One of my regularly frustrating experiences is listening to legislators and ordinary people talking about what CEOs and senior executives should know about employees are doing five levels below them. That’s nearly impossible in big companies, unless like Wells Fargo’s CEO, John Stumpf, it’s a widespread behavior that’s been going on for years. So I’m always watching for examples of business reality for my readers—reality, that is, that reflects my years of experience with top companies and my own philosophical orientation. All the better if that reality is supported by trustworthy research. A recent issue Economist dealt with a superb example of business reality: that lock-‘em-up mentality for white collar crime.
But first, let’s be candid about business magazines and newspapers. All of my antennae are out when I’m reading the Wall Street Journal and nearly all the American business magazines. More than anything else, before I look seriously on any article I’m watching to make certain the writer or the magazine takes a responsible attitude toward the community. My read of too many American business magazines is that they are too capitalist or too individualist and very little oriented to the greater good of the country. That’s not only a political issue, but also a moral issue.
The one obvious exception to that cautionary rule is the Brit magazine, The Economist, what some call rather snobbish in its appeal. But it regularly critiques itself, takes a stance toward the greater good, reflects wisely on business strategy and never fails to challenge conventional wisdom. It’s an expensive magazine, but brilliantly, often hilariously, written. The Economist has the largest business circulation in the world, except for the Wall Street Journal. That’s not necessarily good company since the Journal seems to have gone on a downward slide ever since the Murdochs took over. I get some sense, however, that Murdoch’s sons may be a bit more communitarian and responsible. But we’ll see. (FYI: I’m neither correspondent nor salesperson for The Economist)
Why this tangent and all this explanation? It’s not just that too few business people pick up an intelligent piece of news. Though I’m clearly a capitalist, I agree fully with David Brooks, that intriguing conservative, who has stated on numerous occasions that we need to be more communitarian and less individualistic, more moralistic and less utilitarian, more emotional and less cognitive. More emotional and less cognitive applies directly to techie algorithms. They have their uses, but they’re extremely biased. As Cathy O’Neil has wisely written, they are Weapons of Math Destruction: they increase inequality and threaten democracy.
Are we soft on white collar crime?
The Economist’s Schumpeter points out that both right-wing populists and left-wing progressives think that society is too soft on white collar-crime. That’s the conventional perspective, but how accurate is it? Two new books, one by Harvard’s Eugene Soltes and the other by Duke’s Samuel Buell, who was the lead prosecutor in the Enron case, provide the research and evidence demonstrating that we are now tougher on white-collar crime.
We’re punishing white-collar criminals more severely because of two bills: Sarbanes-Oxley (2002) and the Dodd-Frank (2010). Other countries are moving in the same direction, including states as diverse as South Korea, Oman and Spain.
Although I appreciate Senator Elizabeth Warren’s highly productive rhetorical indictment of the Wells-Fargo Company and CEO, as Schumpeter points out, even prosecutorial zeal does not always result in convictions. Prosecutors face very difficult trade-offs and that includes protecting the rights of unpopular bankers.
This piece of reality is very significant and goes against the grain. Those mortgages that brought down several finance institutions were perfectly legal. The people doing the buying were probably just as much in the dark as the people doing the selling. And furthermore, most corporate crime is not individual, but the result of collective action.
Right vs. wrong
Populists like to think there is a bright line between right and wrong. Step over the line and you should go to jail. That’s naïve. Here’s what was initially surprising to me, but I quickly realized very accurate: “a great deal of wealth-creation takes place between what is legal and what is questionable.” (Remember the old truism? Ask for forgiveness, not permission! Having gone through numerous IRS audits, myself, and suffering only one small fine, that’s a great recommendation.)
Want some public examples? Bill Gates was hauled before the authorities for using Harvard’s computers without permission. Steve Jobs was involved in backdating stock-options to increase their value. Technology firms typically work with outdated legal regulations. Uber and Airbnb are regularly engaged in legal battles with regulators.
Fact of the matter—and this is something never to forget—new business typically tests the rules. That can result in updating the rules. Significantly for all of us, new businesses pushing the envelope often end up offering services that people want and that advance the common good.
So don’t be too quick to criminalize white collar behavior.