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Corporate Ethics: An Oxymoron

The Federal Home Loan Mortgage Corporation.

by Barnabas
November 26, 2003

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Corporate Ethics: An Oxymoron_Barnabas-The Federal Home Loan Mortgage Corporation
WASHINGTON (Reuters) - Freddie Mac on Friday revealed, for the first time, the details of its earnings manipulations in recent years... the long-awaited numbers from the accounting scandal included an admission that the No. 2 mortgage finance company overstated earnings by almost $1 billion in 2001 and understated profit for 2002, 2000 and earlier periods by more than $6 billion.
– Mark Felsenthal, Nov. 21, 2003
Twenty-five years ago, as a member of a Board of Pensions for a non-profit, I was discussing ethical investments with one of our constituents. He was troubled by some of our investments—for example, in a company that marketed baby formula in the third world, where there was no clean water with which to mix it. I asked him what would be an ethical investment. He looked thoughtful, then ventured “home mortgages.” I’m afraid I laughed, because at the time interest rates on home morgages were unethically high and most homes were overvalued to boot. Several of my generation became well-to-do on the basis of their home mortgages, if they bought before the boom; some who bought during the boom took a bath. I was never a home-owner; only an observer, but I remembered my laughter as I read the report on Freddie Mac.

"Freddie Mac" sounds like the name of a chain that sells clothes for little boys, but it's a cutesy nickname for a very serious business, the Federal Home Loan Mortgage Corporation,which was chartered by the Federal government. The first stated purpose in the chartering Act is “to provide stability in the secondary market for residential mortgages.” Other noble purposes follow, but this one is enough to point out that books juggled to the tune of $6 billion dollars in less than a decade have nothing to do with stability.

Freddie Mac joins Enron and WorldCom, among others, in a dismal record of deceit and/or incredible incompetence. It led me to speculate on why this is a pattern, and I’ve come up with a hypothesis: *Corporate ethics* is an oxymoron.

Ethics is the product of a trained conscience, which is personal and individual. Corporations do not have consciences. They may have codes, even “codes of ethics,” or “ethical guidelines,” but not consciences. They cannot have as their overriding principle “doing the right thing” because corporate goals, looking to the bottom line, are written in the light of doing the permissible thing. Any corporate ethical code is subservient to corporate goals.

No single conscience is powerful enough to make a difference, so people go along to get along. Once in a while, a whistle-blower arises, often at great personal sacrifice. The whistle-blower exists because the corporation as such has no conscience to monitor its “code of ethics.”

There are two exceptions to my hypothesis, but they are of the “passing through the eye of a needle” sort:
  • The “sole owner” who manages his own business may survive with a clear conscience, but it’s a tough road to travel in the moral of a corporate world.
  • Social ethics in voluntary groups, where livelihoods are not at stake, are theoretically possible; but more and more voluntary organizations are falling into the business model, in which individual consciences are swallowed by corporate goals.
The government would never have to interfere if corporations had consciences. But they don’t, so the government is up to its ears in business regulation. Moralists who are so concerned about who is sleeping with whom might pay more attention to who is stealing from whom in the executive offices that directly influence our livelihood.

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Jonathan Wilson from Chicago writes:
November 27, 2003
I agree with Barnabas. The moralists of the New Testament were equally concerned with who was stealing from whom as they were with who was sleeping with whom. The point being, of course, that the New Testament is absolutely and eschatologically concerned with BOTH. Sincerely, Jonathan Wilson, Pastor, Cuyler Covenant Church. (PS. I wouldn't call myself a moralist. Just a pastor.)

james boardwell from UK writes:
February 27, 2006
I'd also put forward 'co-operatively' run businesses as being ethical in that they represent the workers conscience and are often based on sound ethical 'principles'. Not all co-ops are run on ethical principles but many are putting money back into communities and leading cutting edge social innovation to improve the lives of others.

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