March 2003

Dr. Smith Goes to Washington

By L. Murphy Smith

Author’s Note: Last year, in the midst of corporate scandals and a shaky stock market, Congress passed legislation that established the Public Company Accounting Oversight Board to oversee auditors of publicly traded companies and increase prison sentences for fraud. At the time, House Majority Whip Tom DeLay (R-Texas) said that one bill would not restore confidence in the stock market, and he is absolutely right. I believe confidence can be restored only by ethical leadership in the business community and government. I had the opportunity to testify at the House Subcommittee on Commerce, Trade, and Consumer Protection hearing titled “Oath-Telling, Truth-Telling, and Remedies in the Business World,” July 26, 2002. The following is adapted from my opening statement.

Ethical values provide the foundation on which a civilized society exists. Without them, civilization would collapse. On a personal level, everyone must determine their highest aspirations. The answer might be wealth, fame, knowledge, popularity, or integrity. If integrity is second to anything else, however, it will be sacrificed in situations where a choice must be made. Such situations inevitably occur in every person’s life.

A goal of a business should be to increase its owners’ wealth, and doing so requires the public’s trust. In the long run, that trust depends on ethical business practices.

In the United States and other free societies, people often have the freedom to make their own decisions about the “right” thing to do. Before the American republic, there was a common belief that where there was liberty, anarchy would result because people would be unable to govern themselves. Yet Americans were free and well behaved. The great English writer G.K. Chesterton observed that America was the only nation in the world founded on a creed. Chesterton was referring to the second paragraph of America’s founding document: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

Whether a person derives ethical values from religious principle, history and literature, or personal observation, there are some basic guidelines that everyone must agree to. In considering the impact of ethical values on a society, nationally syndicated columnist Chuck Colson made the following observation: “Societies are tragically vulnerable when the men and women who compose them lack character. A nation or a culture cannot endure for long unless it is under-girded by common values such as valor, public-spiritedness, respect for others and for the law; it cannot stand unless it is populated by people who will act on motives superior to their own immediate interest.”

The purpose of ethics in business is to direct businessmen and -women to abide by a code of conduct that facilitates, if not encourages, public confidence in their products and services.

Educators sometimes wrestle with the question of whether ethics can be taught. Theodore Roosevelt put it this way: “To educate a person in mind and not in morals is to educate a menace to society.” More recently the National Commission on Fraudulent Financial Reporting (Treadway Commission) indicated that business curricula should integrate the development of ethical values with the acquisition of knowledge and skills.

When societal values are deteriorating, maintaining high ethical standards in accounting and business becomes increasingly difficult. People will wonder how an ethical person can possibly succeed when everyone else is cheating. But the real measure of success is a person’s character, and living a life that reflects high ethical values. President Abraham Lincoln said it well: “Honor is better than honors.”

Perhaps America’s first president can help us understand what the government can do. In George Washington’s farewell speech to public life, he said that the survival of freedom on American soil would have nothing to do with him, and everything to do with the character of its people and the government they would elect. “Of all the dispositions and habits which lead to political prosperity, religion and morality are indispensable supports. Reason and experience both forbid us to expect that national morality can prevail in exclusion of religious principle.”

Passing additional laws and regulations is often necessary to punish criminal behavior and to provide moral guidance to law-abiding citizens. More effective leadership, however, would be for government to inspire its citizens to act with virtue and honor. As Washington pointed out, there is no better source of inspiration than religious principle. The downplaying of the role of religion by governmental institutions, starting in the second half of the 20th century, has contributed to the decline of national morality, including the recent ethical failures in business. Government should encourage the active participation of people of faith and the inclusion of religious principles in the public arena. This would certainly be a step in the right direction of inspiring ethical behavior in American society, including the business community. In the aftermath of Septem-ber 11, I am encouraged by the renewed focus on valor, public-spiritedness, and other godly values. As President Bush leads our nation, I am grateful that he reads the Bible and spends time in prayer. He affirms our national motto, “In God we trust.”

Rules and regulations of government cannot preserve a free and ethical society whose people lack integrity. Ethics is the heart of America’s economic and social freedom. Unethical behavior is a dagger in its heart. According to business textbooks, top management sets the ethical direction for the firm, and company policies and internal controls are ineffective without it. Likewise, our nation’s political leaders set the tone for its citizens. Laws and regulations will do far less than their example.

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