Jon Haidt thinks corporate culture in America works relatively well. But that hasn’t stopped him from launching a crusade to up-end the way Wall Street titans do business.
Haidt, a professor of business ethics at New York University’s Stern School of Business, founded a nonprofit called Ethical Systems this year. He started Ethical Systems as a research hub to study the best ways to make business people behave ethically.
No one can accuse Haidt of underestimating what’s at stake. “If we at Ethical Systems can, over the course of 10 years, improve business ethics by 1 percent, we’ve justified our life on this planet,” he says.
Haidt has recruited two dozen leading thinkers on business and morality. Now he wants to market their findings directly to companies so the theories they arrive at may be applied. He has met with senior executives at AIG (AIG) to discuss how his organization’s research can be implemented into company-wide policies, he says.
In recent years, Wall Street has confronted a stream of billion dollar fines for transgressions past and present, and public sentiment about large banks has soured. Some feel that leaves an opening for a project like Ethical Systems.
“As the rap sheet for Corporate America gets bigger and bigger, and as the disgust of the American people expresses itself with these unethical and illegal business practices, [ethical conduct] will be a competitive distinction,” says Dennis Kelleher, president of Better Markets, a nonprofit that lobbies for financial reform.
But while the public may crave leaders who have a moral compass in the wake of the financial crisis, Kelleher says that the most powerful players in the market have few incentives to satisfy that demand.
“The reckless high-risk trading and gambling that Wall Street does is is just so darn lucrative that it is irresistible to them,” says Kelleher. “Expecting people with that type of an incentive system to worry about ethics, or even legal compliance, is asking a lot.”
Jon Haidt is ready to defend his campaign against anyone who thinks he’s deluded. There are several good reasons for businesses to stick to the rules, he says, even when breaking them makes quicker money.
“If it’s the case that ethics are actually better for shareholders in the long run, and the government will prosecute you less if you commit to that, and young people increasingly want to work for you if you commit to that, and here’s research showing you how to do it, then why am I crazy?” he submits—in one breath.
Indeed, research suggests that Haidt and his ilk might be right. It may not be possible to measure the payoff a company receives to follow the letter of the law, but it is clear that transgressing it—and getting caught—can be costly.
A study of 585 firms that were punished for lying in financial filings found that damage to the companies’ reputations cost seven times as much in market value as the average $23.5 million they each paid in fines.
Haidt’s conviction that “the millennials are with us” is also backed up by a growing body of research suggesting that young people care about the character of the work they do more than the dollar value attached to it. Surveys have shown (PDF) that millennials—those born from 1980 to 2000—would sacrifice $60,000 in salary to get a fulfilling job over a boring one and care more about their company’s social impact than previous generations did.
Still, the project’s experts don’t project a quick turnaround at the country’s most powerful financial institutions.
“Anybody expecting to change a corporate culture will know it’s not going to happen that quickly,” says Ann Tenbrunsel, a professor at Notre Dame’s Mendoza College of Business who serves on Ethical Systems’ advisory board.
Tennbrusel says that bad apples are not rotten at their core, but they’re infected by a “bad barrel.” In other words, even people who are not immoral can forget what they believe in when under pressure.
Because morality can be an unconscious decision, executives would do well to consult “people who have spent their whole careers thinking about why it is that people go astray,” before they act, Tenbrunsel says.
The goal of Ethical Systems, she says, is to prod chief executive officers and working stiffs alike to ask themselves this straightforward question: “Why don’t you follow your own values?”