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Change the System, Not the People

Updated on August 3, 2012

Business Ethics


Much of the discussion surrounding overall business ethics is centered on individual ethics. While this is an important subject, I do not think it addresses the underlying problem and certainly would prove to be very difficult to resolve. The argument here is that corporations are composed of individuals and are only as ethical as their individual members. The current economic crisis is partly the result of or at least exacerbated by individual mortgage brokers and bankers who chose to accept mortgages and sell bundled loans that they knew would default, because they knew they would profit in the short term, and the long term problem would belong to someone else. However, I do not think attempts to promote some sort of ethical rehabilitation among individuals involved in the banking sector will solve the economy’s problems.

Instead, I agree with those who see the underlying system that encourages and even rewards this kind of unethical behavior as being the crux of the problem. The current system incentifies unethical behavior. In this faulty system, everyone involved in the system has had a role in creating the problems it presents. Despite this, everyone is quick to blame everyone else. We need more disclosure and transparency in the system.

Such reforms, however, will not go far enough to prevent future crises of the type we face today. While a small part of the problem is moral integrity, the underlying problem is with the system itself. A primary reason I prefer this focus is that fixing the system is a more achievable goal than reforming the ethics of the individuals involved in the financial system. Certainly individual ethical reform is a laudable goal, it is hard to control another’s ethics, especially when the financial system ignores or even rewards unethical behavior. Fixing the system itself also goes further to reduce the potential for future crises than simple oversight. Reforming the financial system itself by writing better rules and regulations and changing how things are done is easier than trying to change the people who do those things, and it is more effective than simply watching them do it.

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