Abstract
This essay discusses the positive advancement of ethics in U.S. based businesses over the last 130 years. It then reviews common unethical practices and how leadership addresses these challenges. The essay then examines how the 2007-2008 financial crisis was essentially a people process failure as good-intentioned choices led to significant negative consequences. Lastly it argues that minimizing discrimination and supporting diversity, in tandem with corporate outreach and employee volunteerism programs benefit both the business and the employees’ lives.
Introduction
In 1882, one of the richest men in the United States and world let slip his limited and stunted view on ethics, when he told a reporter “The public be damned” (Gordon, 1989). In an age of tycoons when the interests of many common workers and citizens were ignored or overlooked, William Henry Vanderbilt conveyed, in those four words, his disregard for the common welfare. Through the years, American businesses with the encouragement of lawmakers, have made progress in promoting ethics and supporting the common good. Legislation like the Clayton Antitrust Act and various other types of reforms are evidence that businesses have positively evolved over the years. While most workers don’t have access to make decisions which impact their corporation or public, many grapple with day-to-day, common ethical choices dealing with theft, conflicts of interest and dishonesty. Less common, but nonetheless impactful, are the choices of people which led to the 2007-2008 financial meltdown, in which it is learned that sometimes people’s good ethical intentions lead to negative consequences. Lastly, evidence of modern American businesses positively evolving from an ethics perspective is the continued efforts to eradicate discrimination and to promote diversity, along with the increased focus on corporate efforts to boost outreach in the community through company sponsored events and employee volunteerism.
Modern Businesses Have Positively Evolved
American businesses have evolved significantly from Vanderbilt’s time. In his era, many workers and even the public had little to no recourse to reign in the tycoons and barons who controlled vast sums of money and assets. Ginsberg (2017) argues the United States, with its democratic form of government, was able to modulate businesses’ practices and establish legal reforms while avoiding the reactionary and violent workers’ revolutions which occurred in Russia and Germany. Workers who suffered from poor working conditions and inadequate pay benefited from the Clayton Antitrust Act by having the opportunity to work for competitors instead of a single monopoly.
Ginsberg (2017) also documents the rebirth of American industry after World War II which saw the creation of many shareholders as average citizens who began investing on a significant scale. This pivot brought a dip in concern for business ethics. However, by the 1970s, the American stockholder and consumer began to take a prominent position. Worker pensions and retirement savings accounts rose significantly. While improvements in ethics continued to advance, financial fraud increased from the 1980s to the early 2000s. In light of negative impacts on shareholders and employees due to the downfall of Enron and the Bernie Madoff Ponzi scheme, the Sarbanes-Oxley Act and Dodd-Frank Wall Street Reform Act were passed to support the positive evolution of holding powerful corporations accountable for unethical behaviors.
Common Forms of Unethical Behavior
While most workers lack the ability to influence corporate or public decisions, they frequently face everyday ethical challenges. As discussed in Schwartz (2017), a national survey indicated that more than 40% of U.S. workers witnessed unethical behavior in the prior year. The more common misconduct included theft, conflicts of interest, and dishonesty. From stealing small items such as pencils and sticky notes, to falsifying travel and expense reports, many workers try to justify their unethical actions by claiming ignorance or even accidental intentions. However, upon deeper investigation, employees’ actions are usually a result of putting self-interest above the interests of the business, or in other words, the worker faces a conflict of interests.
In an attempt to create greater clarity and to assist workers in making correct moral decisions, leaders can establish core ethical values and then translate those values into policies (Schwartz, 2017). Core values are usually captured and explained in an organization’s code of ethics. The code of ethics begins with a mission statement and then it explores and clarifies the organization’s values. The code of ethics is then used as the basis to make policies and employee conduct more explicit. A code of conduct is a part of a code of ethics. The code of conduct is generally more detailed and rule-based, as it explains specific standards of business conduct which employees are expected to uphold in their day-to-day work activities.
While these low-level, very common unethical behaviors appear in day-to-day business operations, they may not necessarily lead to major ethical scandals. Fewer and far between are ethical choices people make, which have profound consequences on society and millions of people’s lives. One such example is the 2007-2008 financial meltdown.
Unethical Behavior in the 2007-2008 Financial Meltdown?
The catalyst for the 2007-2008 financial crisis was the Community Reinvestment Act (CRA) created in 1977 and reinforced in the late 1990s which was to allow low-income families access to a home and to "make widespread homeownership a national goal" (Richman, 2012). Some may debate if the CRA truly was the cause of this failure, however Agarwal (2012) shows data indicating banks’ evaluations of loan origination was driven by the CRA which led to riskier banking decisions. Without the CRA, banks normally would not have approved of these loans. While most banks avoided these types of risks, Government Sponsored Enterprises such as Fannie Mae and Freddie Mac, took on these risks and issued loans to less qualified homebuyers mainly because they were not only mandated by the federal government, but also backed by the government, meaning the risk would be ultimately born by the government. The dot-com economic bubble and the September 11th terrorist attack further accelerated the lowering of interest rates to stimulate the economy, only increasing demand for home mortgages. Banks then offloaded the risk of sub-prime mortgages by bundling the uncertain loans into mortgage-backed securities and then sold them to investors around the world.
While the U.S. government and banking institutions shoulder the blame for this significant financial crisis, it appears the intent of these choices were made in good faith, and this was essentially a people failure as opposed to a capital market process failure. The intent of the CRA was to break the barriers of entry for many Americans who could otherwise never live in a home. In fact, when the CRA was created in 1977, it was targeting banks who refused to issue "mortgage loans in distressed areas of a city" (Boatright, 2007, p. 160) which then had the effect of further urban decay. Therefore, from a deontological ethical perspective, politicians from the 1970s and 1990s felt it was their duty to affect positive changes to incentivize banks to take on more risk. And from a utilitarian perspective, it could be argued the benefits of wider home ownership outweigh the risks banks had to endure. There was no unethical behavior and intent per se, but perhaps there were unintended consequences of the impetus for change, which was the U.S. government intending to promote the common good. However, in the end, the impact was so extensive and severe, it caused the biggest economic meltdown in the world since the Great Depression.
Eradicating Discrimination and Promoting Diversity
Hiring managers and leadership need to be discerning regarding who they hire so that organizational goals and objectives can be adequately accomplished. To this end, hiring or firing decisions should not solely be based on gender, race, age or other biased considerations. Both the Civil Rights Act of 1964 (U.S. Equal Employment Opportunity Commission, n.d.) and The Age Discrimination in Employment Act of 1967 (U.S. Equal Employment Opportunity Commission, 2024) preclude the discrimination of workers based on their race, color, religion, sex, national origin or age. In summary, employees and potential workers should be considered and treated fairly and not be subject to discrimination based on factors out of their control. Historically, too often, management and leadership were targeting minority groups by excluding them for consideration for hire, promotion or pay increases.
Today, many leaders and managers recognize the power of diversity in such factors as gender, ethnicity, and neurological processing. A business which operates in various communities or countries should reflect the makeup of the society in which it operates (Collins and Edgewood College School of Business, 2013). By representing the diverse composition of a society, the business places itself in a position to comprehend and better serve its customers, as well as to avoid potential legal troubles.
One recent example of leadership mismanaging a discrimination issue is that of The Results Company, LLC (U.S. Equal Employment Opportunity Commission, 2024a). After hiring a disabled (blind) worker, the company refused to accommodate her and subsequently fired her. She had requested screen reader software to perform her job, but the company took minimal steps to assist. The Equal Employment Opportunity Commission has filed a lawsuit against the company in order to compensate the fired worker as well as to ensure The Results Company updates its procedures for managing similar situations in the future.
Corporate Outreach and Volunteerism
Beyond ensuring due diligence in preventing discrimination and instilling positive procedures for a diverse workforce, businesses can do even more to ensure their brand and social reputation remain positive and even improve. Programs which support corporate outreach and employee volunteer efforts have empirically shown they help the organization improve performance, increase brand recognition, improve customer loyalty and improve goodwill in society (Longenecker, et al., 2013). When employees are given opportunities to volunteer, studies have shown that these efforts go a long way to improve employee values such as “compassion, humility, sympathy, empathy, and joy” (Longenecker, et al., 2013, p. 10) and that this has the added effect of promoting a work-life balance as well as camaraderie with fellow-workers. In the era of quiet quitting, a Harvard Business Review (Moss, 2023) article confirms the old adage of a happy workforce being a productive workforce. Moss (2023) notes research stating that when workers are happy, there is a 13% bump in productivity, but when they are not engaged (e.g. quietly quitting) they are unhappy and depriving businesses of $8.8 trillion worth of work. As a result, leadership should support and promote corporate outreach and employee volunteer programs to not only benefit the bottom line of the business, but to improve the lives of the workers and employees.
Conclusion
In conclusion, over the last 130 years, American businesses, with lawmakers' support, have advanced in ethics which have benefitted the common good. Laws like the Clayton Antitrust Act, the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform Act show this progress. While most employees lack decision-making power in corporations, they face day-to-day ethical challenges, such as theft and conflicts of interest. Some ethical choices, like those leading to the 2007-2008 financial crisis, have had unintended negative consequences. However, businesses continue to evolve by combating discrimination, promoting diversity, and increasing corporate social responsibility through community outreach, company-sponsored events, and employee volunteerism, reinforcing their commitment to ethical growth and sustainability.
References
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U.S. Equal Employment Opportunity Commission. (n.d.). Title VII of the Civil Rights Act of 1964. Www.eeoc.gov. https://www.eeoc.gov/statutes/title-vii-civil-rights-act-1964
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