The bimoral society

When we were first told that ‘greed is good’ in the 1980s, the idea seemed
shocking. But like much else of the Thatcher-Reagan era it is now taken more or
less for granted.

The word ‘greed’ is still pejorative, but self-interest as a driving force is
now socially legitimate to an extent unprecedented in history. Moreover, if
corporate scandals are anything to go by, greed – good or bad – appears to be

In response to these scandals, governments have done what they have always
done and tightened the rules. Compared with a generation ago, financial, labour
and product markets remain relatively deregulated, but business procedures and
business reporting are regulated as never before.

The assumption is that tighter rules mean better control, but what if the
underlying problem is that rules no longer work?

For centuries, indeed for millennia, we have lived in a predominantly
hierarchical culture, in which ethics have been all about our obligations to
others, and ethical standards have been maintained through systems of rules and
regulations, backed by hierarchical authority.

Entrepreneurs have always sat slightly outside this culture, working by a
different, market ethic of self-interest. But these values have traditionally
been tolerated only within a carefully defined domain, and as business grew
beyond individual enterprise the organisational form it adopted, the bureaucracy
was precisely that of the hierarchy, with all its rules and obligations.

In recent decades, this traditional balance between hierarchical obligation
and market self-interest has shifted significantly. The traditional moral
authorities of church and state have lost much of their power and credibility.

And while people seem, on the whole, to be no less moral than they used to
be, the social force of morality and the rules through which that was expressed
no longer carry the same weight.

On the other hand the world of business and the economic thinking on which it
relies have gained in power and influence, and the pursuit of self-interest has
become increasingly respectable.

The result of all this is that we now live in a ‘bimoral’ society, in which
we are in effect our own moral authorities. Moral obligation and self-interest
are both legitimate, and the balance between them in any situation is a matter
for negotiation.

In business, this change has been reflected in a shift to new more flexible
forms of organising. As in society at large, the result has been a balance of
markets and hierarchies rather than a shift to purely market structures. Most
businesses retain strong elements of hierarchical structure.

But the tightly defined ‘offices’ of classical bureaucracy have increasingly
been replaced by networks and teams, organisational devices that fit properly
into neither hierarchical nor market cultures, but create space for negotiation
between them.

Old styles of command and control have given way to more personal leadership
styles, designed to hold people’s diverse self-interests together and bend them
to a common purpose. Employees are encouraged to look after their own interests
and make their own decisions, and are paid in ways that assume they’ll do this.

Whereas in the past they were expected to stick to the rules and conventions
of a corporate culture, they are now strongly encouraged to break the rules, to
challenge the conventions, and to find creative ways of doing things.
Performance, not conduct, is what matters.

One consequence of this is that people are tempted to cut corners and take
ethical risks – quite often to avoid performance risks, for which they are
quickly punished. Another consequence is that self-interest, which is nurtured
by the system, can easily transmute into (insatiable) greed. A third consequence
is that, driven by the relentless push for performance, and surrounded by often
conflicting calls on their attention, managers have no brain space left for ethi
cal reflection.

Bureaucracies have often been criticised for disabling people’s moral
faculties by taking ethical decisions out of their hands, but flexible
organisations simply crowd those faculties out. What is perhaps most striking
about Enron and WorldCom is not the corruption but how so many people were too
busy to notice that something was wrong.

How should we go about governing these freer and more flexible organisations,
in an ethically flexible, bimoral society? Governments are hierarchical by their
very nature, and when they start to lose control the temptation is always to
introduce more bureaucratic rules.

We have already seen in the public sector how, having once let the
entrepreneurial cat out of the bag in the name of enterprise culture, the
British government has responded to the resultant loss of control by imposing so
many rules, regulations and procedures that public service delivery is grinding
to a halt.

Many areas of business are coming under similar pressures. But if business is
to be kept (more or less) honest, it is imperative that corporate governance
doesn’t follow the same route. For the honest businessman, too many rules and
regulations are a nuisance and a distraction. For the determinedly greedy, they
form a screen behind which to hide what’s really going on.

Cambridge academic John Roberts has made an important distinction between
socialising forms of accountability, based on human interaction and dialogue,
and individualising forms of accountability, based on reporting at a distance.
US corporate governance has always tended towards the latter, and Sarbanes-Oxley
is in this tradition.

But in a world in which ethics are seen as negotiable, and especially in a
culture in which bureaucracy has always been treated with a certain suspicion,
this can be seriously counter-productive. Corporate governance ends up being a
public face of reports and procedures, behind which people make their own
private and unchecked decisions as to what is or is not ethical.

The British system places a much greater emphasis on dialogue, both with
institutional investors and, especially, within the board. The British board is
designed not so much to control the self-seeking of the executives as to enhance
and monitor their competence.

But the engagement and constructive questioning to which this leads also
helps control against corruption by leaving the executives with nowhere to hide.
If we are to continue to avoid the worst excesses of executive greed, we should
reduce not enhance the rules and regulations and create space for negotiation,
concentrating on making the dialogue as open as we can.

John Hendry is professor of management and head of the University of
Reading Business School. His most recent book, ‘Between enterprise and ethics:
business and management in a bimoral society’, is published by Oxford University

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