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For the J. of Business Anthropology, Spec. issue on business ethics
Steven Sampson
Lund University
The “Right Way”: Moral capitalism and the emergence of the corporate ethics and compliance officer
Steven Sampson
Abstract.Under the influence of U.S. government regulations, enforcement of anti-bribery laws and embarrassingcorruption scandals, major global corporations have realized that unethical conduct may affect not only their reputations but their profits. This development has given rise to a new position within the traditional management team: the ethics and compliance officer (who differs from the established corporate social responsibility function). Who are these people? How are they trained? And how do the ethics and compliance officers function as the moral compass of firms that need to compete in a global market where rules need to be bent and anything goes? How do we study the anthropology of corporate morality without seeing it purely as an instrument?Are there indeed genuine moral enclaves within corporations?
Introduction: morality and economy
As part of the conference of company ethics and compliance officers in Atlanta, a group of participants visited Coca-Cola headquarters to hear about Coke’s compliance program.[1] In her welcoming remarks, Coke’s head of Ethics and Compliance, reminded us that the brand slogan of Coca-Colais ‘The Real Thing’. But the compliance officer also explained that Coke has a second slogan, ‘The Right Way’. She then explainedhow Coca-Cola, certainly the world’s most well-known and long-established brand, sold in 207 countries, has become a prototype for the ethical business regime that prevails in global capitalism today. Without The Right Way, we were told, there can be no Real Thing. The example of selling Coke around the world gives us a vivid example of the seeming fusion of capitalist commerce and modern, multinational ethics. Selling soft drinks is now an ethical project. How did this happen? How did capitalism become moral?
This paper is about the process of moralizing capitalism and the way in which the firm’s moral staff, headed by the ethics and compliance officer, learn their craft.In particular, I will try to use ethics and compliance as a window to understanding the ethical elements of modern global capitalism and neoliberalism as such. I will do this by first outlining the process of moralization, and then describing how this enters the everyday world of modern corporations in the form of ethics and compliance. Finally, I will suggest certain avenues of how anthropologists might understand moral projects within business, not as a ploy or tactic, but as an essential part of modern global capitalism.
Observers of modern corporations tend to comment on the increasing need for ethics, transparency and moral responsibility in the modern corporation. On first sight, it appears that morality and ethics – doing the right thing, corporate social responsibility, etc. – are something new, an innovation. The purpose, then would be to explain this apparently new development by which ethics has now penetrated the operations of the firm, a process of ‘moralization’.
Yet the idea of moralization as something new needs to be questioned.Social anthropology offers an alternative approach to this issue. Anthropologists begin with the premise that all economic systems have moral components, in so far as there aresocially approved and disapproved ways of producing, distributing and consuming resources. Anthropologists studying the moral components of primitive or peasant societies have relied on the conceptof ’moral economy’. Breaching this moral economy, as we learn from James Scott (1976, 1985), E.P. Thompson (1971), Karl Polanyi (1956), Marshall Sahlins (1972) and many others can lead to conflict, sanction or social revolt. All economies are thus moral economies in so far as they rely on moral precepts for their functioning (this does not rule out calling them ‘political economies’ as well). Norms of reciprocity (Gouldner (1960), Mauss (1905) are the most well known of these moral precepts which can be invoked in the moral economy. And such norms even reach up to the modern redistributive welfare state, where citizens contribute taxes so that other, more vulnerable groups can obtain essential services. Breaches of this moral economy, in the form of tax fraud or welfare benefits fraud, carry moral weight.
The problem here is that we have sometimes assumed that capitalist economies, with their accumulation and dispossession (Harvey 2004), are somehow devoid ofmorality. Anti-capitalist activists often talk as if they want to restore morality, invoking images of community, equality and solidarity. The question here would be whether capitalism is amoral. At best, the firm’s morality is limited to its moral obligations to shareholders; hence, Milton Friedman’s famous dictum (1970), that ‘the social responsibility of business is to increase its profits’.
The idea that capitalism is without morality, and that the penetration of ethics is somehow new, is specious. Readers of this journal who sit for just a few minutes in any group of modern capitalists, in a board meeting, a sales conference, or in a bar after work,will quickly identify moral discourses inside modern business, especially centered on the proper way to do business. The ‘proper’ way may not be the legal way, but there is certainly a moral discourse involved. An ideology of business ethics assumes an overlap between the legal norms and moral code. Once in a while, however, the moral code and the legal code clash. And we obtain stories of large firms and business people who swindled, cheated or bribed. There is, we understand, a right and wrong way to be a capitalist.In ideal terms, the right way to be a capitalist includes more than following law and regulations. It also includes following moral and ethical codes, of making ethical decisions. This discourse of the right and wrong way to do businesshas existed since the founding of the discipline of Business Ethics. Business Ethics is not new. As Andrew Stark notes in an article from 1993, “there are more than 25 textbooks in the field and 3 academic journals dedicated to the topic. At least 16 business ethics research centers are now in operation” (quoted in Hoffman et al. 2014:669), and one major textbook on Business Ethics is now in its fifth edition (ibid.)
Yet the establishment of ethics within businesses seems to have become more imperative following the Enron scandal and has continued with dramatic iterations, the latest, of course, being the Volkswagen emissions deception and prosecution of its CEO. Mark Schwartz, a leading business ethics scholar and co-editor of a major textbook (Hoffman et al. 2014, 676) lists “the range of illegal and unethical activity taking place is extensive and includes corruption, bribery, receiving and giving gifts and entertainment, kickbacks, extortion, nepotism, favoritism, money laundering, improper use of insider information, use of intermediaries, conflicts of interest, fraud, aggressive accounting, discrimination, sexual harassment, workplace safety, consumer product safety or environmental pollution’ (Schwartz 2013).[2]
Modern business, while never amoral, now risks prosecution by the U.S. or UK governments for a variety of global offences, and reputation nightmares in social media. Corporations have thuspainfully recognized that theyneedto acknowledge both moral and legal guidelines. They need to respect laws in order not to be prosecuted. But they also need codes and standards in order to eliminate temptations to unfair competition and protect corporate reputations from bad publicity and lawsuits. Moreover, corporations need employees who understand these laws guidelines, codes and standards so that they can act appropriately. Managers and employees need to learn that ignoring or evading these laws, guidelines, codes and standards may get them, their bosses and the CEO in prison. Getting caught can mean gigantic penalties for the company, or even jail time for managers or executives. Capitalism is now an openly moral economy. There are good and bad ways to do business,fair and unfair competition. And thanks to government surveillance or the occasional whistleblower, the bad guys can occasionally get caught and punished.
Now the term ‘moral economy’ means very little unless we can specify what an immoral economy or amoral might look like. Maybe an economist, using a theoretical model of exchange and cost/benefit, could construct such a model. Perhaps this model might be based solely on mutual advantage or contract. But as an anthropologist, I cannot think of any economic transaction that would be devoid of moral precepts, moral expectations, admonitions against moral breach of standards and rules, notions of fair play or even ‘honor among thieves’. Research on fiddles and cheats at work in the UK, or the culture of thieves in Russia, describes the moral elements within these shadow economies. There is honor, moral honor, even among thieves and swindlers. Contracts may be legal documents, but they are also moral ones.
This being the case, we can ask whether capitalist morality has undergone any changes in the past decades with the intensification of global trade and financialization. I think it has. The change is centered on the state’s more active pursuit of illegal corporate behavior and corruption, especially as corporations pursue global profits and boardrooms dominated by financial institutions. These campaigns are pushed by non-state actors with moral or transparency agendas, such as environmental NGOs or the UN Global Compact. In addition, firms themselves now realize the penaltiesthat can arise when accused of such behavior, penalties that stem from ‘reputation risk’. In short, firms that act unethically can see their stock value decline by billions of dollars, they can go bankrupt from fines, and their CEOs can go to prison.This threat to reputation has resulted in the emergence of a particular specialist within the firm, the specialist in charge of respecting the gamut of legal, ethical and moral rules and regulations set by others and by the management,a specialist who ensures proper conduct, integrity, and whose job it is to enhance the firm’s moral and ethical fiber, both inside the organization and in its relations with third parties and society. This specialist goes beyond the legal office (the general counsel) that most firms have. The legal office, in-house counsel, has the task of advising the firm that some process, operation or transaction mayviolate the law.They may also conduct investigations and benefit from attorney-client privilege. It is about avoidance of explicitly legal problems or the hazards of entering into or breaching a contract. The legal officer is asked questions like, ‘Will we go to jail if we do this?’
‘Do the right thing’
I am instead talking about a relatively new kind of function, known as the ethics officer or ethics and compliance officer ECO, CCO or CECO (the field often called E&C). The job of the ECO job is not simply to keep executives, managers or sales staff out of jail. It is to encourage employees to do the right thing. The EC staff are not necessarily in charge of the firm’s social responsibility, which relates to the firm’s link with society, nor do they necessarily handle issues of corporate citizenship, even though they may be found in the same department. Similarly, the ethics officer evaluates risk, as does the financial officer, but for the EC officer it is reputation risk rather than financial risk which is at stake, and particularly, the risks to reputation caused by shortcomings in integrity.
The ECO is thus considered to be the moral core of the company. If capitalism is now acknowledging or even promoting its morality, it is the Ethics and Compliance officer who is at the forefront of this campaign.For the researcher, the compliance officer can thus be seen as a window toward understanding contemporary capitalist morality. In a world of scandal, where firms are being accused of (or admit to) swindling and bribing for hundreds of millions of dollars, of covering up illegal or unethical transactions, of simple bad conduct, the firms need to have a sub-unit that can pursue or assure some level of integrity. They need a unit that keeps track of the laws, guidelines, codes and standards that everyone must adhere to. This activity is called the ‘compliance function’, and it is headed by a compliance officer. The compliance officer is the focus of this paper.
E&C officers have now taken their positions inside the firm’s infrastructure, alongside Human Resources, the Legal Office (General Counsel) and the Internal Audit office. The formerly tripartite chief executive, financial and operation officers (CEO, CFO and COO, known as the ‘C-suite’) is now augmented by the chief (ethics and) compliance officer (CCO or CECO). The compliance function in a firm is often subsumed under soft areas of business operations known as Governance, Risk and Compliance (GRC). GRC contains functions such as CSR, diversity management and risk assessment, including reputational risk, as well as ethics and compliance issues).The term ‘compliance’ takes on different connotations in various languages, sometimes remaining in English, other terms being translated into terms such as the French conformité, Romanian conformitatea, Swedish efterlevnad (lit. live-after/according). There is a compliancedictionary.com., The Wall Street Journal now has a weekly ‘Risk and Compliance’ blog. And finally, judging from the hundreds of ethics and compliance jobs offered on job sites such as LinkedIn, we are left with a single conclusion: Compliance has arrived.[3]
Immersion into the world of compliance
In the past year, largely through attending training and conferences and unstructured interviews with compliance officers, I have tried to learn what it is like to be an ethics and compliance officer in the post-Enron era. (Enron, by the way, had a code of conduct, it was for sale on ebay, in mint condition, for 15 dollars; former Enron officers now, reborn as ethical guardians, often speak at compliance and fraud examiner conferences). Alot of my learning was in trying to decipher their special language, by listening and conversing with those who assert that they know compliance: trainers, presenters at conferences, leaders of compliance associations, and especially vendors selling compliance ‘tools’ (e.g. software/consulting).I have attended compliance conferences and instructional seminars of the Ethics and Compliance Officers Association and the Society for Corporate Compliance and Ethics with endless power-point checklists of ethical do’s and don’ts, I have been to training courses and seminars, generally costing as much as 1200 dollars per day, and obtained limited access to magazines with subscription rates of 1000 dollars a year. I also read websites and magazines such as Compliance Insider, Compliance Week and Compliance Professional, textbooks such as Compliance 101 and training brochures such as ‘Dealing with your GRC demons’, and ‘Fighting Compliance Fatigue.’ I have been to compliance simulation games and perused materials offered by compliance vendors and consultants. And to participate, I also wrote articles in compliance publications/websites about how we anthropologists view the concept of culture. The language of compliance has seeped in to my work, and as an anthropologist, my interest was piqued by the fact that one of their most common expressions referred to ‘the culture of compliance.’ Culture, for compliance professionals, combines values, attitudes and practices, and building a culture of compliance is about engaging employees with the company values, building a climate of trust, hence the mantra, launched by the CEO of Ford Motor Company: ‘Trust is the New Black’.
What encompasses this domain of Ethics and Compliance? As most compliance specialists underscore, it has a dual character. It consists, first, of respecting national and externally imposed laws, regulations and standards (‘what we have to do to keep us out of jail’). And there are penalties for not complying. Compliance in this sense has no connotation that one agrees or supports the laws or rules one is complying to.Typically, these compliance obligations have to do with financial reporting and transparency to regulatory authorities, obeying anti-bribery laws, conforming to industry standards, and respecting internal codes of conduct about say, conflict of interest or hospitality. But E&C also has a further, normative aspect of ethics, to ‘do the right thing’. Ethics and Compliance officers, therefore, are supposed to be on an ethical mission: they are the ethical watchdogs of their companies, ensuring that everyone follows the company’s code of conduct and that potential abuse is detected before the company is called in by the FBI (or as one lawyer described it: ‘visited by people carrying guns and with initials on the back of their windbreakers’). Publicized breach of ethical standards brings with it reputation risk, as customers may now assess the moral quality or image of people with whom they do business.In this case, clients, customers or partners may decidce to take their business elsewhere. Well-known examples of compliance breaches here are labour conditions in Asian textile factories (child labour, accidents) or misrepresenting diesel emissions (VW).