John Dalla Costa writes that an unsettling revelation attending the current global financial crisis is that some of those who structured the most problematic credit derivatives that put the economy in jeopardy were alumni of Enron. Additionally, some CEOs in the financial sector are pushing back on demands for better regulation and more moderate compensation. . .
Among the many unsettling revelations attending the current global financial crisis is that some of the traders who structured the most problematic credit derivatives that put the whole economy in jeopardy were alumni of Enron. Rather than learn lessons about the excesses of the dot-com boom, investment banks and insurance companies readily employed what one author famously called “the smartest guys in the room.”
Economists tell us that markets are cyclical and that busts or failures are part of the self-correcting mechanism of self-interest writ large. But that pattern may itself be more of an excuse than inevitability. One study of cycles shows that the frequency of crisis has in fact accelerated and that each successive wave wreaks significantly more damage.
Some of us will remember the scandal-plagued failure of junk bond innovator Drexel Burnham in the late 1980s. But few will know that the person at the center of AIG’s current debacle (and until recently head of its U.K. derivatives business) was one of the swashbucklers from long-deposed Drexel Burnham. In effect, the business meltdown now causing so much grief to investors, workers and communities is not a distinct event but part of a continuity of malfeasance. Our failure to learn history’s lessons means more than risking the repeat of its excesses. In fact, our forgetting, amplified by technology and intensified by globalization, begets ethical failures that are ever wider in scope and graver in their impact on society.
How can this be? Why are we so willing to quickly adopt technological or knowledge innovations to reduce risk, while resisting the prudence and moral care that are in fact intrinsic to stability and fairness? We know from long experience with business ethics that great mistakes by boards or CEOs rarely come from intentionally choosing to do the wrong thing. While the press and public look for sinister subterfuges or high profile scapegoats, the reality is that business leaders in the middle of ethical storms are often not only accomplished in their field, but of responsible personal reputation. The mystery that deserves serious scrutiny is not that a “few bad apples” disregard the rules, but that so many that we would generally regard as “good persons” also lose sense of ethical proportion or decency.
Experts have coined terms like “group think” to explain the momentum of expedience that opens the way for mass amorality, but this psychological model tends to let us all off the hook too easily. One report of a recent national meeting of mainstream economists observed little-to-no self-critical analysis. Session topics included some admission that the profession had made mistakes, but the general assumption of presenters and participants was that models, not people, were to blame.
Similarly, some CEOs in the financial sector have now begun to push back on public demands for better regulation and more temperate compensation, essentially disregarding that their companies had off-loaded the moral hazard from their practices onto the public — which has so far spent hundreds of billions of dollars bailing them out. Such resistance to explore personal culpability in the face of the greatest financial calamity in 70 years means that we may already be planting the seeds for future irresponsibility.
The Jesuit theologian Bernard Lonergan recognized that the group thinking that led to a moral breakdown could not in itself resolve the problems it created. Lonergan explained that only conversion could release the human heart and mind from what he called “the bias of common sense.” As it has throughout Christian history, such conversion hinges on a confessional moment of recognizing one’s inadequacy before God.
Importantly, this sacramental moment is not to wallow in guilt, but rather to resume our relationship with holiness — to recognize our human frailty and needs, to take responsibility for what is broken in our souls or society, and to welcome the grace that is the ultimate resource for hope and renewal. Repentance is a sacrament for this reason: It frees us by God’s love from the “habitual imperfections” that otherwise keep us locked in the prison of repetitive disregard for what is right.
Catholic business people have as their vocation that extra duty to bring an imagination for repentance and reconciliation to their workday responsibilities. As Jesus taught about prayer and fasting, this need not be a public display of piety. The charge, instead, is for daily internal prayer that transforms one’s daily external actions.
Saints have taught us to pray on waking so as to discern the terms of God’s call or will in the day ahead. They remind us to withdraw from busy activity during the day, if only for a few seconds, to recall the close proximity of Jesus walking with us. And many saints modeled an evening prayer based on examination of conscience, to tally the gifts of the day we have offered to God, and to see patterns where we missed heeding the moral need of moments or situations we encountered. Recent events show that we cannot bring ethics in business up to the challenge of systemic impropriety without changing the system that denies personal responsibility. Confession is a creative act, without which we paradoxically remain in repetitive destruction.
John Dalla Costa is funding director of the Centre for Ethical Orientation, a Toronto-based consultancy providing ethics, governance and integrity services. He is the author of five management books.