Two Steps Forward – One Step Back

May 20, 2018 Written by: W.B. “Bud” Kirchner

“Right is right even if no one is doing it; wrong is wrong even if everyone is doing it.”  – Augustine of Hippo


I have been tracking the see-saw around good/bad behavior in business for about five decades not because I am surprised at the presence of bad actors – the temptations are obvious and (apparently for some business people) irresistible but because I was troubled by (growing) incidents I observed and the consequences.

About two years ago when I started this series of articles on neuroscience and psychology dovetailed into business context (Business Brain Model) I decided to also use this platform to also express my view on this topic.

As an aside, my audience falls (largely) into two camps: individuals in business (wanting to add Business Brain Model topics in the context of best business practice) and at the other pole – business students who were looking for context for their career.  Feedback from the former (presumably they have cast their ‘moral’ lot) is meager (on this topic) but I am thrilled to see student responses such as:

  • “Businesses have access to these facts and probably are aware of them as well but choose not to accept them.” – University student
  • “I believe that businesses that show more empathy have greater chances of success as it improves customer loyalty…” – University student

“To educate a person in the mind but not in morals is to educate a menace to society.” ~ Theodore Roosevelt

So, with this background – I will first do a quick review of what I have addressed to date:

Is There Something Wrong with Our Wiring?

Ann Tenbrunsel and Jordan Thomas reported when we were less than a decade removed from the Global Financial Crisis with the collapse of large financial institutions and the bailout of banks.

  • “More than one-third (34%) of those earning $500,000 or more annually have witnessed or have first-hand knowledge of wrongdoing in the workplace.”
  • “Nearly one in five respondents feel financial services professionals must at least sometimes engage in illegal or unethical activity to be successful.”
  • One in 10 said they had felt pressure at their company “to compromise ethical standards or violate the law.”

Positioning Between the Poles: Is right really right and wrong really wrong?

The salient points of Dan Ariely’s research around the moral code – are illustrated by cheating.

  • We’ve learned that a lot of people can cheat. They cheat just by a little bit.
  •  When we remind people about their morality, they cheat less.
  • When we get bigger distance from cheating, from the object of money, for example, people cheat more.
  • And when we see cheating around us, particularly if it’s a part of our in-group, cheating goes up.
Financialization As A Symptom

To sum up my personal disclosure – I am firm believer in creating value the old fashioned way (heavy lifting/long term view) – in my opinion while ‘financial engineering’ can be a tool – it is a dangerous one and one that is used far too often.

Human Nature As A Cause

Andrew W. Lo succinctly describes the situation:

  • Monetary gain stimulates the same reward circuitry as cocaine — in both cases, dopamine is released into the nucleus accumbens.
  • Similarly, the threat of financial loss activates the same fight-or-flight circuitry as physical attacks, releasing adrenaline and cortisol into the bloodstream, which results in elevated heart rate, blood pressure, and alertness.
Our Wiring Isn’t Getting Any Better?!?!

What Rana Foroohar found is disturbing:

  • “Only half of all MBA programs make ethics a required course”
  • “Only 6 percent deal with issues of sustainability in their core curriculum

While the above illustrate the salient points.  I have in respective articles not only made editorial comments but also offered up homemade (i.e. what we do at Kirchner Group) solutions.

So with all this behind us – it seemed like a good time to see what progress we are making.

“Waste no more time arguing about what a good man should be. Be one.” ~ Marcus Aurelius

Forward Step #1

The real measure of your wealth is how much you’d be worth if you lost all your money.” – Author Unknown

First – to jump in at what I personally consider being one of the best “steps forward” I have come across is Makers and Takers – The Rise of Finance and the Fall of American Business by Rana Foroohar.

I believe one of the big contributions here is the author’s reality checks:

  • Rather than funding the new ideas and projects that create jobs and raise wages, finance has shifted its attention to securitizing existing assets (like homes, stocks, bonds and such), turning them into tradeable products that can be sliced and diced and sold as many times as possible
  • How did finance, a sector that makes up 7 percent of the economy and creates only 4 percent of all jobs, come to generate almost a third of all corporate profits in America?
  • Virtual enterprises prosper while real ones, with real workers, struggle. Innovation is falling to cash management, long-term to short-term tricks.  Risk in the financial system continues to rise, even as risk capital to real businesses declines.
  • As a sign we have not figured it out: Every recovery of the post-World War II period has been longer and weaker than before
  • Finance would rather invest in areas like real estate and construction which are far less productive but offer quicker more reliable short-term gains (as well as collateral that can be sold in a crisis or secure ties in boomed times)
  • The move from the “retain and reinvest” corporate model “to a down size in distribution” is in large part responsible for a national economy characterized by economic inequality employment instability and diminished innovative capability.
  • In 2030, is when the largest demographic group in US history “the baby boomers” will have nearly depleted the social security trust fund.  It is also when the older generation X’s will begin to move out of the work and into retirement.

As I said then and I repeat now it is hard for me to imagine anyone reading these wake-up calls and not realizing the implications (personally, professionally and socially) of ‘bad’ behavior.

To put it in a more everyday context – the first step in addressing a problem is recognizing you have one.

Forward Step #2

My next step forward is a very recent (July 2017) report in which one of its authors is a prominent member of the University of Chicago faculty and the other is a Nobel Prize winner from Harvard University.

I call your attention to the Chicago Booth (Stigler Center) report including a mathematical backbone that carries the title “Companies Should Maximize Shareholder Welfare Not Market Value”.

If only they had gone one step further and talked about stakeholders not just shareholders!

The jumping off point is the work of the famous Milton Friedman who argued we should separate money-making activities from ethical activities.

It is at best an academic (legal) endorsement of what I believe most people who are not terminally greedy would take as “common sense”.

Conclusions include:

  • It is too narrow to identify shareholder welfare with market value.
  • Profit maximization is too narrow a goal for managers when shareholders have social concerns.
  • Reversing a company’s actions through private charity can be more expensive and troublesome than getting the company to do the right thing from the start.
  • Managers and boards should not ignore shareholders, but rather that they should take all of the shareholders’ financial and social interests into account
  • Shareholders have more “utility,” in a game theory sense lingo—when the companies they invest in do good while doing well. (As a quick editorial reference see ( re Kirchner Groups perspective on this.)

As an illustration of their points:

  • To put it another way, if a consumer is willing to spend $100 to reduce pollution by $120, why would that consumer not want a company he or she holds shares in to do this too?

And finally, in true academic speak they conclude:

  • “Given well-known collective choice problems, it is possible that market value maximization can be justified as a second-best objective in a world where the social preferences of shareholders are sufficiently heterogeneous. We cannot rule this out. But in the absence of evidence establishing this conclusion to be correct, we believe that shareholder welfare maximization should replace market value maximization as the proper objective of companies.”

Backward Step

“They who are of the opinion that Money will do everything, may very well be suspected to do everything for Money”.  – George Savile, Complete Works, 1912


A quick bit of context:

  • Shkreli took a medication called Daraprim (initially developed to treat toxoplasmosis, which strikes people with compromised immune systems such as HIV, pregnant women and others with weakened immune systems) from $13.50 to $750 overnight.

In addition to the above – the following despicable quotes have been attributed to this guy:

  • “In capitalism you try to get the highest price you can for a product.”
  • “I regret not increasing the price of a life-saving drug by more than I already did.”
  • “To go to 100 percent of the profit curve that we’re all taught in MBA class.”
  • “But because the price increase has stuck, so to speak, I don’t really, that’s the main mission.”

Of course, he conceded that he put the drug company he ran at risk with his approach.

Perhaps, he should arrange a conversation with Rana Foroohar (Forward Step #1) or at least read the Chicago report (Forward Step #2).

Should we really be flaunting the fact that a business we devote a significant portion of our life to – should not be doing anything (everything!) that would make us proud?

“Never let your sense of morals get in the way of doing what’s right.” – Isaac Asimov

Lest I end this article on such a downbeat – here is the silver lining:

Shkreli was convicted of (unrelated to the above) securities fraud. To point out the obvious adage leopards don’t change their spots!

So – on the back of steps forward documented here there are still steps back.

While two steps forward and one step back is an interesting ‘philosophy’ to live by – I would suggest when it comes to values this is unacceptable.  We need to advance every time.

If you want to know what God thinks of money, just look at the people he gave it to.” – Dorothy Parker


  1. Peter Coy – No, Maximizing the Stock Price Is Not Job 1 for Company Directors
  2. Rana Foroohar – Makers and Takers – The Rise of Finance and the Fall of American Business
  3. Kate Gibson – Martin Shkreli: I should’ve “raised prices higher”
  4. Oliver Hart, Luigi Zingales – Companies Should Maximize Shareholder Welfare Not Market Value
  5. Jared S Hopkins – Martin Shkreli Says ‘Of Course’ He’d Raise Drug Price Again
  6. Andrew W. Lo – Fear, Greed, and Crisis Management: A Neuroscientific Perspective
  7. Ann Tenbrunsel and Jordan Thomas – The Street, The Bull and The Crisis: A Survey of the US & UK Financial Services Industry

Relevant Business Brain Model articles

  1. Is There Something Wrong with Our Wiring?
  2. Positioning Between the Poles: Is right really right and wrong really wrong?
  3. Financialization As A Symptom
  4. Human Nature As A Cause
  5. Our Wiring Isn’t Getting Any Better?!?!

About the Author: W.B. “Bud” Kirchner is a serial entrepreneur and philanthropist with more than 50 years of business success. He is not a scientist or an academic but he does have a diversified exposure to neuroscience, psychology and related cognitive sciences. Generally speaking, the ideas he expresses here are business-angled expansions of other people’s ideas, so when possible, he will link to the original reference.