Ex-Corporate Lawyer’s Idea: Rein In ‘Sociopaths’ in the Boardroom – The New York Times

We’re pleased that retired lawyer-turned novelist Jamie Gamble finally figured out that his corporate clients are “sociopaths” but believe he is creating a false dichotomy. Shareholder value does not require corporate officers and directors to ignore ethics and values; on the contrary. It is impossible to create long-term, sustainable shareholder value without scrupulous attention to ethics, values, reputation, and compliance, with attention to employees, customers, suppliers, and the community. There are volumes of business school case studies showing the consequences of failure to understand that ethics are a foundational element of risk management.

When companies fail to recognize this, however, we have not done a good enough job of making sure the consequences can act as a powerful deterrent. We were reminded of this again yesterday with reports that there is still more bad news coming from the Volkswagen “defeat device” scandal.

All companies brag about their ethics and just about all of them have some statement of their principles posted somewhere. Wells Fargo has its motto on the wall of every bank: “There is one very powerful business rule. It is concentrated in the word courtesy.” That did not stop them from a series of frauds and scandals. Putting them in the charter won’t make a difference. The focus here should be on transparency in campaign and lobbying expenditures (to track corporate efforts to evade liability and externalize costs) and on making boards more independent by giving shareholders the ability to remove or replace directors.

[Jamie Gamble] has concluded that corporate executives — the people who hired him and that his firm sought to protect — “are legally obligated to act like sociopaths.”Subscribe to With InterestCatch up and prep for the week ahead with this newsletter of the most important business insights, delivered Sundays.SIGN UPHe made that determination about five years ago when he started to work on a novel that recently inspired him to compose a provocative essay elucidating what he calls, based on his firsthand experience, a “complex network of horribles” in corporate America. He recently shared a draft with a small number of colleagues, seeking their comments.“The corporate entity is obligated to care only about itself and to define what is good as what makes it more money,” he writes in the essay. “Pretty close to a textbook case of antisocial personality disorder. And corporate persons are the most powerful people in our world.”

[H]e has devised a provocative new governance rule that he believes will fix what ails corporate America, although he acknowledges in his essay that his idea “is likely to seem insane to senior corporate executives and boards of directors.”

Mr. Gamble’s proposal is this: that every company devise a set of ethical rules to be part of their bylaws, a move that would potentially open them up to shareholder lawsuits should they fail to stick to those rules.

Companies, he suggests, should “adopt a binding set of ethical rules, approved by stockholders and addressing the key ethical dimensions of corporate life” including:

■ Their “relationships with employees.”
■ Their “relationships with the communities in which they produce and sell.”
■ Their “relationships with customers.”
■ Their “effects on the environment.”
■ And their “effects on future generations.”

Once the rules are in place, he writes, “any shareholder could sue the board of directors for violating the ethical rules — just as any shareholder can today sue the board of directors for violating the maximize rule.”

“The fix I propose leaves the private islands of power private,” he said. “The only interference by government would be to require that the shareholders explicitly state what kind of person they want their corporation to be.”

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