Rhetoric and independence are not enough

Description

"The demise of Enron, Arthur Andersen, WorldCom, and other former high flyers and the ensuing lack of investor confidence resulted in a new emphasis on the need for ethics and integrity in the executive suite and the boardroom as well as renewed calls for directors who are independent both in fact and in appearance. This paper analyzes the Business Roundtable's May 2002 White Paper, \"Principles of Corporate Governance,\" in which this group of top CEOs calls on directors to select an ethical CEO and ensure that the corporation is operated in an ethical manner. The paper argues that exhorting directors and managers to be ethical is not enough and challenges the assumption that directors are required to maximize shareholder value even if doing so violates the director's own sense of personal ethics. The paper presents a decision tree that directors and managers can use to decide whether an action would be ethical, then calls on academics, business leaders, community leaders, labor groups, environmentalists, and politicians to articulate a list of the values that most people, both in and outside the corporate world, would consider important in a capitalist free enterprise system. Finally, the paper argues that business schools can and should teach executives and future managers how to engage in moral reasoning, which requires the decision maker to take commonly shared values into account and balance them against each other when acting on behalf of a corporation."

Subjects

Series Statement

• Working paper / Division of Research, Harvard Business School -- 03-033