JRT Interim Meeting
Ethics and the New Economy
Washington, DC, April 28-29, 2000
Day
1: Microeconomic Perspective
The first day started with an inspiring
presentation by Juan Pablo Bayona, a South-American banker. After that, there
was a session dedicated to the topic of ethics in your own environment, in
which all participants were able to share experiences from their own work. In
the afternoon, a session was held on the potential harmful effects of stock
mis-valuation. In the evening, an ethics simulation game was organized at the
American University.
Presentation
by Juan Pablo Bayona.
Juan Pablo first told us about his own life. He has held various positions
(for example at the Barings bank) before leading the MBK bank, which is active
in several South-American countries. He is now developing the internet
activities of the MBK bank. Juan Pablo met Richard Barrett last year in Caux
during the CCBI conference. He was very interested in the ideas of Richard
Barrett
and has used many of Richard’s ideas in his presentation “Bucking the trend”. According to Juan Pablo, every decision is
value driven. Consequently, many organizations reflect the moral values of the
leader. Richard Barrett demonstrated that the companies with more positive
values often financially outperform competitors. His explanation is that the
success of companies depends on their ability to attract good people, which
depends on how they treat these people, which in turn depends on values. For
Juan Pablo, good values derive from human responsibility; i.e. the obligation
to use our skills and talents to improve the world. Success follows when good
is done for others and with others. In the end, this requires certain
humbleness and the application of the four central values of moral
re-armament: honesty, purity, unselfishness, and love. These values are not a
given, but have to be acquired through a process of continuous
self-improvement.
Morning Session:
Ethics in your own environment.
This session was facilitated by Dr. Bill Laufer from the Wharton Business
School. During the introduction, Bill pointed out that ethical and unethical
are the extremes in a range of possible behaviors where most people and
businesses are in the gray area in between these extremes. In the US, many of
the corporate ethics programs are driven by the desire to stay out of legal
trouble (ethics = preventive law). During the subsequent discussion, personal
work experiences were shared. For example, some companies can be characterized
by: “maximize profit and when in trouble, our lawyers will get you out”.
People admitted that in investment banking, pressures to perform can be quite
large, especially for young people. It was interesting to hear the perspective
from people coming from the US, Canada, Western Europe, Eastern Europe, and
Africa. In addition to moral values, courage is needed to stick by these
values. It may be especially hard to stick by ethical principles in a bad
organization or a country with a corrupt government. Although desired by some
people, we did not attempt to arrive at a definition of ethics. All in all,
people very much valued the ability to share personal experiences and to learn
from each other.
Afternoon
Session: Effects of stock
mis-valuation. This
session started with a videotaped interview with Larry Zicklin (Chairman of
the Board at Neuberger and Berman). A brief summary of Larry Zicklin’s
message is:
·
Today, entrepreneurs
have an “exit strategy” in mind (make money, then leave).
·
Dot.com companies show
a large gap between perceived and calculated value.
·
Accounting problems in
dot.com companies are indicative of mis-valuation.
·
Equity seems easier to
get, but in the long run is more expensive then debt.
·
A large fraction of the
risk will be at the expensive of the private investor.
·
In the end, the old
economy will take many of the profits of the new economy.
We
separated in three sub-groups to discuss harmful effects of stock mis-valuation
on three groups of stakeholders: 1) investors/owners, 2) management, and 3)
customers/ communities/employees. Some conclusions were:
·
Key personnel will move
to dot.com companies attracted by stock options.
·
There will be lawsuits
against management by misled investors.
·
Unsuccessful IPO’s
makes it more difficult to raise equity for other companies.
·
There is an increasing
focus on stock price, rather than on true financial indicators.
·
Increased volatility
(under-valuation) negatively affects job security.
·
Market volatility leads
to volatile compensation packages.
·
Out-of-proportion stock
prices create new rich, which may polarize society.
What
needs to be done are:
·
Return to normal
valuation (stock price reflects intrinsic value).
·
Private investors need
to be educated.
The JRT discussed
taking action such as publishing a statement to express worry about stock mis-valuation
and the potential consequences, but no conclusion was reached as to how this
could be done to the satisfaction of all involved.
Evening session:
Ethics Simulation Game. This session was hosted by Ms. Anita Baker from
the World Bank and was held at the American University. The game was developed
by Lockheed Martin, in a response to American legislation that reduced legal
penalties to companies that have ethics programs in place. During the game,
which also was a lot of fun, different groups were asked to define what moral
characteristics were needed in different practical examples of moral dilemmas.
The very interesting game demonstrated that:
·
There is no easy
solution to ethical dilemmas (interpretations differ).
·
Fact-finding is of
utmost importance (know the facts before drawing conclusions).
·
At the same time, there
is large agreement (people know what’s right).
Day
2: Macroeconomic Perspective
The
second day of the symposium focused on the macroeconomic side of ethics and
the new economy. The morning began with speakers from the World Bank Group and
the International Monetary Fund. Ms.
Anita Baker, Manager, Office of Professional Ethics, World Bank Group,
presented participants with a broad overview of how the World Bank was
addressing questions of ethics within that large institution.
A large scale program, entitled Living Our Values, was recently rolled
out at the World Bank Group, supported by and endorsed by the President of the
World Bank Group, James Wolfensohn.
The following represent the core values identified in the Bank’s
literature:
- Personal
honesty, integrity, commitment
- Working
together in teams – with openness and trust
- Empowering
others and respecting differences
- Encouraging
risk-taking and responsibility
- Enjoying
our work and our families
Ms.
Baker said that ethics really had very little to do with rules and instead was
about the environment in which we work. She indicated that several factors had
contributed to the need to focus on ethics within the Bank Group and for many
organizations: decentralization, a volatile business climate, rapidly
changing technology, increasing public attention to ethics/anti-corruption,
diversity of the workforce and markets, and media scrutiny.
Each of these factors, she said, represents an increasing dissemination
of control away from one person to a broader range of responsible individuals.
Ms.
Susan Adams, Manager, Recruitment Division, International Monetary Fund,
shared from her experiences first as an economist with this prestigious
organization, and now as the point of contact for future employees.
Her comments were more personal in nature, focusing on ethical dilemmas
that she has faced. She suggested
that her modus operandi was Pareto Optimality, which focuses on whether, in a
given situation, all parties concerned are satisfied with a decision and it is
not possible to achieve further gains without hurting one of the parties.
She said that the use of this macroeconomic principle, which deals
primarily with efficiency, did not always take into account the ethic question
in a given situation.
Dr.
Brian Russell, Visiting Professor of International Studies, Monterrey
Institute and Lecturer, Stanford University, facilitated the ensuing
discussion on the role that the Bank and the Fund have in the new economy.
The ethics of interest, of loaning to debtor countries, of demanding
conditionality on loans, and of debt forgiveness were put out on the table for
discussion. He presented a model
for organizational culture that highlighted the difficulty that particularly
large bureaucratic organizations have in adapting to changes in the broader
economy.
Dr.
Russell suggested that the artifacts of the organizations, those things that
are visible above the surface, are driven by values and assumptions that
remain hidden to the general public and which, often, are part of the
organization’s unconscious. A re-examination of the First Principles that were part of
the foundation of the Bretton Woods institutions was necessary in order to
understand the role that these institutions were meant to play and whether or
not they are playing that role today. What
he suggested was that the post-war environment that stimulated the formation
of the Bank and the Fund is significantly different now in an era with vast
and rapid movement of capital across national boundaries.
“If
we agree that there is a moral responsibility to the developing world, are the
methods that are being used ethical?” was the question put on the table.
Participants discussed the difference between development “aid” and
development “loans” and whether the latter implied the imposition of
values related to conditionality.
Two
“new economy” principles – transparency and privacy – were discussed.
Groups like Transparency International have shed light on the corrupt
practices plaguing certain countries and industries.
At the same time, the means by which information is being captured and
used, especially personal information was believed to be a bigger ethical
dilemma in the years ahead.
The
day concluded with a barbecue dinner hosted by Dick and Randy Ruffin at the
MRA Center in McLean, Virginia. This was an opportunity for JRT participants
to interact in a very informal setting with individuals who are involved with
or support the work of MRA in the United States.
Following the meal, participants were given an opportunity to share
from their experience of the two-day gathering.
Many participants expressed that they had not confronted some of the
ideas presented and felt encouraged and supported to do so upon their return
to their workplaces. Overall, participants were very enthusiastic about the
event and the work contributed by organizers and speakers.
