Time for capitalism to get ethical…
Michael Lewis wrote a great piece in the August issue of the Vanity Fair. Entitled “The Man Who Crashed the World,” it’s about Joseph Cassano, former head of AIG’s Financial Products unit. I always admired Mr. Lewis’ writings for his no-nonsense approach to business, based on his first-hand experience on Wall Street, and his remarkable prescience about the financial industry train wreck to come described in his book Liar’s Poker published in 1989.
What grabbed my attention in the article about Mr. Cassano were his personal traits. He was described as “a guy with a crude feel for financial risk but a real talent for bullying people who doubted him. …Joe would bully people around. He’d humiliate them and then try to make it up to them by giving them huge amounts of money.” When Bernie Madoff was sentenced, “Judge Chin pointed out that no friends, family or other supporters had submitted any letters on Mr. Madoff’s behalf that attested to the strength of his character or good deeds he had done.”
Bullying, lack of character and good deeds seem to be the common denominators that fallen financial wizards have demonstrated in spades. What ever happened to the old values that characterized capitalism until the 1980s, when personal greed and profit became the norm rather than an exception?
Peter F. Drucker, one of the greatest business thinker whose “writings are landmark of the managerial profession,” according to Harvard Business Review, was no socialist. This is what he had to say about social responsibilities of every business: “The third task of management is managing the social impacts and the social responsibilities of every enterprise. None of our institutions exists by itself and is an end in itself. Every one is an organ of society. Business is no exception. Free enterprise cannot be justified as being good for business; it can be justified only as being good for society.” (The Essential Drucker, published by Collins Business Essential. Italics are mine.)
Drucker continues: “Asked what a business is, the typical businessman is likely to answer, ‘An organization to make a profit.’ The typical economist is likely to give the same answer. This answer is not only false, it is irrelevant.” Mr. Drucker’s thinking may come as a revelation to many fallen captains in the financial industry who think that ethics is a precocious Greek wine.
A real example of an ethical, socially responsible business is a story in Sunday’s New York Times about Trumpf, a family business employing some 8,000 people and based in Ditzingen, Germany. While the current economic crisis may force the owners to lay off employees by the end of the year, this business is run like nothing we’re used to in North America.
“About 15 years ago, Leibinger père put together his family’s principles in a written 20-page codex outlining rights and, above all, the responsibilities of Trumpf’s stewards. The imperative is to run the business in an ethical manner, to take care of employees and to earn a decent profit, which is largely reinvested in the company.” You can find the Company Principles section here.
Just compare that article to one in last week’s Financial Times, The town that Wal-Mart built. To the Wal-Mart town’s citizens, it’s all about size: the biggest this and the biggest that, topped by this quote from the journalist’s guide: “‘Look at the girls walking their little dogs,’ he says proudly as we cruise past leggy women in shorts. ‘You could be in New York.’” He’s right. You couldn’t be in Ditzingen.
Time to get curious
“The important thing is not to stop questioning. Curiosity has it’s own reason for existing.” That’s one of my favourite quotes, attributed to Albert Einstein. Curiosity may be one of the most underestimated of all human virtues. Trying to live up to it, I dug up a couple of books I read years ago to help understand this current financial Armageddon.
The first book was Den of Thieves by James B. Stewart, published in 1991. This superbly researched and written book shows, as the inside cover says, how “Michael Milken, Ivan Boesky, Martin Siegel and Dennis Levin created a series of security scams that made other financial hustles look like amateur night.” What this latest financial collapse shows is that these four guys were amateurs themselves, compared to all those financial geniuses that brought about this latest bout of misery. The most prescient and scary part of the book is the Epilogue. “Could this happen again?” asks Mr. Stewart. “If nothing else, the scandals of the 1980s underscore the importance of the security laws and their vigorous enforcement.” The part that really caught my attention was Mr. Boesky’s sentence. He served two years of his of his three-year term. I think Mr. Stewart answered his own question – there is a next-to-nothing price to pay for stealing other people’s money on Wall Street.
The second book was Liar’s Poker (1989) by Michael Lewis. Please ponder the following quote on page 65: “…the mortgage traders were the firm’s Biggest Swinging Dicks. The mortgage department was the most profitable area of the firm…” Mr. Lewis also went back to his surreal prior Wall Street experience in two recent articles: “The End” in Portfolio.com (Dec. 2008) and “The End of the Financial World as We Know It” in The New York Times (Jan. 3, 2009).
Those two books made me think that we’re not curious enough. They also confirmed Friedrich Hegel’s wise but sad saying: “The only thing we learn from history is that we learn nothing from history.” Hegel, according to an entry on Wikipedia was one of the creators of German idealism. I wonder if he came up with this quote before or after he partook in its creation?
