Introduction
Two Sources of Caveat Emptor in Corporate Business
The Psychology of Caveat Emptor: Temperament and Personality
Bistrategic | Coercive | Prosocial | Typical | Subordinate | |
---|---|---|---|---|---|
Self rating | |||||
Agreeableness | 2 | 4 | 1 | 3 | 5 |
Aggression | 1 | 2 | 4 | 3 | 5 |
Resource control | 1 | 2 | 2 | 4 | 5 |
Cheating | 1 | 1 | 4 | 3 | 5 |
Peer rating | |||||
Perceived popularity | 2 | 3 | 1 | 4 | 5 |
Aggression | 1 | 2 | 3 | 4 | 5 |
Resource control | 1 | 3 | 2 | 4 | 5 |
Percent of all children | 17.5 % | 17 % | 15 % | 35.5 % | 15 % = 100 % |
A. Percent of boys and of girls belonging to each of the five types of controllers | ||
---|---|---|
Boys | Girls | |
Bistrategic | 20 % | 15 % |
Coercive | 24 | 10 |
Prosocial | 12 | 18 |
Typical | 31 | 40 |
Subordinate | 13 | 17 |
Total | 100 % | 100 % |
B. Percent of each of the five types made up of boys and of girls | |||
---|---|---|---|
Boys | Girls | Total | |
Bistrategic | 56 % | 44 % | 100 % |
Coercive | 71 | 29 | “ |
Prosocial | 41 | 59 | “ |
Typical | 43 | 57 | “ |
Subordinate | 44 | 56 | “ |
Consensus is emerging that a five-factor model of personality, often termed the “Big Five” (Goldberg 1990), can be used to describe the many salient aspects of personality…. Evidence indicates that the Big Five are fairly heritable and stable over time (Costa and McCrae 1988; Digman 1989), although the environment undoubtedly plays a role.The dimensions composing the five-factor model are neuroticism, extroversion, openness to experience, agreeableness, and conscientiousness. Neuroticism represents the tendency to… experience negative affect such as anxiety, insecurity, and hostility. Extroversion represents the tendency to be sociable, assertive, and experience positive affect such as energy, zeal, and excitement. Openness is the disposition to be imaginative, unconventional, and autonomous. Agreeableness is the tendency to be trusting, compliant, caring, and gentle. Conscientiousness comprises two related facets, achievement and dependability, and has been found to be the major component of integrity (Hogan and Ones 1997).
Earlier in their article these authors write thathigh extraversion (especially sensation seeking) and openness supply the motivational force for risk taking; low neuroticism and agreeableness supply the insulation against guilt or anxiety about negative consequences, and low conscientiousness makes it easier to cross [i.e. transgress] the cognitive barriers of… control, deliberation and conformity (Nicholson et al. 2005).
Related findings come from psychological research on innate qualities in infants and children, called qualities of “temperament” to distinguish them from qualities gained from experience that combine with innate qualities to form what psychologists label “personality.” Since the FFM qualities have been found to be “fairly heritable,” i.e., to have innate elements, people cannot be simply “talked out” of these qualities. Therefore, while society needs to offer what psychologists call “prosocial” occupations for all adults, it is especially important to offer prosocial occupations for those who show the personality described above in terms of the FFM as low N, A, and C combined with high E and O. We shall see that writers as diverse as Plato and William James have discussed war as being attractive to people who seem to show a similar personality.A clear Big Five pattern emerges for overall risk propensity, combining high extraversion and openness with low neuroticism, agreeableness, and conscientiousness. At the subscale level, [extroversion as] stimulation-seeking surfaces as a key important component of risk propensity…. Following [Hans] Eysenck’s theory of extraversion as a generalized need for stimulation, the extraversion scale (E) is expected to follow the pattern predicted… for sensation-seeking…. Openness to experience (O) can be seen as a cognitive stimulus for risk seeking—acceptance of experimentation, tolerance of uncertainty, change and innovation…. Conversely, conscientiousness (C), which can be summarized as a desire for achievement under conditions of conformity and control, is antithetical to these qualities and can be predicted to be inversely related to risk-propensity…. The literature also suggests that consistent risk-takers require resilience…, which would suggest that they should also score low in emotional sensitivity, implicating the neuroticism (N) dimension of personality. The same logic could be applied to agreeableness (A), the tough to tender-mindedness dimension. Robust self-interest, and a lack of concern for the consequences to others of one’s risk taking, could help to underpin the risk-taker.
Individuals who belong to this temperamental category who are raised in affectionate homes that encourage accomplishment and are fortunate enough to attend good schools are likely to become adults who enjoy high risk vocations, such as politics, investment, and trial law. But the same children are at risk for a criminal career if they grow up in … homes in which aggressive behavior is incompletely socialized and their neighborhoods contain temptations for delinquent acts. Thus, the same temperamental (i.e., innate) bias can lead to different [adult] personalities when development occurs in distinctive settings (Kagan 2008).
James further wrote thatinherits all the innate pugnacity and all the love of glory of his ancestors. Showing war’s irrationality and horror is of no effect on him…. War is the strong life; it is life in extremis.
The alternative James proposed for “the military minded” was organized national service. His proposal is seen by Jon Roland in his “Introduction” to James’s essay as leading directly “to the depression-era Civilian Conservation Corps, to the Peace Corps, VISTA, and AmeriCorps.” (Roland 2000) James wrote thatThe weakness of … merely negative criticism is evident—pacifism makes no converts from the military party. The military party denies neither the bestiality nor the horror nor the expense; it only says that these things tell but half the story. It only says that war is worth them…. So long as antimilitarists propose… no moral equivalent of war,… so long they fail to realize the inwardness of the situation…. The duties, penalties, and sanctions pictured in the utopias they paint are all too weak and tame to touch the military minded.
James’s examples would need revision to fit today’s technology and would also need extension to higher ages to provide for citizens of this personality type throughout their working lives. In addition to developing prosocial occupations for these citizens, we need to make every effort to help all children, but especially low reactive/uninhibited children have the empathic relationships and other experiences needed to help them develop into prosocial adults.To coal and iron mines, to freight trains, to fishing fleets in December, …. to road building and tunnel-making, to foundries and stoke-holes, and to the frames of skyscrapers, would… youth be drafted off… and … come back into society with healthier sympathies and soberer ideas…. [U]ntil an equivalent is organized, I believe that war must have its way. But I have no serious doubt that the ordinary prides and shames of social man, once developed to a certain intensity, are capable of organizing such a moral equivalent as I have sketched.
The Logical Root of Caveat emptor
Reading Jack Welch’s plain-language, high-energy book Winning is like getting the playbook of the Super Bowl champions before the game. It’s a big head start on how to master the corporate game from the entry level to the corporate suites.
Americans are much more likely than citizens of other nations to believe that they live in a meritocracy. But this self-image is a fantasy: …America actually stands out as the advanced country in which it matters most who your parents were, the country in which those born on one of society’s lower rungs have the least chance of climbing to the top or even to the middle (Krugman 2012).
“In war, they don’t give out medals for second place. In business as in war, you can’t win without first surviving. Increasingly, the business landscape looks more like a battlefield than a boardroom or shop floor. Written in a style that is ‘pure Allard,’ Business as War offers the hard-won wisdom from one warrior’s world to another. Read, laugh, squirm, survive, and win!”Scott A. Snook, Professor of Organizational Behavior, Harvard Business School“In the post-9/11, post-Enron environment, Ken Allard’s Ten Commandments of Military Leadership are directly applicable to today’s business CEOs.”Tom Petrie, Vice-chairman of Merrill Lynch
Because mortgages, student loans, financial derivatives, and other financial products rely on LIBOR and EURIBOR [European Interbank Offered Rate] as reference rates, the manipulation of submissions used to calculate those rates can have significant negative effects on consumers and financial markets worldwide.10
The “Statement of Facts” appended to the Justice Department’s June, 2012, statement of its settlement with one of the major banks involved, Barclays, includes many illustrations of what bank employees were doing with the LIBOR.11 Here are two samples:is arranged by a trade group of banks in London. Every day around lunchtime in London, about 16 banks submit to the British Bankers’ Association data that is an estimate of how much it would cost those banks to borrow from each other. (Enrich 2012)
…on Monday, March 13, 2006, at approximately 7:48 a.m., Trader-1 wrote to Submitter-1:
Gretchen Morgenson, one of the most insightful and earliest analysts of the crash of 2008, commented on the apparent tendency of the leaders of the banks involved to evade responsibility:“… [Clients] were screaming at me about an unchanged 3 m[onth] libor. As always, any help wd [would] be greatly appreciated. What do you think you’ll go for 3 m[onth]?” Submitter-1 responded, “I am going 90 altho[ugh] 91 is what I should be posting.” Trader-1 replied in part: “I agree with you and totally understand. Remember, when I retire and write a book about this business your name will be in golden letters….” Submitter-1 replied, “I would prefer this not be in any books!” Barclays’s 3-month Dollar LIBOR submission on March 13, 2006 was 4.90 %….”“We’re getting killed on our 3 m[onth] resets, we need them to be up this week before we roll out of our positions. Consensus for 3 m today is 4.78 - 4.7825, it would be amazing if we could go for 4.79…Really appreciate ur help mate.” (ellipses in original). Submitter-2 responded, “Happy to help.” Barclays’s 3-month Dollar LIBOR submission on February 22, 2006 was 4.79 %.”
Manipulating the Libor is a big deal because it affects the cost of money for almost everyone…. One of the most revealing exchanges in the Barclays documents came when a bank official tried to describe why Barclays’s improper postings were not as problematic as those of other banks. “We’re clean but we’re dirty-clean, rather than clean–clean,” an executive said in a phone conversation. Talk about defining deviancy down. “Dirty clean” versus “clean clean” pretty much sums up Wall Street’s view of cheating. If everybody does it, nobody should be held accountable if caught….. Wall Street is pushing back, especially on the Commission’s proposal that swap execution facilities provide market participants, before they buy or sell, with easily accessible prices on “a centralized electronic screen.” The Commission’s rule would eliminate the one-to-one dealings by telephone that are so lucrative to traders and so expensive to investors.(Mogenson 2012)
An Alternative to Caveat Emptor Gamesterism as a Foundation for Business
Hamilton thinks that as towns arose, the phrase caveat emptor may have come into use to warn people not to get drawn into what we today call the “black market.” He writes that in back streets,the records attest the dominance of the idea of solidarity. The welfare of the collect is always given first position…. The devices in which greatest reliance was put were publicity and prevention. The deceitful maker and the dishonest vendor were paraded through the streets with their fraudulent wares, exposed in the stocks with their false products burned beneath their feet…. In the prevailing legal theory it was not so much the buyer who was injured as the commune. [p. 1152–1153]
In sum, Hamilton concludes that up through the Middle Ages the dominant view was that in commercial abuses “it was not so much the buyer who was injured as the commune” and that “the sense of the age, concerned to secure the common profit, had no reputable place for a notion of caveat emptor.” [p. 1156]away from the marts of organized trade were to be found the wayfaring palmer with his relics and trinkets, the peripatetic peddler with gew-gaws and ornaments, strangers here today and there tomorrow, wayfaring men of no place and without the law. [p. 1162]
Khurana reports that this vanguard intended the university business school to produce “professionals” comparable to the products of medical and legal education. Khurana reviews the extensive literature on how “profession” should be defined, and he decides upon the definition offered bythe efforts of a vanguard of institutional entrepreneurs, both academics and managers, who saw the need for creating a managerial class that would run America’s large corporations in a way that served the broader interests of society rather than the narrowly defined ones of capital and labor. [4, bold italics added]
The “privilege” granted to business—the counterpart of the monopoly on medical and legal practice granted to licensed doctors and lawyers—was the corporate form, with its ability to amass more capital than a single individual generally could and its privilege of “limited liability,” the protection of individual investors from loss of any money beyond what they had invested in the firm.Everett C. Hughes, a scholar of the modern occupational structure, who described the status of professions in American society as the result of a type of social compact: professions are given extraordinary privilege in exchange for their contributions to the enhancement of social order.”14
We will look at Khurana’s account of the abandonment of this project as we consider how today’s trustworthy people of business could revive it.The history of the university-based business school is thus framed in these pages as a professionalization project undertaken, transformed, and finally abandoned over a period stretching from the founding of the Wharton School at the University of Pennsylvania in 1881 up to the present. [7]
An Agenda for Marginalizing Caveat emptor Gamesterism: Reorienting MBA Education and Establishing Licensing for High Level Executives
The title of one airport book proclaims it’s Not the BIG that eat the SMALL; it’s the FAST that eat the SLOW. The authors write that the only difference between “speed” and “haste” is that “speed” has “a destination in mind.” (Jennings and Haughton 2000, p. 9)strategy is a living, breathing, totally dynamic game. It’s fun—and fast. And it’s alive. Forget the scenario planning, year long studies, and hundred-plus-page reports. They’re time-consuming and expensive, and you just don’t need them…. If you want to win… ponder less and do more. (Welch 2005, p. 166)
History of the Corporate Form in the U.S.
Judge Spencer Roane of the Virginia Supreme Court ruled as follows in 1809 in Currie’s Administrator vs. Mutual Assurance Society:Once the old [colonial] hierarchies disintegrated…, the new states’ attempts to grant such corporate privileges to select individuals and groups immediately raised storms of protest. When in the Philadelphia [Constitutional] Convention James Madison proposed that the federal government be given the explicit power to grant charters of incorporation, the framers decided to finesse the issue by saying nothing in the Constitution about incorporations out of fear of arousing popular opposition to ‘mercantile monopolies.’…. Such franchises and privileged grants may have made sense in monarchies…. [b]ut now that only the people ruled, these grants of corporate privileges seemed pernicious…. [Wood 1992, pp. 319–320]
With respect to acts of incorporation, they ought never to be passed, but in consideration of services to be rendered to the public…. It may be often convenient for a set of associated individuals, to have the privileges of a corporation bestowed upon them; but if their object is merely private or selfish; if it is detrimental to, or not promotive of, the public good, they have no adequate claim upon the legislature for the privilege.” (Roane 1809)
An increased rate of incorporations under ‘general law’ as opposed to ‘special acts’ of the legislature was the result of a series of Supreme Court rulings (beginning with its landmark decision in Dartmouth College v. Woodward in 1819 that found that corporations of all sorts possessed rights as private entities, so that state legislatures could not easily revoke their charters). As a result, legislatures began to loosen their restrictions on what corporations could do. For example, in 1830, the Massachusetts legislature eliminated the requirement that a corporation be engaged in public works [in order] to be given the status of limited liability. Connecticut did the same in 1837. By 1850, many states were competing with one another to define corporate rights as broadly as possible, with New Jersey and Ohio (where Standard Oil exerted significant influence) offering some of the most liberal terms. (Khurrana 2007, p. 407)
Henry Adams wrote in 1870 in Britain’s Westminster Review thatWe may congratulate ourselves that this cruel war is nearing its end…. but I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. As a result of the war, corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed. I feel at this moment more anxious for the safety of my country than ever before, even in the midst of war. (Lincoln 1864, p. 40)
The belief is common in America that the day is at hand when corporations… after having created a system of quiet but irresistible corruption, will ultimately succeed in directing government itself. Under the American form of society, there is now no authority capable of effective resistance…. Nor is this danger confined to America alone. The corporation is in its nature a threat against the popular institutions which are spreading so rapidly over the whole world,… and unless some satisfactory solution of the problem can be reached, popular institutions may yet find their very existence endangered. (Adams 1870)
the efforts of a vanguard of institutional entrepreneurs, both academics and managers, who saw the need for creating a managerial class that would run America’s large corporations in a way that served the broader interests of society rather than the narrowly defined ones of capital and labor. [4, bold italics added].
the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex.. [carries]… the potential for the disastrous rise of misplaced power…. We must never let the weight of this combination endanger our liberties or democratic processes. (Eisenhower 1961. For additional comments on corporations by U.S. Presidents, see Beets 2011)
History of the MBA
The mission of the social work profession is rooted in a set of core values…. embraced by social workers throughout the profession’s history….:
Service Social Justice Dignity and worth of the person Importance of human relationships Integrity Competence
Public health is understood within these principles as what we, as a society, do collectively to assure the conditions for people to be healthy.We affirm the World Health Organization’s understanding of health as a state of complete physical, mental, and social well-being, and not merely the absence of disease or infirmity….A key belief worth highlighting, and which underlies several of the Ethical Principles, is the interdependence of people. This interdependence is the essence of community. Public health not only seeks to assure the health of whole communities but also recognizes that the health of individuals is tied to their life in the community.21
there now finally existed [because of World War II] a ‘management science’ that could be taught….[T]he decision-making tools developed during the war, such as decision analysis and game theory, combined with the theoretical insights from the behavioral sciences, constituted the basic elements of this new management science…. [which] could best be taught to students… through a rigorous immersion in quantitative analysis and concepts from decision theory. [271, bold italics added]
Another possible response when a model fails to fit the world is just to leave out the inconvenient aspects of the world. Economists call these omitted aspects “externalities,” and the omission can happen either consciously or unconsciously. A major contribution by feminist economists in the 1980s in the “Second Wave” of the women’s movement was to point out that neither “mainstream” neoclassical economic theory nor Marxian economic theory included a place for unpaid domestic labor, with the result that the huge portion of the world’s work that is done in the home—and still primarily by women—was treated as being of no economic significance. Some economists tried to repair this embarrassing omission by seeking ways to quantify domestic labor in order to add it while leaving their basic model intact. But others, such as economist Julie Matthaei, are addressing the deeper gender assumptions reflected in currently dominant models. For example, the model known as “the sexual division of labor” has tended to involve an assumption that the “public” sphere of paid labor will be made up mostly of men, with women in the “private” sphere of unpaid labor. Economists such as Matthaei have begun developing models with more adequate approaches to gender, and business students could gain a greater understanding of modeling as well as of gender by looking at these more imaginative approaches (Matthaei 2001).Edgeworth asserted that “the first principle of Economics is that every agent is actuated only by self-interest.” This view of man has been a persistent one in economic models…. In this essay I would like to examine some of the problems that have arisen from this conception of human beings. I should mention that Edgeworth himself was quite aware that this so-called first principle of Economics was not a particularly realistic one. Indeed, he felt that “the concrete nineteenth century man is for the most part an impure egoist, a mixed utilitarian.” This raises the interesting question as to why Edgeworth spent so much of his time and talent in developing a line of inquiry the first principle of which he believed to be false.
[Stiglitz believes that] “our economy is being overwhelmed by politically engineered market advantages…. By this he [Stiglitz] means economic returns above normal market levels that are derived from favorable political treatment…. [This favorable treatment includes classifying some things as] ‘negative externalities, or costs that economic producers impose on society for which they don’t pay. The spectacular profits of the energy industry, for example, rely heavily on the failure of regulation to incorporate fully the social and economic costs associated with environmental degradation, including climate change (Hacker and Pierson 2012).
A business class discussing this topic could watch Errol Morris’s 2003 documentary about McNamara, The Fog of War, and discuss McNamara’s chastened conclusion that war “is so complex it’s beyond the ability of the human mind to comprehend all the variables.” (Morris’s 2003, p.18 of a 19 page printout) Trying “to comprehend all the variables” in McNamara’s mathmaticist sense is the approach of a computer programmer, not of a historian or poet. But the evidently well intentioned McNamara seems to have had only mathematicist thinking to draw upon. At this point it would be important for business students to discuss what ways of thinking and approaches to planning and decision making they conclude might be needed when computer modeling and other forms of mathematicism prove inadequate or misleading.By the late 1960s there was growing doubt about the claims and usefulness of management science. As Steven Sass notes…: ‘Errors in modeling, measurement, or computation had led to serious blunders, and in some cases the results were unequivocally disastrous.’ The mounting casualties in Vietnam, combined with the hubris shown by former Ford Motor Company Whiz Kid and Harvard Business School accounting professor Robert McNamara, eventually offered a ‘nagging public symbol’ of management science’s human cost and seemed to indict the notion that cold, rational calculus was productive of good judgment. [286]
Leadership as a body of knowledge, after decades of scholarly attention… remains without either a widely accepted theoretical framework or a cumulative empirical understanding leading to a usable body of knowledge. Moreover, the probability that leadership studies will make significant strides in developing a fundamental knowledge base is fairly low. The reality is that inside universities and research-based business schools, leadership research has relatively low status. In elite business schools, for example, there are no ‘leadership’ departments…. Within the Academy of Management, the largest professional association for business school scholars, leadership is not even recognized as a distinct interest group or subfield…. [357]
By the beginning of the 1990s, business schools—particularly those elite schools that had staked their reputations on academic superiority [in the period in which faculty like McNamara of the Harvard Business School had been proclaiming management science]—faced a full-blown crisis of identity and purpose. It was no longer possible for business schools to tout a mission of educating managers according to the canons of postwar (i.e., post World War II) managerialism, for traditional managers had been successfully portrayed by the takeover artists and shareholder activists of the 1970 and 1980s [and others]… as incompetent at best, and venal and untrustworthy at worst.Moreover, increasing numbers of students at the most prestigious schools now shunned traditional management careers altogether in favor of fields like consulting and investment banking [to which the advent of computers had given increased vitality for better or for worse]. Faculty at the elite business schools were thus educating fewer future managers, which left them increasingly ambivalent and uncertain about what they were educating students for…. It was thus in a pervasive atmosphere of drift and uncertainty that business schools turned to the notion of leadership as a way to define their identity and mission….In the early 1990s, for example, Harvard Business School formally shifted its focus from its traditional concern with general management, issuing a new mission statement that described its purpose as ‘to educate leaders who make a difference in the world.’ [352–55]