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Principled profitability: What is the true lesson?by Robert Duboff and Jon Fay "What did Andersen do wrong in the Enron case?" we asked a group of second-year MBA students at Boston College's Carroll School of Management. Most responded that the firm shredded documents - the behavior that first hit the national radar screen as the Enron debacle came to light last fall. Yet, when a jury convicted the firm of a criminal act, shredding was not the key legal transgression. As the Wall Street Journal headline on June 17, 2002, put it: "Shredding wasn't factor in verdict, jurors say; a single e-mail was." The jury found the firm guilty because of an e-mail sent by an in-house lawyer to the leader of Andersen's Enron audit team. The e-mail's author recommended certain "deletions" to a file memo he had sent. To most of us, the shredding indicated that Andersen as a firm was doing wrong; yet, to the jury, it was described as legally "superficial," as one member put it. In reality, the gulf between the public's point of view and the jury's decision probably was not that great: The fact of the shredding undoubtedly helped the jury reach a guilty verdict. Jurors are like you and us, influenced in their "legal" judgments by the totality of perceptions and knowledge. We behave this way all the time. When someone we know (or a famous athlete or entertainer) is publicly accused of a crime, we tend to believe the charge if we hold a dim view of his or her ethics. On the other hand, we resist the notion of guilt if it's someone we admire. Part of this is due to a concept called "cognitive dissonance" - the psychological tendency to keep our thoughts as consistent as possible in a complicated world. The other factor is the tendency of thoughtful people to focus not just on specific rules but also on broader principles. Laws are a rules-based system; ethics represent a principle-based system. In the United States, the former predominates - after all, we harbor more than our fair share of the world's lawyers and have a tax code second to none. Laws prescribe what one cannot do; what isn't detailed is presumed to be allowed. Principles are more general descriptions of what is right and wrong. Jurors are instructed only to consider the former, but humans find it hard to ignore the latter. In court, we're supposed to consider only the law. In worship, we focus on principles and values. How about in business? Too often, there is a tendency to consider business as its own ruthless world, a competitive jungle in which the only rule is to produce shareholder value (and hope you don't get caught violating a law). In fact, a recent op-ed piece in the New York Times suggested that the best way to teach MBA students about ethics is simply to teach them the relevant laws. The problems with this approach are many: The legal code is not a substitute for a principled code of conduct, and an MBA's ethical education should not be rendered obsolete by changes in the legal rules. A more fundamental issue is that principles matter to the constituencies on whom all firms depend. Johnson & Johnson, which in its values statement acknowledges its responsibilities to its doctors, nurses, patients, employees, communities and shareholders, has generated far more impressive economic returns than Enron, which actually deleted the declaration that "ruthlessness, callousness and arrogance don't belong here" from its values statement as it was riding high in the late 1990s. The point is that business vendors and their employees can focus only on profits and hope their principles (or lack thereof) never hit the front page. The better way - if only because it's safer for preservation of self and enterprise - is to strive for both profits and principles. MBA students should not consider the business world to be on a different moral plane. Holding to the standard that decisions and behavior must be both principled and profitable is practical and practicable. Companies that consistently follow principles of behavior are not only doing the right thing, they are also building their reputational equity, which can offer a safety margin when mistakes occur. Over time, General Electric has built its reputation and can survive some poor decisions - and even ethical lapses - by employees. Andersen had a solid reputation in the business world but never promoted its brand with the public, yielding no cognitive dissonance for a jury looking to convict. Above all, managers should get in the habit of talking through ethical decisions. Decisions involving principles benefit from daylight and discussion; efforts to silence debate and delete e-mails are usually signs of peril. ROBERT DUBOFF and JON FAY are executives in residence at the Wallace E. Carroll School of Management at Boston College. © 2002 American City Business Journals Inc.
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