Executive Times






2006 Book Reviews


Profit with Honor: The New Stage of Market Capitalism by Daniel Yankelovich




(Highly Recommended)




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In his new book, Profit With Honor, Daniel Yankelovich offers sound and practical recommendations on how to turn recent business scandals to good use. CEOs, senior executives, corporate directors, chief responsibility officers and corporate governance gurus will all find something of interest in this book, which is part of the Future of American Democracy Series from Yale University Press. As both a social scientist of many years and a corporate director, Yankelovich brings a unique perspective to this topic, and his concepts and ideas are likely to be respected by readers. Here’s an excerpt, from the beginning of Chapter 3, “Unenlightened Self-Interest,” pp. 45/48:


The current climate of mistrust poisons the atmos­phere. It tempts observers to grow judgmental and to blame the ethical scandals on an all-encompassing “culture of corruption.” The tendency to resort to punitive legalism creates a mood in which it seems natural to hold jury trials in which highly visible CEOs (yesterday’s cul­ture heroes) face the kind of stiff prison sentences that one or­dinarily associates with rape and armed robbery.

L. Dennis Kozlowski, the former CEO of Tyco, a giant conglomerate with 270,000 employees and $36 billion in an­nual sales, is believed to have stolen $170 million from the company. He is also accused of hiding unauthorized bonuses to himself and his chief financial officer, lending himself money from the company and then forgiving the loans so that they didn’t have to be repaid, and lying to the public about the company’s finances in order to pump up the price of the stock. Charged with grand larceny, falsifying business records, con­spiracy, and business law violations, he has received a long prison sentence.

Bernard Ebbers, former CEO of WorldCom, has been convicted of pulling off an $11 billion fraud leading to the largest bankruptcy in American history, with employees and investors as the main victims. The charges against him include conspiracy, fraud, and filing false reports. He received a twenty-five-year prison term.

Richard Scrushy, former CEO of HealthSouth, was ac­cused of “orchestrating a huge accounting fraud’ an accusa­tion supported by no fewer than five former CFOs at the com­pany. He was tried in his hometown of Birmingham, Alabama, the beneficiary of much HealthSouth largesse. He was acquit­ted. Kenneth Lay, the former CEO of Enron is accused of the same fraud on a grander scale. He faces court trial.

Criminal indictments and long prison sentences against former culture heroes may satisfy the public’s craving for jus­tice, but they are unlikely to raise the level of business ethics. Legalistic solutions and jail terms are not enough to lead to positive initiatives. A backlash is already setting in, with busi­ness groups claiming that excessive regulation is counterpro­ductive, producing “unintended consequences that are having significant negative effects on our economy.”

My argument is that instead of a primarily legalistic framework, we should adopt a primarily normative one. We should view the scandals as signs of a weakened system of eth­ical norms that happens to be particularly severe in the busi­ness world, but which is not confined to business. Taking strong legal action against those who wantonly break the law can reinforce ethical norms. But it cannot substitute for them.

One reason for the decline of corporate ethical norms is that the temptations are so huge. But other reasons are more compelling, such as the phenomenon that the psychologist Irving Janis terms groupthink. Groupthink is the tendency of people who live and work in isolated subcultures to develop dis­torted views of the world because they talk mainly with one an­other, cutting themselves off from the viewpoints of others. In such isolation, misconceptions go unchallenged, blind spots go unnoticed, and wishful thinking hardens into received wisdom.

Groupthink is not confined to the business world. It thrives virtually everywhere, even (or especially) in places like universities that pride themselves on their independent think­ing. But the pressures of groupthink in corporate life are par­ticularly powerful. (This is one reason that the concept of “corporate culture” has so much resonance in the business world: its inhabitants are all too familiar with its workings.)

Groupthink forces people toward uniformity of norms, often at the expense of their own personal values. We are all fa­miliar with the seeming paradox of executives who are warm and generous with their families and friends while behaving like cutthroats in the workplace. They live in two different universes of values—observing the cultural norms associated with lov­ing families and close bonds at home, then adopting the norms associated with competitive success in the marketplace. Nor do they feel torn between these conflicting values, since they see each as appropriate for its particular settings and activities.

In other words, once a set of norms takes hold in the cor­porate world, groupthink ensures that it will become wide­spread and influential. If the norms are unethical (as seen through the lens of the larger society), they can nonetheless exercise a compelling influence on people who see themselves as highly ethical. This robs society of its two most powerful constraints on keeping average law-abiding people on a straight and narrow path: shame and guilt. Shame and guilt are the powerful mechanisms that enforce social norms—shame is imposed by one’s fellows, while guilt is the distress that arises from violating an internalized code of conduct. As corporate norms have shifted to condone behaviors that were once deemed unacceptable, the kinds of behavior that would in­spire shame and guilt have likewise shifted. Yesterday’s execu­tive might have suffered guilt from cooking the books; today’s might feel shame at showing insufficient tough-mindedness in a business deal.

Which current business norms lead an executive to com­mit outrageously unethical acts while continuing to maintain a self-image free of shame or guilt? If we understand what these destructive norms are and why they exert such a strong influence on our culture, we will have taken the first step to­ward stopping the scandals; we will have identified the norms that have to change.


Yankelovich doesn’t shy away from the importance and value of profit taking, unlike other social reformers. His call to stewardship involves not compromising between a free market and a civil society; we need both. Profit With Honor will stimulate the thinking of all readers.


Steve Hopkins, October 25, 2006



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The recommendation rating for this book appeared

 in the November 2006 issue of Executive Times


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