Corruption: Time, Place, People

A sociologist by the name of Jack D. Douglas once adapted Sartre’s maxim, “we are condemned to be free,” to: we’re condemned to be partially free. In an analogous matter, general society is condemned to be partially opportunistic.

It really can’t be helped. Opportunism is the dark side of opportunity-seeking; it is to “enterprising” what “scrawny” is to “wiry.” We can’t eliminate scrawniness without eliminating thinness, and wiriness.

Consequently, there are cultural norms that tell us what’s enterprising, what’s opportunity-seeking, and what’s opportunistic – and what’s corrupt.

These norms do change over time. Back in the 1920s, insider trading was considered just one of life’s bounties. Nowadays, it’s been illegalized, if not always frowned upon. In the 1920s, though, something as normal as accounting for intangible assets - “goodwill” – was considered to be stock-watering, a real no-no back then. Day-trading was also considered to be fit for the bucket shop, except for professionals right at the market; the bulk of the latter’s trades were arbitrage. It’s really impossible to say whether or not today’s investing and business milieu is more permissive of opportunism, and even of corruption of norms, than the 1920s' was; all that can be said is that a lot of practices frowned on now were okay back then, and vice-versa.

The same thing applies to self-dealing by executives. As of now, this is not only frowned on, but pounced on. Back in the 1950s in Canada, at least in the world of Bud Macdougald, it was permitted and even somewhat customary, as a kind of rudimentary stock-option or performance-bonus compensation. I need hardly say that granting stock options to executives was a rare practice back then, and was also associated with disreputable penny-stock companies.

Since norms are observed by people, the group involved is also central to what was considered corrupt in business and investing, and what is not. A hundred years ago, there was a crazy-quilt system of keeping the books of listed companies, and this was tolerated. Nowadays, there being many more investors, a much greater proportion of them self-taught, and (of course) many more public companies to watch, such a system now would be intolerable. When the market is played primarily by investment guildspeople, whose education came at their parents’ knees, the latitude for “you shoulda known” is much greater than a market with general public participation can tolerate.

It’s hard to avoid the conclusion that the phrase “corrupt business practices” is like the word “terrorist” – both for those more philosophical and those more down-to-earth. One interesting point to ponder is: what kind of executive-compensation, investment and corporate practices considered tolerable nowadays will become egregious fifty years from now? And what norms then would be shockingly imprudent to us in 2007?