Most voices from the ethics establishment have been remarkably measured in response to the recent election of Donald Trump. This is not surprising since the prudent reaction to normal political changes is a studious agnosticism. We in the ethics field want to be seen as on the side of business but also on the side of the right and the good. If every shift in political wind inspired an intense reaction, we could be seen as biased (the very thing ethics seeks to avoid). We aspire to read the political tea leaves while having no investment in the outcome. And so it should be in normal political times. Even though much of the mainstream media, political establishment and academic commentariats are treating the Trump administration as a new and novel risk, (with notable exceptions) those who speak for the ethics and compliance community have been much less emphatic.
This is a mistake. By treating the Trump administration as just another transition from one party occupying the White House to another, those who watch compliance and ethics trends for a living are ignoring what we know about the ways ethics and lawfulness spread through organizations. While it’s not always possible to generalize from corporate compliance to the national level or vice versa, both history and compliance experience suggest that we are about to enter a new and dangerous world. While Mr. Trump is not yet president as of this writing, his personal and business behavior, as well as many of his cabinet picks, indicate that we are moving into uncharted territory. Never in my half-century on the planet has there been a president and an administration so ethically compromised before even taking office.
The professional class was nearly unanimous in its rejection of Trump as little more than a common grifter with a flair for the dramatic. Even those who agree with some of his political platform (such as it is, completely lacking in a coherent ideology beyond a rejection of “elites”) can see that his lack of transparency, conflicts of interest, and purposeful self-dealing are well beyond even the most flagrant recent examples of corruption in the executive branch. The Bush II and Nixon administrations had substantial conflicts of interest but even they never emanated from the office of the President itself.
After eight years of scandal-free democracy under the Obama administration, perhaps we’ve forgotten just what kind of havoc corruption in the executive branch can wreak. For example, his cabinet choice of Rex Tillerson, a man with no diplomatic experience and with substantial business ties to Russia, to head the State Department is extremely suspect. In Trump, we have not occasional mistakes made against a backdrop of conformance to ethical norms, but a presidency aiming toward kleptocracy. Mr. Trump’s refusal to follow the traditions of putting his business assets into a blind trust or complete divestiture should set off every ethics and compliance professional’s radar. It appears that Mr. Trump will be shaping his administration in his own interest-conflicted, self-dealing image, and that is very troubling indeed.
One of the bedrock principles of organizational ethics and compliance is “Tone at the Top.” All organizations take their ethical cues from the top manager and those around her or him. Many of Mr. Trump’s cabinet picks share are a lack of experience in their portfolio, a fundamental ideological disagreement with the mission of the departments they are meant to lead, or personal and/or professional gain from the activities of their departments. Many of these appointments would be considered laughable in any other administration. Given both Mr. Trump’s own ethical challenges and the various practical and theoretical challenges of his cabinet, the principle of “Tone at the Top” implies two main outcomes. First, we can expect scandal and corruption to be normalized not only in the administration, but in business as well. As illustrated colorfully in the book “The Dictator’s Handbook” (de Mesquita and Smith, 2012), the business community must play along with the corruption of the administration in a kleptocracy. We’ve already seen Mr. Trump lash out at companies that he feels aren’t paying him the proper fealty. One instructive example is his comments regarding Raytheon after the CEO of that firm made comments critical of Mr. Trump. Its market valuation decreased by 2.8% because of one tweet. If there were any doubts that real consequences will befall firms that resist Mr. Trump’s demands, this clear abuse of power should put those doubts to rest. It will begin with companies doing business with the government, but this necessity to hew the line is likely to spread to other firms as the Trumpocracy takes hold.
This is how the corruption of the Trump administration will spread to corporate America. As the norms of governance begin to erode, so do those of business (by both necessity and emulation). In a kleptocracy, the only principles that matter are those of quid pro quo and power consolidation. Businesses become both a revenue stream for the government and a powerful ally against the interests of workers and citizens. Those who are charged with enforcing the rule of law selectively or vindictively choose their targets based on the interests of those at the top; the rules that protect both investors and workers fall by the wayside. As those in the C-suite become (often by necessity) reciprocally entangled in the lawless trading of favors, power, and money with the government, they lose moral authority within their firms. As laws are selectively applied, the entire infrastructure of trust that makes market capitalism work begins to disintegrate.
This is the path we could be on, from first world democracy to a system more like present-day Russia. What differentiates successful advanced economies from less developed countries, what drives our productivity and markets, is the knowledge that decisions made in both boardrooms and the halls of government are made to benefit shareholders and citizens, respectively, not to line the pockets of the decision-makers. Oligarchs are those who learn how to play by the new kleptocratic rules and are rewarded handsomely. Everyone else suffers as the rent-seekers in both government and business overwhelm the informal norms that are required for liberal democracy. This should be obvious to anyone who has studied ethics and compliance. It’s hard enough for employees, faced by the challenging economics of extreme inequalities of wealth, to overcome the conflicts of interest and the other temptations to cut ethical corners. When they see their political and business leaders engaged in such behavior, the entire edifice of our functioning democracy is imperiled. It’s time for those in the ethics and compliance community to stand up and say so. If there was ever a time to make our expertise count for something in a larger context, it is now.
Bueno de Mesquita, B., & Smith, A. (2011). The dictator’s handbook : why bad behavior is almost always good politics. Public Affairs.