By Michelle Martin
Staff writer

Whipsawed stock prices and dour forecasts have displayed weaknesses not only in the American economy, but also in the U.S. economic system’s ethical underpinnings, according to experts in business ethics at Catholic universities.

Fixing the problems, they say, will take a lot more than stronger regulations. What’s needed is a reordering of corporate and societal values.

The ethics of doing business is getting a fresh look from theologians and media as well as struggling investors following months of scandals involving accounting practices, stock price manipulation and outright thievery in some of the world’s largest corporations. Investigations continue into business practices which border on—and may cross the line into— skullduggery.

It’s easy to look at the leaders of Enron, Arthur Andersen and World.com and blame them, said Michael Naughton, a theologian at the University of St. Thomas in Minnesota and co-author with Helen Alford of “Managing As If Faith Mattered: Christian Social Principals in the Modern Organization” (University of Notre Dame Press, 2001).

But the blame needs to be spread wider than that.

“On one level, there’s a personal aspect, but there’s also a structural aspect, particularly in public markets,” he said. “When you’re in a system that values one particular value—in this case, stock price—more than any other, things start to happen. We’ve got to take a serious look at a system that maximizes one value.

“Most executives 20 years ago simply did not have the pressure on them to maximize stock price that people have now.”

Those pressures have been created by long-term trends, including the growth in world capital markets, the increasing influence of institutional investors and the skyrocketing of executive compensation—compensation often tied through stock options to increasing stock prices, Naughton said.

Laura Hartman, a business ethics professor at DePaul University, said executive compensation is an issue, but she’s reluctant to believe that paying someone a lot of money inevitably leads to corruption.

Rather, she said, the pressures created by a hot economy, like that of the late 1990s, and a sour economy both lead to ethical lapses.

“When people either make a lot of money or not as much money as they expected to, you’ve got problems,” Hartman said. “When things are going great, people don’t pay attention to the values that underlie their decisions. They know they need this new piece of equipment tomorrow, but they’re not thinking beyond that. And everybody’s making money, so everybody’s happy. Then when the market plunges, then it’s like, ‘Don’t talk to me now. This is life or death.’ Every decision becomes make-it-or-break-it for you.”

Having someone in an organization that is responsible for ethics helps provide a circuit-breaker for that kind of decision-making, Hartman said, but that person must report to the board of directors, not just the management team whose ethics he or she evaluates.

Companies also must start teaching all employees how to make decisions based on the organization’s values, rather than giving them a set of rules.

“You’re never going to have enough rules to cover every situation,” she said.

For Naughton, even more basic steps must be taken, starting with looking at values besides stock price: the way society looks at property, at capital and at the meaning of work.

“Is it a vocation?” he asked of managing a publicly traded company. “What does that mean in a system like that? … This is why publicly traded companies are different from privately held ones.”

Naughton and Hartman both pointed out the fallacy that companies run on ethical principals do not make as much money as those that do. After all, they point out, World.com, which deceived investors to keep its stock price up, has filed for bankruptcy.

“Clearly, short-term material goals tend to eventually lead to long-term problems, said Naughton, who will speak in January at the Integritas Institute of the John Paul II Newman Center at University of Illinois at Chicago.

While such scandals have taken over the front pages, Hartman gives a note of caution.

“When the market plunges to the extent that it did, people get hurt. Someone lost all of that money, because it’s a zero-sum game. Then we—the media—we go looking for someone to blame, and we hesitate to blame someone looking at us in the mirror,” she said. “And when we talk about ‘all these scandals’ we’re talking about five or 10 of them. A large number of companies have done a good job. At the same time, I believe there are more than those five or 10 out there.”

But the ones that have been exposed can help individuals understand that they must find out as much as possible about any company they want to invest in, including the percentage of outsiders on the board, the percentage on the audit committee, and whether anyone on the audit committee actually has any accounting information, and they can help other companies take stock of their own ethical positions, she said.

“The investor cares if you treat employees well, market fairly and things like that.”