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strategy and business
 / Summer 2003 / Issue 31(originally published by Booz & Company)


Lynn Sharp Paine: The Thought Leader Interview

S+B: What was most striking to you about the differences in the way you looked at these issues compared with your colleagues?

PAINE: Vocabulary, of course, influences how you see things, and in philosophy and law the vocabulary is so different. Responsibility, rights, fairness, justice, and community: These are all words and ideas you gravitate to if you’re studying philosophy or law. But if your formal training is in economics, which is the case with most business school faculty, these words and concepts are not as natural. Of course, back when I started teaching, some business educators, and many other people in society, felt that business ethics had to be addressed seriously. Yet it was not an accepted part of the mainstream curriculum.

Another thing that is very different about my disciplinary background is the type of research we do and the questions we ask. A lot of business research focuses on cause and effect. In economics the question is: What caused this event, and which was the most important cause? Someone who comes from philosophy is more inclined to look at human beings as decision makers and choosers rather than objects governed by external forces. So you are drawn to questions about motivations, values, and beliefs.

S+B: How does that influence analysis of business activity?

PAINE: Right after Enron, we had a faculty seminar and I was struck by how much of the discussion was about the external factors that caused the collapse — the market bubble, flawed accounting rules, and so on. I am very interested in those questions, but I also wanted to know why people made the choices they made. What were the values and beliefs that allowed Enron’s board to waive the company’s code of ethics? How did the CFO justify his self-dealing? The philosopher presumes individuals have choices. So I want to know how those choices link to their values and beliefs.

The Corporate Personality

S+B: In Value Shift, you discuss the concept of an “evolving corporate personality.” Can you explain what you mean by this?

PAINE: Having worked in the law, I had a general sense of how the concept of the corporation had changed, but doing the research allowed me to document the change and see how it unfolded. History shows there’s a very close relationship among the law, societal expectations, and evolving moral judgments. As society’s expectations change, they often coalesce into soft, self-regulatory norms. Those norms then often get encapsulated in law. So the law is continually evolving along with societal values.

In the 13th century, you have Pope Innocent IV saying that the concept of responsibility can’t apply to a corporation because a corporation is a legal fiction. It has no body, it has no soul, it can’t feel the pain of punishment. That idea eventually lost its religious underpinnings and was carried forward in jurisprudence, first in England and then in the United States.

You have ecclesiastical institutions and you have liberal institutions espousing this doctrine. Then the idea of the corporation as a legal fiction gets picked up in economic theory. It is still part of our law, but we have these other strands of the law that are starting to treat the corporation as a social entity with moral responsibility. For example, organizational culpability — the notion that an organization can be responsible, can be culpable, can be blameworthy — which appeared for the first time in laws introduced in the United States in 1991, is really new and novel.

S+B: But under these laws, if a company in legal trouble could show a prior good faith effort to advance its social obligations, it might get a lighter sentence.

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