February 21, 2005
self interest and corporate morality
Posted by David Skeel

Many thanks to the brain trust at the Conglomerate for inviting me to muse out loud for the next two weeks, and for the nice introduction. I thought I would start with a thought or two on self interest and corporate morality. There have been several very interesting articles on these issues in the NY Times in the last several weeks. On Feb 8, 2005, in an op-ed entitled "How Wall Street Learns to Look the Other Way," Bob Shiller emphasized the role business schools play in shaping corporate culture, and worried that "the view of the world that one gets in a modern business curriculum can lead to an ethical disconnect," due to its assumption of self-interested behavior. In his "Economic Scene" column on Feb 17, 2005, Robert Frank noted that assuming that people act in self interested way has a self-fulfiling quality. My first reaction to these articles was to be glad that we are once again talking about the role of morality in business behavior. My second was to wonder how retain the benefits of consequentialist thinking without losing the focus on ethics.

Among corporate scholars, the usual suggestion -- dating back to the Berle-Dodd debate in the 1930s -- has been that managers should look beyond shareholders and profits, and take other values into account. But (as Berle pointed out), this too often ends up letting managers do whatever they want -- it gives them a way to justify any decision they make and thus diminishes accountability. Shiller suggests that recognizing the limits of markets and effect of cognitive biases might counteract the excesses of rational choice thinking. It also wouldn't hurt to alter some of the regulations that encourage excess, such as the still-privileged tax treatment of stock options.

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