Americans give corporate leaders a D or F for their honesty and ethical conduct. That kind of publicity prompted some of the successors of Mitt Romney and George W. Bush at Harvard Business School to sign the "MBA Oath." About 20 percent of the HBS class of 2009 signed that student-led pledge, one which declares that:
The goal of a business manager is to "serve the greater good." It promises that Harvard M.B.A.'s will act responsibly, ethically and refrain from advancing their "own narrow ambitions" at the expense of others.
While Governor Romney's name appears on many Bain Capital documents years after his supposed departure from the company in 1999, it is almost inconceivable that 1976 HBS graduate Mitt Romney would have affixed his signature on that MBA oath.
Which brings us back to Mitt Romney's horrible week. At the end of the day (and as George W. Bush's calamitous presidency showed), business experience is not especially relevant when it comes to being President of the United States. Our country is not a company; the objectives of shareholders and citizens are hardly alike. If you have any doubt about the difference between the public good and private gain, look no further than President Obama's rescue of the U.S. auto industry, which saved over a million jobs and the heart of the American manufacturing sector while private equity innovator Mitt Romney would have "let Detroit go bankrupt."
As with the dubious job gains from Bain investments which occurred after he left the company, Romney now claims "I'll take a lot of credit" for the salvation of GM and Chrysler. At the same time, Romney at all costs wants to deflect blame for the bankruptcies and layoffs that took place after 1999. Regardless, his golden parachute from Bain means Romney continues to make millions each year as his former employer still profits by outsourcing jobs, shuttering facilities and extracting massive dividends and fees from firms quickly driven into bankruptcy.
Of course, American voters would know a lot more about these matters if Mitt Romney would release more than two years of his tax returns (or even a fraction of the 23 years-worth he provided John McCain during his VP vetting in 2008). For their part, Republican leaders view Mitt's opacity as something be expected and even lauded. As Senator Lindsey Graham (R-SC) put it, Mitt Romney shouldn't be criticized for using off-shore tax havens because "it's really American to avoid paying taxes, legally." George W. Bush ("the really rich people figure out how to dodge taxes anyway") would have been proud, as would supply-side snake oil salesman Arthur Laffer. As Laffer explained:
"You really can't collect much money from upper-income people. They know how to get around taxes."
Four years ago, former Arkansas Governor Mike Huckabee struck bone when he suggested of his then-rival Mitt Romney, "People are looking for a presidential candidate who reminds them of the guy they work with rather than the guy who laid them off." Now, Huckabee and his Republican allies want Romney to be President of the United States, even though Mitt reminds Americans of the guys who destroyed their economy.
In that sense, the prospect of Mitt Romney in the White House is not unlike David Vitter in the United States Senate. As we were reminded once again this week, "business ethics" sometimes seem a lot like whorehouse morals.
Disclaimer: None of the above is to suggest that the vast majority of business people and executives are anything other than hard-working professionals whose ethical and legal behavior is beyond reproach. (Many of my close friends and business associates are business school graduates; none as far as I know are cheating, lying scoundrels.) For all we know (and the problem is that we don't know much), businessman Mitt Romney may have been as pure as the driven snow. Regardless, the growing evidence suggests that Romney's business background offers little to recommend him as President of the United States and plenty to argue against it.
I'm wondering if there is a connection to the Koch boys picking the Economic professors who teach at certain collages they "donate" to, and the criminal enterprises of these graduates.