As I like to remind folks around this time of the year, in 1776, at the founding of America, there was a Holy Roman Empire, Venice was a republic, France was ruled by a king, China by an emperor, Russia by an empress, Great Britain was a constitutional monarchy and Japan was ruled by a shogun. All of those governments have passed into the pages of history. The only constitutional republic to retain its democratic form of government is that little union of 13 states founded on the northeast shore of the New World by courageous and farsighted men and women who believed profoundly in the declaration that all men are created equal and endowed by their creator with the inalienable rights of life, liberty and the pursuit of happiness.
This Fourth of July, as we celebrate the 226th anniversary of our beloved Declaration of Independence, it is remarkable to reflect on the fact that America has survived wars hot and cold, a civil war and a second peaceful revolution to ensure equal rights to blacks and women as well as instances of rascality in government. The one threat we cannot survive, however, is loss of confidence in the basic morality that our democratic capitalistic system of enterprise requires.
I am so pleased to see President George W. Bush using the bully pulpit, the authority of his office and the power of the federal government to ensure that corruption in corporate America stops. Almost every day brings a new disclosure from household names such as WorldCom, MCI, Enron, Rite Aid and Kmart that their earnings may have been overstated as a result of fraudulent accounting and outright lies and that their CEOs were enriching themselves through insider trading.
No wonder we are experiencing a crisis of faith in corporate leaders, and if we are not careful, that crisis of faith could turn into a general loss of faith in securities and capital markets, and our free enterprise system in general. As former Atlanta mayor, Ambassador Andrew Young, recently told attendees at a celebration of the Global Sullivan Principles, it's impossible for a successful business to exist on a foundation of corruption, and he spoke of the fundamental moral principles necessary to build a business: honesty, integrity and transparency.
At times like this it is helpful to remember that the Chinese character for "crisis" is really the combination of two separate characters that mean "danger" and "opportunity." Today, with the stench of corruption hovering about our capitalist institutions, the dangers are apparent, but the opportunities are also great if we just look for them.
Many people are reacting to the current situation by calling for more government intervention, and clearly government action is called for. The focus should be on structural reforms to ensure our capitalist system has effective checks and balances, the pillars on which our democracy has successfully relied to protect citizens from the concentration of power in the hands of a few.
In times like this recent stock market boom, when wading into ethical gray areas could result in unprecedented personal financial gains for CEOs, investment bankers and audit partners, it is unrealistic to expect individuals to consistently resist temptation. In such times integrity often looks like stupidity, and for many, appearing stupid for forgoing such easy wealth may be even worse than forgoing the wealth itself. As in politics, if we want an open, honest, accountable and transparent business system, we cannot rely on personal integrity alone.
We should design our capitalist system, as the founders did our government, recognizing that people behave according to the incentives placed before them. But, with that said, it is also worth considering what role morality should play in business, starting with the thoughts of Adam Smith.
Smith was not an economist. He was a professor of moral philosophy when he wrote his first great work, "The Theory of Moral Sentiments." The free-market economy he envisioned was far from the empty, soulless, mechanistic clockwork it so frequently is parodied to be. Smith presumed that man is endowed with certain moral faculties that guide him in pursuing his own self-interest and save him from corruption and misconduct.
Call it Smith's moral law of the inaudible voice by which man is instructed to behave in a manner that not only produces personal happiness but also social harmony: "By acting according to the dictates of our moral faculties, we necessarily pursue the most effectual means for promoting the happiness of mankind."
Unrealistic? I don't think so. In the 226 years of our independence, America has survived a civil war, two world wars, a Great Depression and a Cold War. What we cannot survive is the loss of the moral basis of our democratic capitalism. With the right leadership -- in our churches, synagogues, mosques, corporate boardrooms and government -- we will do what we have always done in America, "overcome" and go on to a greater and brighter tomorrow, using the lessons we learn to make the promise of American the practice of America.