Once, in the sixties, for example, some of us railed against “the system,” an abstraction personified by almost anyone who was an authority figure. The system had a face. So too today. While there’s a certain truth in the belief that “the system” caused the liquidity crisis, it’s also true that real people made the bad decisions that precipitated the crisis. Certain people “own” those decisions, and that ownership implies responsibility.

My mother owned a toy store. Every year, the week after Christmas, people would come into her store, put a toy on the counter, and say, “It broke!” My mother, who was, admittedly, a moralist, would look them squarely in the eye and say: “No, you mean that you broke it!” They were usually surprised, but they got the point. My mother invariably replaced the toy anyway, proving that she was a poorer businessperson than she was a moralist. And, sadly, her business got a reputation for being the place you took broken toys back to, which was not good for business in the long term.

I’m reminded of her today as explanations begin to emerge of what caused the financial crisis of 2008-9, the economic recession exacerbated, if not caused by, that financial mess and the failure or near-failure of many companies. There is an overwhelming emphasis on the failure of “the system.” One can read analyses by politicians, academics, executives and journalists that never even mention personal culpability. It’s as if the great American comedian, Flip Wilson, were back. His inevitable excuse for his own misdeeds was, “The devil made me do it!” And people are looking to their “mothers” – governments – to fix the problem. Probably, they will fix the problems. And sooner or later, they’ll be back for more.

At times like this it is useful to recall Aristotle’s view of some of the key elements of a moral character. In addition to honesty, integrity and others, they include:

  • Courage, which allows managers to assume reasonable risks. When they believe something is wrong, they will speak up. They demonstrate initiative but are not foolhardy.i

  • Temperance, which allows managers to channel their drives and ambitions in creative and useful ways, without be excessive.

  • Justice, which is associated with trying to find a balance between competing forces, and which is essential to considering and balancing stakeholder claims.

It is apparent that these virtues were and are sadly lacking among many of the players in the institutions at the heart of the financial and economic crisis we are currently experiencing.

It is also interesting that many key players and commentators are having trouble distinguishing between accountability and personal responsibility. People who are entrusted with high office are accountable for what happens in and with their organizations. If they financed their growth by raising the risk profile of their companies to staggeringly imprudent heights it was because people – names and faces – made decisions to do so. If their organizations were not prepared for the fact that the economic crash could be a consequence of the property bubble, they are accountable for that lack of preparation, whether or not they ever made a loan or approved a derivative transaction. If they are directors who hired a CEO who lacked essential moral character, then they are accountable for that, too.

Some 18 years ago, Frederick Bird and I wrote a book on business ethics.ii From that book we developed a set of recommendations for designing “organizations” that would act in an ethical way, remembering that organizations are aggregates of individuals. In the current context, we offer up some of our old suggestions for consideration.

  1. Attract, recruit, select and promote people with their moral character in mind. Promotions are especially important, since huge numbers of people read the moral stance of the organization into promotional decisions.

  2. Have rules but don’t rely on them. Train people in ethical decision-making. Don’t rely on osmosis to convey the sense of what is right and wrong in decision-making. Don’t just train them on how to apply the rules. Acting responsibly in ambiguous situations requires a trained mind, not just the memorization of a code of conduct.

  3. Communicate your expected standards of behavior every way you can and as often as you dare, in speeches, literature, web sites, training sessions, one-on-one reviews. Do it ‘till you’re bored with the sound of your own voice. Only then can you be sure that some people may have heard the message.

  4. Establish clear channels of communication for those who believe that wrongdoing may be taking place but who are afraid to act because of those who wield power above them.

  5. Conduct frequent, systematic and in-depth reviews of policies and practices to ensure that they meet high ethical and moral standards. Social mores change – they sure have since Aristotle’s days! But the principles are timeless and must be constantly reinterpreted so that they may be seen as relevant.

  6. Make absolutely sure that you have not created incentives that exert so much pressure to do the wrong thing that they overwhelm the controls set up to stop those actions or behavior. To prevent improper behavior you need the rule, the penalty and the police. But we know that when the incentives are high enough, enough people break the rules and risk the penalty, even if there is a reasonable chance of getting caught.

  7. The most critical influence on employees – particularly those who are new to an organization – is the behavior of their immediate supervisors and managers. Those with organization-wide accountabilities must ensure that they model the behaviors that are consistent with the words. Not walking-the-talk is the greatest moral hazard into which a leader can fall.

Many business leaders have embraced these and other steps, and run fine organizations that make money for their shareholders and that respect other stakeholders in their enterprises. It’s obvious, however, that much remains to be done. This current crisis was not caused by “the system,” although it certainly created a systemic problem that side-swiped even the best-run organizations. It wasn’t the system that made bad loans, promoted ridiculously easy credit, structured and sold misleading investment products or decided to finance highly leveraged portfolios of products based on dubiously backed credit default swaps. It was people — people who made those decisions and who need be accountable for their actions. It’s a message that we should never forget.

i Bird, F. B. and J. Gandz (1991). Good Management : business ethics in action. Scarborough, Ont., Prentice-Hall Canada.

ii Ibid.

About the Author

Jeffrey Gandz is a Professor of Strategic Leadership and Managing Director, Program Design, in Ivey Business School's Executive Development division at Western University.