Archive for the ‘white collar crime’ Category
The development goals of many underdeveloped nations are seriously hampered by illicit flows of money. The money sent into those countries in the form of aid and foreign direct investment is, in many cases, dwarfed by the money that flows out as a result of money laundering, bribery, and dodgy transfer pricing. Some estimates put that outflow as high as a trillion dollars. And a lot of that money flows through, between, or within corporations.
I recently took part in a panel discussion on this topic, part of a larger event put on by a group called Academics Standing Against Poverty (ASAP).
Here are a few of what I take to be the key points, not necessarily in order of presentation, from my discussion of the topic:
Corporations have two different categories of responsibilities when it comes to curbing illicit financial flows. First, they are of course responsible for their own behaviour. Under this heading, corporations have three key obligations. First is not to game the system to avoid taxes. Minimizing taxes — even going to significant lengths to avoid taxes — may seem to be part and parcel of a manager’s obligation to maximize profits. But there is no general obligation to maximize profits, and certainly no such obligation to do so ‘at all costs.’ Even the weaker duty to ‘put shareholders first’ is a vague enough concept to be consistent with a principled stance against aggressive tax avoidance, even where taxes can be avoided legally.
A second direct obligation has to do with transparency about transfer pricing. When goods or services are being sold between branches of a multinational, the prices charged should be fair and should be rooted in a clear methodology. And total taxes paid internationally should be reported in a company’s audited annual reports. Even when gaming the system is legal, it is dishonourable.
Third, companies should have zero tolerance for bribery. Besides being corrosive to local economies, bribery is often just a lousy competitive strategy: it involves payments that cannot be guaranteed to work, and when they don’t work there is of course no recourse to the courts. Businesses generally know this, but sometimes see bribery as a necessary evil; they need to work to make it less necessary.
In addition to these direct obligations regarding their own behaviour, big companies arguably have some responsibility for the indirect effects of their operations. Major corporations support entire ecosystems of smaller businesses — suppliers, subcontractors, agents, and so on. And activities within that ecosystem can be a major source of illicit transfers. Corporations should assume some responsibility for illegal and unethical activities in their shadow. This should at least mean setting clear standards for the behaviour of the companies with which they interact, and sharing best practices. Companies are starting to do this with regard to bribery, but they should consider extending that to other areas.
Next, a point with regard to how businesses interact with governments. The least controversial, over-arching norm for business is to play by the rules of the game. Normally, governments set rules and as long as businesses play within those rules, they are at least coming close to meeting their obligations. But not all governments are equally capable of setting and enforcing the requisite rules. And the absence of clear rules doesn’t imply an absence of obligations. So, for example, the fact that the government of a small developing nation hasn’t passed regulations (as Canada and the US have done) that set standards for fairness in transfer pricing doesn’t mean that a company can be complacent.
Finally — and this bit of advice is aimed at development advocates — it is important to avoid thinking of transnational corporations as the enemy. My sense is that a significant subset of folks who are concerned with development are focused on the negative side-effects of corporate involvement in developing nations. What we need to do, though, is to harness the power of corporations rather than regretting it. Business corporations, in addition to being potent organizations, have a vested interest in reducing poverty worldwide. Anyone living on $1.25 a day makes a lousy customer and a lousy employee. Of course, corporations face a collective action problem when considering how to reduce poverty. No one corporation can do much on its own, and it’s a challenge to find ways to get long-term interests in poverty reduction to override short-term interests in profits. But still, the development community needs to see corporations as important partners. We can’t let a culture war over capitalism get in the way of helping the world’s poor.
The video of our panel discussion is now available, here:
On Wednesday, The United States Anti-Doping Agency (USADA) released a small mountain’s worth of evidence against champion cyclist Lance Armstrong. Not surprisingly, comparisons to corruption in the world of business were not far behind. On Twitter, a number of wags referred to Armstrong as the “Bernie Madoff of cycling,” or variants on that.
The comparison with Madoff is unsurprising. In both cases, you have wrongdoing of impressive scope. In both cases, the wrongdoing was truly brazen, going on right under the noses of regulators. In both cases, you can’t escape the feeling that someone should have been able to figure it all out sooner. And in both cases, you see the eventual fall of a man who was a hero to many.
But the comparison is also off-target in important ways.
For one thing, the USADA’s account of things suggest that Armstrong was not just a cheat, but a ringleader. While others may have been complicit in Madoff’s scheme, there’s no suggestion that he engaged in organized, cynical bullying to push others into wrongdoing the way Armstrong apparently did. Armstrong is accused of having used his position of leadership to coerce others into cheating too.
The bigger difference, though, has to do with differences in the nature of the competitive contexts in which Armstrong and Madoff were each embroiled. Madoff was a stockbroker and investment advisor. It is a job in which an honest person can find success. For all the talk of Wall Street being a place where crooks thrive, there’s no indication that an investment advisor has to be a crook just to survive or to do his or her job effectively. And even if it were the case that cooking the books was somehow normal, something “everyone was doing,” that fact would do absolutely nothing to justify Madoff’s ponzi scheme. It’s not something that, in any sense, Madoff had to do.
Armstrong, on the other hand, was a cyclist competing at elite levels, during an era in which, by all accounts, doping was absolutely rampant. And in such a setting, it does at least arguably matter that “everybody does it.” It is an unfortunate fact that in the world Armstrong competed in, for every individual cyclist doping was a necessary evil, a way of keeping the playing field level. Any cyclist not engaging in doping was effectively relegating himself to the back of the pack. That’s not an excuse, but it’s an accurate description of the facts of the case.
So doping was, in a sense, non-optional for the elite cyclist trying to do his job properly, because after all his job is to try to win. And during the era in question, doping was apparently “allowed” under the unwritten rules of the cycling game. It was embedded in the social norms of the relevant group. It was, in other words, a collective problem. Regrettable, to be sure, but the sort of problem that is devilishly hard to solve, and against which individual integrity is absolutely impotent to solve it.
In this sense, doping is much more like bribery than like a ponzi scheme. Where bribery is rampant, it may literally be true that a company cannot compete without engaging in that kind of corrupt behaviour. But bribery, like doping, is an arms race that no one can be sure of winning. And the damage it does is significant. Like doping, it exposes competitors to all sorts of dangers. And when such behaviour is exposed — as in the case of Walmart Mexico earlier this year — the result is not just scandal, but a loss of confidence in the integrity of the game itself.
A recent survey of Wall Street executives paints a bleak picture of the moral tone of a central part of our economic system.
According to the survey (conducted for Labaton Sucharow LLP), 24 percent of respondents believe that financial professionals need to engage in unethical behaviour in order to get ahead. 26 percent report having observed some form of wrongdoing, and 16 percent suggested that they would engage in insider trading if they thought they could get away with it.
Two points are worth making, here.
First, some perspective. Far from alarming, I think the number produced by this survey are relatively encouraging. Indeed, the numbers are so encouraging that I can’t help but suspect unethical attitudes and behaviours were seriously underreported by respondents. Only 26 percent had seen something unethical? Seriously? That seems unlikely. And the fact that only 16 percent said they would engage in insider trading is also relatively benign. There are, after all, people who believe that insider trading isn’t unethical at all, and shouldn’t be illegal. They argue that insider trading just helps make public information that shouldn’t be private in the first place. I don’t think that point of view hold water, but the fact that it’s put forward with a straight face makes it pretty unsurprising that a small handful of Wall Street types are going to cling to the notion.
Second, a survey like this highlights the difference between our ethical evaluation of capitalists, on one hand, and our ethical evaluation of capitalism, on the other. One of the major virtues of the capitalist system is that it is supposed to be able to produce good outcomes even if participants aren’t always squeaky clean. In no way does it assume that all the players will be of the highest virtue. Adam Smith himself took a pretty dim view of businessmen. In The Wealth of Nations, Smith wrote:
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public.”
And yet despite his dim view of capitalists, Smith remained a great fan of capitalism — or rather (since the term “capitalism” hadn’t been coined yet) a fan of what he referred to as “a system of natural liberty.” The lesson here is that evidence (such as it is) of low moral standards on Wall Street shouldn’t make us panic. Perhaps it should make us shrug, and say, “Such is human nature.” The challenge is to devise systems that take the crooked timber of humanity and mould it in constructive ways. Governments need to take corporate motives as they are and devise regulations that encourage appropriate behaviour. And executives need to take the motives of their employees as they are and devise corporate structures — hierarchies, teams, incentive plans — that motivate those employees in constructive ways. In both cases, while the players should of course look inward at what motivates them, the rest of us should focus not on the players, but on the game.
This is the third in a series of postings on the bribery scandal at Wal-Mart de Mexico and its parent company, Wal-Mart Stores, Inc.
I’ve already dealt with why bribery is so seriously problematic in general. But let’s look here at why this particular instance of bribery (or pattern of bribery, really) by this particular company is especially problematic.
It goes without saying that the bribery that allegedly took place at Wal-Mart de Mexico is a wonderful example of lousy “tone at the top.” Eduardo Castro-Wright, who was CEO of Wal-Mart de Mexico during the bulk of the wrongdoing, is centrally implicated, as are senior people at Wal-Mart Stores, Inc., including CEO Mike Duke. How on earth can they now hope to exercise any ethical leadership? Clearly, they can’t, and that’s why in my opinion they both need to resign or be fired.
But the bad example set by this set of behaviours goes well beyond the walls of Wal-Mart itself.
Wal-Mart is an industry leader, taken by many as an example of how business ought to be done. The signal sent here is particularly corrosive with regard to doing business in Mexico. Mexico clearly has its problems with corruption. But there’s a self-fulfilling prophesy in this regard. If companies see Mexico as a place where bribery is necessary, they’re sometimes going to offer bribes to public officials who, in turn, will come to expect bribes. And if Wal-Mart, of all companies, says it can’t compete effectively in the Mexican market without engaging in that sort of thing — well, the lesson for merely-mortal companies is clear. If Wal-Mart can’t thrive there by playing by the rules, who can?
Think also about Wal-Mart’s supply chain, and the example this behaviour sets for the thousands of companies that supply Wal-Mart, directly or at one or more steps removed, with the goods it sells. Wal-Mart is notoriously tough on its suppliers, insisting on lower and lower prices and higher and higher levels of efficiency. But naturally — naturally! — Wal-Mart wants its suppliers to do all that within the limits of the law, right? Or at least that has to be the company’s official policy. But now, what are suppliers to think? With the revelation of Wal-Mart’s own lawless behaviour, the message to suppliers — thousands and thousands of them — is that getting the job done matters more, and that the ends justify the means.
OK, but won’t the fact that the Wal-Mart executives involved got caught also serve as an example? Well, perhaps. But that depends in part on what action is taken by law enforcement agencies and by the company’s own Board. I strongly suspect that decision-makers at a lot of companies will continue to fall prey to the cognitive illusion that so often facilitates wrongdoing of all kinds: “I’m too smart to get caught.”
So Wal-Mart has provided a clear example in terms of the benefits of bribery, and only a weak one in terms of the costs. Wal-Mart’s shareholders lost $10 billion this past Monday, in the wake of these revelations. But I fear the real impact of the scandal will be much bigger, and broader.
It’s worth starting at the very beginning, by considering the very basic question: What’s wrong with bribery in the first place?
The fundamental ethical problems with bribery are clear. Bribery of public officials induces those officials to engage in acts of disloyalty. Civil servants are sworn to uphold the public good, and every decision they make needs to be made on that basis. Bribery violates that principle; it interferes with the decision-making of the functionaries of a democratic system.
Bribery also tilts an otherwise fair playing field. It’s one thing for a company like Wal-Mart to muscle into new territory by means of its superior management techniques and hyper-sophisticated supply-chain. Such advantages are well within the rules of the game. If you invent a better mousetrap, the maker of the old mousetrap has little grounds for complaint when driven out of business. But bribery is well outside the rules of the game. It represents a refusal to compete openly and fairly, and an attempt instead to gain special advantages that have nothing to do with ingenuity or with the quality of one’s services.
And, from a systemic point of view, bribery is a zero-sum game that acts as a drag on an economy. Consider: when two companies engage in bribery as a competitive strategy, the only guaranteed winner is the undeserving recipient of the bribe. The companies involved suffer unnecessary expenses that could better have been spent on research and development, on higher wages for employees, and so on — if only they were jointly able to forgo the bribery.
There is, from an ethical point of view, no plausible pro-bribery argument.
What about cultural differences, you ask? We are all aware that, in doing business in a foreign country, we are liable to run into ways of doing business that would not pass muster back home. And we’ve all heard the saying, “When in Rome, do as the Romans do.” But that saying is no doubt used as an excuse for wrongdoing far more often than it is used as a reminder to be sensitive to cultural variations. The trouble is that bribery is a lousy way to show respect for someone’s culture. You don’t respect a culture by corrupting its public officials. Never mind the fact that bribery, though perhaps not uncommon in Mexico, is none the less illegal.
But perhaps the most stinging critique of bribery is this. If you have to engage in bribery in order to succeed, it implies that you are not very good at your job. Eduardo Castro-Wright, the man who was Wal-Mart de Mexico’s CEO at the height of its bribery activities, was considered a true Wal-Mart star. In fact, he’s now vice chairman of Wal-Mart Stores, Inc. And his reputation was built in no small part upon his stunning success in pushing Wal-Mart de Mexico’s rapid expansion. But, as it turns out, he wasn’t quite as great a manager as he seemed to be: the rapid expansion wasn’t so much a credit to him as it was a credit to the campaign of carefully-targeted bribery conducted by his underlings. As is so often the case when it comes to white-collar crime, this suggests that senior managers at Wal-Mart de Mexico were not just lacking ethically, but lacking as managers too.
Cheng Yi Liang, a chemist for the US Food and Drug Administration, has been found guilty of Insider Trading and sentenced to 5 years in prison. (I first blogged about this case back in March, when Liang was arrested.)
As it happens, the Liang verdict dovetailed nicely with the topic covered yesterday in the Management Ethics class I teach at the Ted Rogers School of Management. The class was led by a terrific guest speaker, compliance consultant and retired RBC compliance officer Georges Dessaulles.
The Liang case serves as a great example of one of the points Georges emphasized in his presentation, namely that when it comes to Insider Trading, highly-placed executives are far from the only concern. In the Freeport McMoran case in the mid-90’s, for example, the central figure was a consulting geologist, not an employee of the mining company itself. In the 2001 case related to Nortel’s acquisition of Clarify, the central figure was an executive working at a public relations firm that had a contract with Clarify. And now, in the Liang case, the guilty party not only didn’t work for the company in question, he didn’t have any contractual or other financial relationship with the company. Instead, he was a scientist at a regulatory agency. Other cases have involved administrative assistants, or even employees at companies printing corporate reports.
This highlights an important point about the ethics of insider trading. The stereotypical cases of insider trading involve executives, making use of undisclosed knowledge to gain an unfair advantage over outsiders in buying or selling stock. In taking unfair advantage, executives not only perpetrate a basic injustice, but also violate their duties to shareholders. But the kinds of cases cited above point to a different reason for the wrongness of insider trading. In the Freeport and Nortel cases, and now in the FDA case, the central figure wasn’t someone with direct obligations to corporate shareholders. There was thus no breach of fiduciary duty (at least not in the usual sense). What’s really at stake, in such cases, is the undermining of the basic principle of free-and-voluntary exchange on which the a free-market economy is based.
The challenge for organizations is to make sure that employees and contractors with access to sensitive information understand the definition of — and penalties for — insider trading. But that’s a serious challenge, especially at big companies. Better still would be for more people to understand the moral underpinnings of free markets quite generally, and to have the moral reasoning skills to figure out the rest from there.
What is it that justifies the record-breaking $92.8m fine slapped on Raj Rajaratnam by the US Securities and Exchange Commission?
I’m not posing this question skeptically. That is, I don’t particularly doubt the fairness of the fine. But it’s still useful to ask what reasons lie behind particular instances of punishment, particularly when those punishments are record-breakers like this one.
It’s worth noting that Rajaratnam is also going to jail, as a result of a separate criminal proceeding related to the same wrongdoing. But let’s focus just on the monetary judgement issued as a result of the SEC’s civil case. There are at least 4 possible justifications for punishment by means of a fine.
1) Deterrence. Sometimes we punish in order to make the offender less likely to re-offend, or to set an example for others who might otherwise have been tempted to commit similar crimes.
2) Restoration. Sometimes a financial penalty can be used to “make whole” the parties harmed by the wrongdoer. This, of course, would require that (some of) the fine actually be given to those who lost out due to Rajaratnam’s hijinks. As far as I know, that’s not going to happen. But then, there’s a sense in which society as a whole loses out when someone violates market norms as aggressively as Rajaratnam did. So maybe American society is the ‘victim,’ here, and is being compensated through its representative, the SEC.
3) Retribution. The fine might just amount to imposing pain on a roughly eye-for-an-eye basis. From this kind of point of view, the goal isn’t to achieve any particular outcomes (like, say, deterring wrongdoing) but rather just to ‘get even’ with the wrongdoer. Retribution is rooted in some pretty primitive (and, frankly, ugly) emotions, but it certainly has its appeal and plenty of defenders.
4) Denunciation. Closely related to retribution, denunciation is essentially the act of saying “No!” in response to crime. From this point of view, a big fine is a way of saying, loud and clear, that the kind of behaviour in which Rajaratnam engaged is simply not OK in our society.
What does the SEC say?
“The penalty imposed today reflects the historic proportions of Raj Rajaratnam’s illegal conduct and its impact on the integrity of our markets,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.
OK, that helps. But let’s get it from the horse’s mouth. Let’s look at the words of the judge. According to Judge Jed S Rakoff,
“S.E.C. civil penalties, most especially in a case involving such lucrative misconduct as insider trading, are designed, most importantly, to make such unlawful trading a money-losing proposition not just for this defendant, but for all who would consider it.” He added that it was a warning that, if caught, “you are going to pay severely in monetary terms.”
So there you have it. The rationale behind the historic fine is deterrence. The fine was a warning to others. Of course, the fact that deterrence was the goal doesn’t mean that the fine is actually going to deter anything, or that the outsized fine is going to be more effective in that regard than a more modest fine would have been. Does anyone seriously think that a $92.8m fine is going to work where a $50m fine would not have?
But anyway, the problem here is liable to be the same as that faced in trying to deter street crime, which is that no one expects to get caught. That’s likely to be doubly true of a man like Rajaratnam. After all, he was a Wall Street titan, a self-made billionaire. He was — to steal a phrase from Enron’s Jeff Skilling — the ‘smartest guy in the room.’ How could a man like that even imagine being caught by the mere mortals at the SEC and FBI? The result is that deterrence may well be futile. So what we really need is for our markets and regulatory agencies to be designed with the full expectation that, every once in a while there’s going to be a Raj Rajaratnam. We need institutions to put safeguards in place, precisely to deal with the inevitable lapses in conscience and lapses in our belief in our own fallibility.
Back in February I blogged about Russian Business Ethics, and about the way that watching a developing economy helps us see the significance of ethics in the functioning of any economy. If you want to understand the role of honesty, trust, and transparency in a market, you just need to look at a society experiencing a severe deficit of those things.
Here’s more in a similar vein, by Sergei L. Loiko, for the LA Times: Taking on Russian corruption
Moscow lawyer and blogger Alexei Navalny has been singlehandedly taking on Russia’s state-controlled energy giants, accusing them of large-scale embezzlement and corruption….
It’s perhaps worth pointing out that there really is no ethical debate over corruption: there is no pro-corruption case to be made. No one is in favour of corruption, generally — though of course the corrupt are in favour of those instances of corruption that help them. There just is no systemic upside to bribery, embezzlement, and unremediated conflict of interest. But this fact sometimes go unnoticed when people lump bribery, for example, in with various other dubious practices that North American companies might engage in overseas. I recently had a senior academic suggest to me, in the context of a discussion of labour standards, that third-world sweatshops are just another money-grubbing technique that corporations use whenever they can get away with it — just like, you know, bribery. But there is an important distinction to be made there: sweatshops may sometimes play the role of unfortunate-but-necessary engine of economic growth. Bribery is just a drag on an economy. As seen by competing businesses, it’s a zero-sum game: either my bribe works or yours does. From a social point of view, it results in misallocation of resources: contracts go not to the most efficient producer, but to the producer that excels at the bribery game. This is another example of why it’s so important, in our normative evaluation of business practices, to maintain a mental distinction between things that are unfortunate, and things that are wrong.
Yesterday, Raj Rajaratnam, founder and head of hedge-fund management firm, The Galleon Group, was found guilty of 14 separate counts of securities fraud and conspiracy.
I think two things are worth talking about, with regard to this case.
1) One is the extent to which Rajaratnam was apparently a master of the so-called ‘soft skills’ of business. Rajaratnam’s success (and his eventual downfall) was rooted to a large extent in his talent for extracting insider information from his network of corporate contacts, charming them into revealing their employers’ secrets. To get a sense of this, it’s worth reading this richly detailed piece by Peter Lattman and Azad Ahmed, for the New York Times: Galleon Chief’s Web of Friends Proved Crucial to Scheme. Here’s a taste:
In his soft-spoken manner, shaped by his years at secondary school and college in England, Mr. Rajaratnam alternately prodded, chided, ridiculed and flattered his sources. Above all, he was a good listener, saying little as those on the other end of the phone, eager to impress the hedge fund titan, kept talking….
In other words, this ‘hedge fund titan’ used the same interpersonal skills in pursuit of millions as the common scam artist uses in pursuit of the little old lady’s retirement savings. This fact reinforces the importance of teaching these skills — and teaching about the dangers inherent in misusing them — in business schools.
2) The second point worth discussing has to do with grey zones and slippery slopes. Rajaratnam was found guilty of a criminal variant of something that professional investors do all the time, namely gathering information from people who know stuff about the firms those investors are considering investing in. In order to make their case, prosecutors would have had to convince the jury that Rajaratnam’s intelligence-gathering wasn’t just the run-of-the-mill kind.
But it’s also worth pointing out that there’s more than just a binary distinction to be made here. Somewhere between benign information-gathering, on one hand, and criminal insider trading, on the other, is a category of ethically-suspect behaviour that involves asking corporate insiders to provide ‘perspective’ or an ‘overview’ of, for example, the financial health of their firms. Such behaviour can be unethical for the same reason actual insider trading is illegal. Corporate insiders have fiduciary duties — duties rooted in trust — and providing information to outsiders so that they can have a trading advantage is a betrayal of that trust. And Rajaratnam’s methods played on his accomplices’ uncertainty about where to draw the relevant lines. The slope from benign to unethical to illegal is, it seems, quite slippery, especially when that slope is greased with flattery and a few hundred thousand dollars.
The world’s most successful investor, Warren Buffett, was recently caught up in a scandal. He himself is not accused of any wrongdoing, though some have accused him of responding to the scandal — one involving a senior employee of his, one David Sokol — in a lackadaisical manner.
For the basics of the story, see here:
Berkshire doesn’t plan big changes after scandal (by Josh Funk, for the AP)
Berkshire Hathaway CEO Warren Buffett says he doesn’t think his reputation has been hurt much by a former top executive’s questionable investment in Lubrizol shortly before Berkshire announced plans to buy the chemical company….
Sokol is accused of a form of insider trading, essentially a kind of betrayal that is unethical at best, and illegal at worst. Now, Sokol himself is, not surprisingly, keeping pretty quiet, and speaking only through his lawyer. I’m more interested, at this point, in Buffett’s response, and what it says about his character. I’m not the first person to suggest that you can learn a lot about a person by the way he or she responds to a crisis. But when the man in the spotlight happens to be one of the world’s most successful businessmen, there’s some reason to think that the lessons learned might just be more interesting than most.
For more about Buffett’s response, see here: Buffett Takes Sharper Tone in Sokol Affair (by Michael J. De La Merced, for the NYT.)
Despite the critics, I think Buffett comes out of this looking pretty good. To begin, Buffett gets points for demonstrating his loyalty to a long-serving employee:
[Buffett] was harsh in his assessment of Mr. Sokol’s trading actions, he pointedly declined to personally attack Mr. Sokol, instead highlighting the executive’s years of service and good performance.
Buffett also has a sense of context and proportion. Not that the wrong of which Sokol is accused is small. But it is wise, and ethically correct I think, for Buffett to resist the urge to pounce on an employee who has, in Buffett’s own experience (up until the present crisis), been a diligent and morally-upstanding employee:
“What I think bothers some people is that there wasn’t some big sense of outrage” in the news release, Mr. Buffett said. “I plead guilty to that. But this fellow had done a lot of good.”
Buffett’s business partner, Charles Munger, likewise gets points for showing restraint:
“I feel like you don’t want to make important decisions in anger,” Mr. Munger said, defending Berkshire’s press release. “You can always tell a man to go to hell tomorrow.”
All of this is set against a background of Buffett insisting on the importance of having a reputation for integrity in business. Buffett is no slacker when it comes to ethical standards. The NYT piece quotes Buffett from 20 years ago, on the topic of the significance of reputation in business:
“Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”
Finally, it’s worth pointing out that this focus on Buffett’s character, and on the example he sets, represents an importantly different approach to business ethics. The approach here is akin to what philosophers call “virtue ethics,” a stream of thought that goes back to Aristotle. The idea here is that, rather than focusing on principles (or, more cautiously, in addition to focusing on principles), what we really ought to do when thinking about ethics is to focus on character. Rather than asking, “what rules apply to this situation?” this way of thinking asks, “what would a good person do in a situation like this?” And in between crisis points, we should be asking, “when a crisis comes, what kind of person do I want to pattern my behaviour after?” I don’t know nearly enough about Mr Buffett to hold him up as a moral exemplar, but I think that the kind of character he has displayed in the Sokol affair is worthy of emulation.