Stephen B. Young, Global Executive Director, The Caux Round Table

Stephen B. Young, Global Executive Director, The Caux Round Table

The Caux Round Table (“CRT”) believes in its Principles that corporations and business are a moral good for society. Their value is more material than spiritual; in Christian and Buddhist vocabulary, they are “of this world”; their function is to create wealth through the use of capital, labor and scientific achievement.

But when corporate leadership destroys wealth, as in the case of Enron, WorldCom, Global Crossings, the other failures and in the case of Wall Street firms creating and sustaining a bubble in the stock market with false valuations and misleading recommendations, what can be said and done?

It can be said that people abuse corporate power just as they abuse political power. Why, some people even abuse power within churches! Not to mention within families with supposedly loved ones.

What can be done in the realm of corporate power, therefore, is to erect checks against the abuse of power.

There are three barriers holding off abuse: legal regulation, market incentives and moral character.

Market incentives work the best. People are more likely to respond to incentives and dis-incentives, to self-interest over the long run and day-in and day-out, than they are to live by high ideals.

But, markets are responsive mechanisms. They are intermediaries among people and have no power on their own to direct events. Markets play off opportunities, based upon knowledge and intuition. Secrecy and silence can manipulate markets. This is the big lesson of Enron. The company’s top management found ways to hide the truth from the markets. When the truth came out, the market put Enron where it belonged – in bankruptcy as a company unable to make a legitimate profit.

And when the truth came out, the accounting firm of Arthur Andersen was also destroyed by market forces as clients did not come forward seeking its services.

Market incentives must feed on truth in order to work properly. Thus, corporate behavior must be aligned with truth-telling.

Moral character, a personal commitment to integrity, should play a greater role here. It once did.

But since the rise of the counter-culture in the late 1960’s, moral character has become an offensive concept. Character runs afoul of the individual’s need for self-expression and self-gratification. Character, we are now told, is social and cultural repression; it is the basis for injustice and the hegemony of ruling elites, like the Victorian imperialists who were racist, sexist and victimized colonial peoples.

Modern culture with the post-modernism and deconstruction of Derrida and Foucault has become the kingdom of relativity under the name of multiculturalism, where there are no standards and no truth. In Cole Porter’s words, “anything goes.”

In this culture, nothing inhibits the creation of accounting conventions. If there is no truth, and all is in the mind of the believer, who not present Enron’s financial condition as you want others to see it? Make an argument and get away with it. That became the code by which many American corporations were managed in the 1990’s.

One solution is to ask for moral character once again. That is one approach offered by the CRT in its Principles for Business.

A second approach proposed by the CRT is to get out more facts. Facts can deflate pretensions very quickly. Within corporations, a new mechanism is needed to get at the facts and get them out. In the CRT’s view, that mechanism should be the Board of Directors acting to supervise management. Responsible board action could have prevented all the recent corporate scandals.

The CRT therefore is pioneering a new tool for boards to use in getting reports on the degree of social responsibility demonstrated by their company managers. When the board is fully informed, it has incentives to act strategically and position the company for success, not failure.

What do you think? Send your comments to Caux Initiatives for Business.