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In the aftermath of the recent economic
crisis, much has been debated about its potential causes and the lessons
learned. However, it seems to me that neither from the causes nor the lessons
as a starting point, a significant and generally accepted foundation emerged that
could now lead the way out of this precarious situation and prevent us from future
economic failure or misbehavior. Except for the obvious and the unhelpful, such
post-fact evaluations leave us still wondering when the next crisis is going to
happen and what it might look like.
In a recently published paper, Thomas
Donaldson (2012) illuminates potential causes for the crisis from the angle of
business ethics and leadership. In doing so, he also sheds a valuable light on some
of the lessons that must be learned. Donaldson puts forward an argument for the
ethics story behind the crisis and submits that among its causes can also be
found three ethical roots: ‘Paying the peril’, ‘The normalization of
questionable behavior’ and ‘Tech-shock’.
Without going to much into detail on these
ethical roots that indeed go beyond the obvious and unhelpful, I came across a
central aspect that is common to all of them to a certain extent – the dilemma
between short-term profit and long-term value. Whether it is on an individual
level, where an investment banker gambles on a ten percent annual risk of
disaster in order to reap a big bonus; or on an institutional level, where
banks pay salaries and bonuses to managers for actions today, even though the
firm’s rewards or penalties for those actions happen tomorrow; or on an
industry level, where practices become accepted that enrich the short term only
to impoverish the long term, the dilemma is ever-present.
Thinking of these matters, I was
reminded of an insightful TV report about the human ability to make
time-dependent decisions. A simple experimental design was set up; children at
the age of about 4 years were given a piece of chocolate and told that if they won’t
eat it during the next 5 minutes, they get another one. The outcomes were equally
amusing as astounding: except for some rebels for which the single piece seemed
too tempting, the majority either managed to run down the clock without
touching the chocolate (in which case they usually tried to distract
themselves) or they tried to cheat, i.e., tasting the chocolate and then putting
it back before the investigator returns in the hope of getting away with it.
Apparently, the ability to trade individual short-term satisfaction for a future
bonanza, which is by the way also found among certain animals, starts to evolve
at around 3 to 4 years of age – one of the behavioral scientists explained.
Although, this straightforward comparison
might tempt us to argue that the bad
ethics, which led to the recent financial crisis, is occasionally part of our
nature, it also and more significantly emphasizes the importance of setting
appropriate incentive structures to encourage good ethics and placing more weight on collective rather than
individual value. Because the most important question that remains is at what
age the ability to trade individual short-term profit against future collective
prosperity starts to evolve?
Marc Moser
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