Thank goodness for Congress. If not for its dismal approval rating, corporate America would rank dead last among all institutions in our country. Only one in five Americans respect big business. And that was before the Facebook fiasco.
As a conservative UNC business school professor who graduated from the West Point of Capitalism, Harvard Business School, I am supposed to be a cheerleader for corporations. But even the staunchest defenders of free enterprise have to be disappointed in the moral decay of corporate leadership.
Twenty years ago, Triad-based Wachovia Bank was one of the three most highly respected financial institutions in the country. Today, after Wachovia’s near-death experience in 2009, its successor Wells Fargo has become the least respected brand in the nation. Wells Fargo rewarded staff who opened accounts without customers’ knowledge or consent, among several other breaches of fiduciary responsibility.
Charlotte-based Bank of America reached a $415 million settlement in 2016 with the Securities and Exchange Commission for misusing customers’ cash and securities to generate incremental profits. It was deemed the second largest settlement ever with a “Wall Street” bank. BofA is actually a Tryon-street (Charlotte) bank.
It seems that every segment of business has its own version of scandal. Between 2012 and 2016, over 1500 “small farmers,” including many based in North Carolina, secured SBA-backed loans to finance chicken farms. As it turns out, these farms are effectively controlled by billion-dollar poultry companies who profit from government-subsidized SBA borrowing rates.
This is a national epidemic.
We should have seen the Facebook crisis coming a mile away. I haven’t posted on Facebook in five years, assuming a major data breach was inevitable. Even if they protected your data, Facebook’s business model has been to exploit your personal information and sell access to your mind in order to enrich itself, without your consent. Systematically facilitating the manipulation of users’ world views by Google, Facebook and other tech giants is a scandal of Orwellian proportions.
As with personal relationships, trust is the foundation of any commercial relationship. When a corporation loses the trust of its customers, it will pay an economic toll. Ironically, it is the unbridled pursuit of profits that is almost always what motivates behavior that destroys trust and, ultimately, profits.
Perhaps no company in American history stood for trust more than Sears did in its heyday. I teach a case to my MBAs on Sears shifting its auto mechanics to a pay system based on how many repairs they performed, to juice profits. Predictably, the mechanics began performing unnecessary “repairs.” Eventually, consumers figured this out, and the distrust that ensued not only harmed the auto centers, it permeated the entire Sears brand.
So how do we stem this tide of moral decay in corporate America? The solution is not to teach more ethics classes.
People typically do what they are paid to do. It is human nature to maximize one’s outcomes. So we need to monitor and reward behaviors that increase trust and financially punish actions that destroy it. Every company should establish metrics that measure customer and employee trust, and build those metrics into reward systems.
In my small merger and acquisition advisory firm, a business sector infamous for nefarious characters, I make sure my employees know their core mission is to produce clients who will provide glowing recommendations about our integrity and commitment, which leads to more clients. This is the first consideration in determining annual bonuses. Every business, regardless of size or industry, should make trust metrics part of their compensation system. And shareholders should demand it.