Dangerous currents: here is what can prompt even ordinary people to do bad things, and what board members must watch like hawks if they want to avoid ethical catastrophe.

• Author: Donaldson, Thomas
• Position: Ethics

I THINK I KNOW what causes most corporate ethical disasters, and it's not what many business leaders believe.

First, let's establish what doesn't prompt most ethical disasters, despite popular views. Most such disasters are not caused by the failure of either compliance systems or codes of ethics. To be sure, codes and compliance systems are important tools for corporate management, and we can always show that they failed in a fashion when corporations meet ethical disaster, albeit after the fact.

The growing weight of academic research shows little or no correlation between having a sophisticated compliance system and code of ethics--or, indeed, having an ethical training program--on the one hand, and avoiding ethical disaster on the other. When I testified in the Senate during the Sarbanes-Oxley hearings, I had to remind senators that virtually all the corporations that fell from grace--the Enrons, WorldComs, and Tycos--had sophisticated compliance programs and sophisticated codes of ethics. Jeffrey Skilling, of Enron infamy, was regarded widely as the man who beefed up compliance at Enron.

Nor are most corporate ethical disasters caused by ethical greed-heads. Of course greedy, egoistic executives--or, at a minimum, ones who exercised awful ethical judgment--can be found at the epicenter of almost every corporate Watergate. But to attribute the recent spate of corporate scandals to a few bad apples is unconscionably naive. Greed-heads and egoists have been with us for years.

A cosmic confluence?

Why, then, did the recent scandals occur when they did, during a brief three-year span beginning in the late 1990s? Was there at that time a cosmic, accidental confluence of moral idiocy? It seems unlikely.

The "bad apple" autopsy of the Enron-age scandals also neglects one of the most striking aspects of those events. Behind each one of the greed-driven leaders there were scores of other people inside their corporations who knew what was happening, and were necessary in making it happen. Still further, outside those companies there were thousands, probably tens of thousands, of people in law firms, investment banks, and accounting firms, who played a supporting role.

The haunting fact is that most of these thousands of people had remarkably ordinary moral profiles that qualified them as neither saints nor sinners. They were all too ordinary. And yet it is these people, and not the infamous rogues, who lie at the bottom of the big mystery of how triumphant corporations can fall so very hard. This fact--the ordinariness of so many people caught up in corporate Watergates--stands out not only in the Enron-era scandals but also in such high-stakes scandals of the past as Salomon Brothers, E.F. Hutton, Bankers Trust, Prudential, and Merrill Lynch.

What, then, can prompt even ordinary people...