Profits and professionalism.

• Author: Rhode, Deborah L.
• Position: Professional Challenges in Large Firm Practices

"Ethics pays" is a recurring refrain among commentators on professional and business ethics. This should come as no surprise. In a culture preoccupied with profit, appeals to self-interest may be the most persuasive strategy. Yet if virtue were always its own reward, we would surely see more of it. Promoting ethical values in professional workplaces that are increasingly focused on the bottom line will require pushing beyond the platitudes. We need more probing analysis of key questions. To what extent does ethics pay? How well? Under what circumstances? And most important, what can be done to increase the rate of return?

The following discussion explores those questions in three contexts. The first involves workplace cultures. How do we create more organizational structures in which adhering to principles serves prudential interests? A second area of inquiry involves pro bono service. If, as research suggests, lawyers do well by doing good, how can we communicate that message more effectively in work and educational settings? A third cluster of issues concern quality of life. If, as a wide array of studies indicate, balanced lives promote bottom lines, what will convince more legal employers to adjust their policies accordingly?

1. DOES ETHICS PAY? WORKPLACE CULTURES AND PROFESSIONAL VALUES

   A widespread concern within the American bar is the perceived "decline of the profession into a business." About three quarters of surveyed lawyers believe that the profession has become more "money conscious," and few regard the change as welcome. (1) The prevailing assumption is that the priority on short-term profits undermines moral values and social responsibilities. (2) Growing financial pressures make it increasingly difficult for lawyers to antagonize clients or supervisors by delivering unhappy messages about what legal rules and legal ethics require. Greed may not be the root of all evil, but it is surely responsible for much of the bar's complicity in financial, environmental, and health and safety disasters. (3)

   Yet while most commentary on legal ethics laments the bar's capitulation to market values, most commentary on business ethics insists that those values, if properly assessed, are part of the solution, not the problem. From this perspective, where individuals and institutions go wrong is in focusing on short-term financial gains, which come at the expense of larger long-term costs. The legal and reputational consequences of moral myopia often dwarf any immediate payoffs. Recent work on moral leadership, particularly trade publications written by and for managers, is peppered with reassuring homilies. If Aristotle Ran GM offers a representative sample: a "climate of goodness ... will always pay great dividends," "you can't put a simple price on trust," "unethical conduct is ... self-defeating or even self-destructive over the long run." (4) A dispassionate review of global business practices might suggest that Aristotle would need to be running more than General Motors for this all to be true. But no matter; in most of this commentary, a few spectacularly expensive examples of moral meltdowns will do. Companies make "billion dollar errors in judgment" by marketing unsafe products, fiddling with the numbers in securities filings, or failing to report or discipline rogue employees. (5) The moral of the story is always that if "values are lost, everything is lost." (6)

   Even more hardheaded leadership advice is often tempered with at least lip service to the cost effectiveness of integrity and reminders that profits are not an end in themselves. In their best selling book, In Search of Excellence, Thomas Peters and Robert Waterman insist that "[t]he top companies make meaning, not just money." (7) Jack Welch, a CEO best known for his pursuit of profits, not ethics, similarly insists that "numbers aren't the vision, numbers are the product." Although they cannot be disregarded, they should not achieve "such priority that [leaders] fail to deliver on the things that really matter to the company in the long run: its culture ... its values." (8) In fact, that is useful advice, and had he followed it his record might have been less mixed. (9) But when and whether ethics pays is much more complicated than this commentary generally suggests.

   Social Responsibility and Financial Performance

   A wide range of studies have attempted to address the relationship between social responsibility and financial performance among businesses, but surprisingly little work has focused on law firms. That work, discussed below, has looked only to the correlation between support of pro bono activities and profitability, not to broader issues of ethical culture. In the business context, researchers have considered a wide range of measures, but these efforts have been complicated by the absence of any consistent, standardized criteria of social responsibility. No widely shared methodologies are available for comparing organizations' records on many dimensions such as diversity, community relations, philanthropy, and environmental stewardship. (10) Moreover, correlations do not establish causation and any documented relationships between financial and social performance may run in either or both directions. In some cases, profitability may drive benevolence: organizations that are doing well have more resources to invest in doing good. Alternatively, attention to moral values may improve financial performance by improving relations with various stake holders: employees, clients, customers, suppliers, and community members. These factors also may be interrelated, and mediated by other variables. Social performance could be both a cause and consequence of financial performance, but the strength of either relationship could be significantly affected by additional industry-specific factors. (11)

   Despite these methodological complications, the overall direction of research findings is instructive. Some studies have compared the social performance of organizations with high and low financial returns. (12) Other surveys have looked for relationships between social and financial performance among all Standard and Poors 500 companies? (13) Although results vary, few studies find a purely negative correlation. In one overview of ninety-five surveys, only four found a negative relationship; fifty-five found a positive relationship; twenty-two found no relationship and eighteen found a mixed relationship. (14)

   A similar pattern emerges from qualitative and quantitative research that addresses the impact of specific ethical behaviors on financial results or on measures likely to affect such results, such as employee relations and public reputation. The vast majority of these studies find significant positive relationships. For example, companies with stated commitments to ethical behavior have a higher mean financial performance than companies lacking such commitments. (15) Employees who view their organization as supporting fair and ethical conduct, and its leadership as caring about ethical issues, observe less unethical behavior and perform better along a range of dimensions; they are more willing to share information and knowledge, and to "go the extra mile" in meeting job requirements. (16) Employees also show more concern for the customer or client when employers show more concern for them, and workers who feel justly treated respond in kind; they are less likely to engage in petty dishonesty such as pilfering, fudging on hours and expenses, or misusing business opportunities. (17) The financial payoffs are obvious. Employee satisfaction improves customer satisfaction and retention, enhances workplace trust, furthers cooperation and innovation, and saves substantial costs resulting from misconduct and surveillance designed to prevent it. (18)

   Such findings are consistent with well-documented principles of individual behavior and group dynamics. People care deeply about "organizational justice" and perform better when they believe that their workplace deals justly with its stakeholders. (19) Workers also respond to cues from peers and leaders. Virtue begets virtue, and observing moral behavior by others promotes similar conduct. (20) Employers reap the rewards in higher morale, recruitment and retention. (21)

   Ethical Reputation, Ethical Counseling, and Financial Value

   A reputation for ethical conduct also has financial value. In the legal profession, it can attract clients and employees, and build constructive relationships with opposing counsel and government regulators. One of lawyers' most crucial contributions involves helping clients live up to their best instincts and deepest values. Even highly profit-driven businesses often need and want counselors who can provide a "corporate conscience." (22) In that capacity, lawyers can help clients evaluate short-term economic objectives in light of long-term concerns that include maintaining a reputation for social responsibility and managerial integrity. (23) Neither lawyers' nor clients' long-term interests are served by eroding the institutional frameworks on which law and markets ultimately depend. Norms like good faith, honesty, and fair dealing are essential for efficient commercial markets and regulatory systems. These values require some shared restraint in the pursuit of short-term interests. Legal processes present frequent opportunities for obstruction, obfuscation, and overreaching. Lawyers who take advantage of such opportunities undermine expectations of trust and cooperation. These expectations are common goods on which both lawyers and clients ultimately depend. In the short term, free riders can profit by violating norms that others respect. But these values cannot survive in contexts where deviance becomes common. Over the long run, a single-minded pursuit of short-term self-interests is likely to prove self-defeating for both the profession and the public. (24)

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