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Tuesday
May162006

Ethical Receivership

I read an amusing short story by Peter De Vries* about a man who wanted to run out on his wife. He decided to declare moral bankruptcy. He declared to his family and all his friends that he was unable to meet society’s moral obligations, and that he would pay up at the scale of ten cents on the dollar. It all backfires on him, of course.

Still, the concept of moral bankruptcy as a parallel to financial bankruptcy is an interesting analogy. It relates to corporate malfeasance and the possibility of revoking corporate charters. A number of people are advocating the strengthening and rigorous enforcing of laws concerning corporate charters and the public good.

This is an appealing prospect, given that

1) The piddling fines demanded of corporations by the government are considered by said corporations as merely the cost of doing business, and
2) Corporations seem to be competing for some kind of anti-Nobel Prize in fraud, environmental destruction, and political corruption.

The problem with the death of a corporation, however deserving, is that it is group punishment for the actions of a few.

Remember the flaming Ford Pinto? Ford executives did some cold-blooded calculations and decided that it was cheaper to pay off the families of a few dozen human sacrifices than to recall the model and replace the fuel tank bracket. It was the moral equivalent of firing a gun blindly into a crowd, but the corporate being of Ford remained at large, building cars and making profits. What if the corporate charter had been revoked? The stock would have been rendered worthless, the assets sold off, and tens of thousands of people thrown out of work. Therein lies the problem. The people stitching the upholstery on the bucket seats weren’t guilty of anything. Likewise 99% of the Ford employees, and all the employees of the subcontractors and other businesses that benefited from the operations of Ford Motor company.

That is where moral bankruptcy comes in. A company that can’t meet its financial obligations can be forced into bankruptcy. In cases of criminal behavior or gross mismanagement, control of the company is surrendered to a government trustee. The company goes through a regulated process of financial restructuring to put it back on a sustainable fiscal path. Why not create the same process for corporations that are unable to meet their moral obligations to society?

When a corporation accumulates enough points on its license, so to speak, it would be subject to a legal proceeding and declared morally bankrupt. The Moral Bankruptcy Court would axe offending management and associated henchmen, minus golden parachutes, and prosecute them. Trustees would take over the operation of the company and put in place policies to promote future lawful behavior. The company would be subject to ethical audits on a regular basis for a designated period of years. Meanwhile, the company would manufacture products, employ people, and contribute to the economy. Just like financial bankruptcy, there would be a period of years where another bankruptcy proceeding would not be allowed. During this period the corporate charter would be on the line.

Moral bankruptcy laws would fill the gap between fines as a cost of doing business and the complete destruction of an economic engine. It would keep C-level executives looking over their shoulders as they make the economic calculations that drive corporate policy. It could gain us corporate accountability without the injustice of punishing line employees. It would also make for amusing headlines: “XYZ Corp declared morally bankrupt.”

*The story is titled "Forever Panting," written for the New Yorker in 1963. I recommend that you find it in the excellent book "Fierce Pajamas," an anthology of humor writing from the New Yorker.

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