Corporate Scandals

The issues

Corporate Scandals have rocked business and the economies of the world in recent years.
These scandals beg the question: How is it possible to regulate commercial markets primarily driven by self-interest?

The Jewish Perspective

Jewish sources have always demanded controls and a commitment to financial transparency as prerequisites for adequate corporate governance. The Mishnah (Shekalim 3:2) related that the priests who had to enter the Temple treasury were forbidden from wearing sleeved cloaks so as not to cause suspicion that they were illegally enriching themselves through stealing public funds. Similarly it has always been understood that charitable funds would require more than one person to administer them in order to ensure financial probity.

The much worn biblical prohibition on "Placing a stumbling block before the blind" is also understood as a prohibition on placing people in situations where they would be unable to cope with their responsibilities and temptations - something that senior management failed to do in Enron and Worldcom.

Judaism recognises that mankind exhibits two essential drives, one selfish and one selfless and argues that there is a vital role for the selfish (self-interest) impulse to play. "But for the evil desire, no man would...buy and sell in business..." (Bereshit Rabbah 9:7) Without individual ambition society would be a worse place. Judaism therefore sees man's role of moderating and controlling this selfish drive as one of his greatest moral challenges.

In principle there is no objection to a free-market economy, as long as the demands of justice and mercy are met. However, a self-imposed regulatory system is unlikely to be based on anything except self-interest and clearly has inherent weaknesses. Morality and ethics, rooted in commercial pressures, go only to the point that individuals/companies weigh up the risk of being found out.

Judaism therefore demands a high standard of self-regulation, which can only be effective if it incorporates moral education, for it is only through moral education that self-regulation becomes both possible and indeed effective.