S&P and the New Challenge of Integrity in Business

We’ve all read tales of corporate wrongdoing – think Bernie Madoff, Enron, LIBOR. In most cases, managers engaged in nefarious behavior, knowing they were doing wrong. There are a few cases where the miscreant could plausibly argue ignorance, or good intentions – Martha Stewart, perhaps.

But a recent courtroom defense by Standard & Poors in response to a Federal charge of fraud, opens up a whole new threat to corporate ethics.

Subordinating Ethics to Legal Arguments

Back in April, S&P responded to a Justice Department’s complaint that S&P’s claims of ratings objectivity, independence and integrity were false, and part of a scheme to defraud investors.

S&P’s creative approach was to argue that such statements were only “puffery,” and that a reasonable investor would not depend on them.

Let’s underscore this. S&P, as a legal strategy, decided to disavow its own declarations of objectivity, independence and integrity, saying in effect, “everyone knows we’re just blowing smoke.”

  • Picture Boeing saying, “About that 787 safety stuff – you didn’t really think we were serious, did you?”
  • Picture Legal SeaFood saying, “Oh, you thought we meant genuine bluefish?  Ha ha, silly you.”
  • You get the picture.

This is not a company trying to avoid being caught. It’s not a case of extenuating circumstances, or offsetting benefits.  It is not even arguing an interpretation of what is wrong.

S&P is arguing – as part of a legal strategy – that “integrity” is just a marketing tool. This subordinates “integrity” to both marketing and legal considerations. It puts it somewhere on a par with market research or creative ad spots.

 The Name of the Problem

It’s not just S&P that is confused – the media is implicated too. In his Bloomberg News story on the issue, Jonathan Weil characterizes the problem this way:

The problem is that sound legal strategies sometimes create public-relations nightmares…Often PR and legal professionals end up pursuing conflicting agendas if they don’t work cooperatively. There’s an old test that everyone in the public eye should use when making important decisions: How would this look if you read about it on the front page of a major newspaper or website?

Where S&P’s lawyers confuse ethics and legal arguments, Weil is reducing ethical issues to ones of reputation and PR.

At least Bernie Madoff had a moral compass. He knew what he was doing was wrong, and tried to hide it. But if “integrity” is a marketing tool, justified by ROI or PR, then we are in uncharted waters.

A Simple Problem

This should not be hard to manage. If someone brings a legal strategy of “integrity as puffery” to the Chief Counsel or CEO, this is what they should say in response:

“Excuse me – you are deeply confused.  This is not a legal or marketing strategy issue. There will be no analyses of riskiness, ROI, or trade-offs with reputation. Integrity is not something we bargain with. It is a core value. That means precisely what it says.

“Throw away immediately any work you were doing in that direction. And I want to know tomorrow at 9AM, in writing, why it was you were even thinking in this misconceived direction. Am I clear?”

Which would you trust?  A company with leadership that answered this way? Or a company that went to court with integrity for sale?

Judge Carter, who heard the case, was clear:

The court cannot find that all of these ‘shalls’ and ‘must nots’ are the mere aspirational musings of a corporation setting out vague goals for its future. Rather, they are specific assertions of current and ongoing policies that stand in stark contrast to the behavior alleged by the government’s complaint.

Exactly.