Excesses of the 1980s

By Simon Longstaff

A version of this article was first published: ABM - March 1995

I am about half way through reading Trevor Sykes' excellent, disturbing book The Bold Riders. Sykes' challenges the reader a number of ways. Whilst written with wit, charm and honesty the level of detail can be a little overwhelming for the 'lay' reader, like myself. There were times when my comprehension was fully stretched by the array of balance sheets, profit and loss statements, ownership structures and contrived funding arrangements. Yet, the detail is essential to a proper understanding of what lies behind glib talk of the ‘excesses of the ‘80s’.

Sykes' book moves one beyond a consideration of the technical aspects of how the corporate cowboys rigged their affairs. The careful deployment of evidence is augmented by argument and illustration of a kind that allows a picture, or perhaps a 'sense', of the times to form in the mind. It is this 'sense of the times' that I find particularly disturbing. While the sheer scale and frequency of dubious transactions might take the breath away, it is the combination of arrogance and indifference that really sticks in the craw - especially the indifference!

The former head of the National Companies and Securities Commission, Henry Bosch, has always held that the corporate misdeeds of the eighties cannot be explained by focusing entirely on the actions of a handful of rogue entrepreneurs. He points to our need to examine and understand the actions of others who designed, executed or facilitated the orders issued at the top: lawyers, accountants, people in business and the professions who made up what Bosch has called the “cast of thousands”.

It is in relation to this “cast of thousands” that my thoughts have turned of late. How could basically decent people participate in events that were so obviously wrong? Some might say that the issues were not obvious at the time they occurred. For some this may be true.

However, Sykes' book makes it clear that many of the transactions were transparent enough for many of those directly (or indirectly) involved in the deals to have seen what was going on. In the majority of cases, the questions that should have been asked, never occurred to them - and this, too, is a matter for concern. Why were so many silent in the face of evident wrongdoing?

A radical response to this question may lie in a rejection of the basic assumption underlying my concern. That is, we might question the view that people are basically decent. Indeed, many people operate on the principle that we can only expect the worst from people.

Up until the sixteenth century, most opinion sided with Plato in support of the view that an essentially good (if uneven) human nature could be liberated through education. From that time on, the debate has see-sawed with some holding to the more optimistic vision while others have been of a pessimistic cast of mind. Chief among the pessimists was Niccolo Machiavelli who thought of men (sic) as “wretched creatures”. Machiavelli offers one of the most despairing views of human nature ever to be written. He says:

For one can generally say this about men: that they are ungrateful, fickle, simulators and deceivers, avoiders of danger, greedy for gain ... And men are less hesitant about harming someone who makes himself loved than one who makes himself feared because love is held together by a chain of obligation which, since men are wretched creatures, is broken on every occasion in which their own interests are concerned ...

Many think Machiavelli's view of human nature to be harsh but ultimately realistic. Optimists like Rousseau and Gandhi are considered to be naive and deluded.

So what might this have to do with the topic of business ethics and our response to the events so graphically detailed in The Bold Riders? It seems to me that our view of human nature will lie at the heart of choices we make in areas like corporate law, governance and regulation. If we hold to Machiavelli's point of view, then we are more likely to adopt the kinds of prescription that he makes in The Prince. In practice, this would mean (as a minimum) relying on fear (of detection, prosecution and punishment) as the chief means for ensuring that corporate crime is curtailed.

Yet, what if Machiavelli is wrong? What if the majority of people want to do the right thing but are confused about what this might involve? In such circumstances, we may be better off allowing room for the exercise of trust and responsibility. Of course there is a need for the State to provide a safety-net of laws, regulation and surveillance. However, there are good reasons for being wary of circumstances that either allow or force us to set aside accountability for that which we do.

A rejection of Machiavelli's pessimistic vision does not mean that we should do nothing. It does not mean that the corporate cowboys should be allowed to ride rough-shod over the rest of us. Instead, we should aim to establish a balanced framework of measures that encourage people to do what is right for positive reasons.

One practical suggestion is that we institute a scheme similar to the Federal Sentencing Guidelines which operate in the USA. These guidelines provide a positive incentive to companies that establish a proactive (and auditable) compliance programme. Such a programme, will have to go beyond quasi-legal structures and actually address the ethos of each organisation; or else be judged inadequate.

In return for making a real effort to build an ethical organisation, the government has legislated that maximum penalties, if found guilty of an offence, are reduced by up to 90%. Those who do nothing face the full penalty if convicted. This protects the community by maintaining the system of regulation and enforcement while also recognising genuine efforts to create a culture in which ethical conduct is the norm. Under such a scheme, it is only the arrogant and indifferent who suffer the full rigours of the law. And this is entirely as it should be.