A new study from Syracuse University recently revealed
the shrinking numbers of fraud prosecutions since the financial crisis in 2008
(http://articles.businessinsider.com/2011-11-16/wall_street/30404680_1_prosecutions-transactional-records-access-clearinghouse-financial-crisis#ixzz1ehpr2kd9,
see also http://tagesanzeiger.ch/wirtschaft/geld/Finanzbetrueger-haben-Justiz-im-Griff/story/28152529). And the New York Times already in the spring
of this year raised the question: “Why, in the aftermath of a financial mess
that generated hundreds of billions in losses, have no high-profile
participants in the disaster been prosecuted?” (http://www.nytimes.com/2011/04/14/business/14prosecute.html?pagewanted=all).
It seems that a serious regulation failure exists based on wrong assumptions of
what should guide the actors’ behavior.
In our book
we argue that today the underlying basic assumption of the dominant business
model, which promotes self-interest as rational behavior, is at risk of having
to be revised (see chapter 5). And we mention that already the Nobel Prize
Winner Amaryta Sen reflected on the basic assumption of the self-interest of
actors in his book "On Ethics and Economics” in 1987. He concludes that
the idea that only self-interested values are rational is even harder to
defend.
If all human
beings are modeled as self-interested actors, and efficient market functioning
fails to occur, additional control mechanisms of firms and their actors must
exist. These are normally in the form of state laws and regulations, or in some
cases voluntary self-regulation (e.g. Global Compact). A continuous need for
control is all the more important as some of the actors are not interested in
efficient market functioning. And it is the same actors that are also trying to
annul all kind of regulations. In as much as state sovereignty is by definition
limited to geographical borders, this leaves serious gaps in governmental
control of this self-interest. But even a mixture of compulsory and voluntary
adherence to regulation will always lag behind a constantly and swiftly
changing environment. It is consequently
often up to the discretion of the diverse actors of firms whether or not they
exploit such regulatory gaps. Meanwhile, regulators and prosecutors are
frequently not able to fulfill their functions in an adequate way, resulting in
the lack of prosecutions mentioned above.
To overcome
this unsatisfactory situation, new mindsets are necessary: After the first
waves of corporate scandals, Ghoshal claimed in his seminal paper that we have to
change the basic assumption of strategic management, and that amoral business
with its negative impact should not serve as a role model (Ghoshal, S. (2005).
Bad Management Theories Are Destroying Good Management Practices. Academy of
Management Learning & Education, 4(1), 75-91). In this context, we ask why
it is necessary for firms to commit themselves to the worst forms of
self-interest and to fight against an endless series of constraints, when they
can focus and draw upon the stimulating cooperation of a broad cast of
stakeholders for value creation? We propose as a positive approach that the
potential of value creation will be unleashed through creating a sense of
mutuality in networks of stakeholders, rather than through the self-interest of
single parties sometimes violating regulations. Therefore new narratives about
leadership are required for good management (http://www.fh-hwz.ch/g3.cfm/s_page/63500/s_name/leadershipprojekt11).
Sybille Sachs
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