Enronomics 101: The Enron Business Model. First, take a sound business. Then tie top executives' remuneration to unsustainable levels of profit and growth. Next, exploit all possible conflicts of interest to ensure that nobody blows the whistle on the tricks used to maintain the appearance of success. Offer auditors consulting contracts to make them more compliant. Distribute corporate largesse to politicians in return for relaxed regulation. Offer sweet private deals to the bankers who underwrite your share offerings and advise clients on investment strategies. And so the list goes on.
Conflicts of interest are part and parcel of every financial scandal because of the central role that our economic system assigns to the pursuit of self-interest. A truism of economics is that the best way in which one can serve the common good is through dogged pursuit of one's own self-interest. This idea was beautifully summarized by Adam Smith (1723-1790) who observed that "[i]t is not from benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest...[Man is] led by an invisible hand to promote an end which was no part his intention."
The problem arises, as we are beginning to see in the Enron case, when the pursuit of self-interest gets out of control, when people take undue advantage of each other beyond the limits prescribed by society as acceptable. Within the boundaries of what is acceptable, to pursue one's self-interest is called striking a deal. Beyond those boundaries, the pursuit of self-interest harms others in an illegitimate way. It also undermines the long-term health of markets as people become more cautious about being cheated out of their capital by unscrupulous speculators and crooks.
Traditionally, many Jewish thinkers have acknowledged that self-centered concerns about our own material well-being are in conflict with our deeper spiritual goals. Nevertheless, they have recognized that such concerns are thoroughly proper and deserving of respect. Recognizing that what is locked out by the door can often fly in through the window, the rabbis recommend accommodating the yetzer's urges in a way that minimizes the harm they can cause and maximizes their personal and social benefit. This perspective is best exemplified in the oft-cited rabbinic statement that "were it not for the yetzer hara (the evil urge), a man would not build a house, take a wife, beget children, or engage in commerce" (Midrash Genesis Rabbah 9:7). A successful life, from this perspective, is the result of constant, ongoing, disciplined vigilance to ensure that the material and social goods necessary for a life of dignity do not become ends in themselves, that the yetzer does not distract us from life's true goods.
|A successful life is the result of constant vigilance to ensure that the material and social goods necessary for a life of dignity do not become ends in themselves.|
In this light, institutions such as the Securities and Exchanges Commission or the Public Oversight Board and rules against insider trading do not simply protect society at large from economic conflicts of interest. We might also think of them as part of society's spiritual apparatus that ensures that individuals can direct their yetzer effectively in the pursuit of self-interest without being corrupted by it. They can also serve to protect business people from excessive pursuit of self-interest at the expense of their own spiritual good. From this perspective, the list of people hurt by the Enron scandal goes beyond Enron's employees, shareholders and creditors to include the executives at Enron and Andersen who caused the scandal. While they profited greatly in material terms (even if many of them are bound to lose their wealth as the inquiry continues), that wealth was almost surely gained at the expense of their true spiritual well-being. As Jesus put it, "[w]hat profiteth a man if he gain the world and lose his soul?" (Mark 8:36).