A Hippocratic Oath for Business Executives?

Over the last year, the credit crisis has erased trillions of dollars in investor wealth here in the United States. The bad-credit contagion has spread to most of the world’s major banks.

Retirement savings have been wiped out, recession-related violence is rising, and at least one formerly financially stable country — Iceland — has teetered on the brink of bankruptcy.

Since this recession will have grave effects on so many lives, is it fair to say that the business executives that got us into this mess are guilty of financial malpractice?

That’s the idea of a new article in the Harvard Business Review, which recommends that business managers, like doctors and lawyers, should be formally licensed, and should take an oath to protect the long-term interests of their businesses and shareholders.

Requiring that aspiring executives obtain a license might lead to more sober risk management. But, on balance, would that benefit the economy or harm it?

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(Dr. Katz takes an oaf.)

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  1. Frank says:

    Good idea in theory, but unfortunately, I don’t think that oaths mean anything anymore

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  2. charles says:

    We all know that lawyers and doctors don’t do any damage.

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  3. Otter says:

    Some will argue that CEOs are simply trying to please the shareholders and what they want, which is short term performance. How about a capital gains incentive for investors who hold stock for a certain length of time?

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  4. luke says:

    anything which gets exectutives to think about the long run is a good thing. profits over the 10 year horizon are shoved aside for quarterly profits, and that causes a mess.

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  5. Imad Qureshi says:

    It would lead to better risk management but would also slow down the growth of the economy. In some cases it would stop criminals like Jefferey Skilling but overall we’ll our Economy grow at a slower pace.

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  6. fiduciary duties says:

    Executives already have fiduciary duties, requiring their honesty, loyalty and good faith. If it weren’t for bad policy (congress, SEC) and interpretation of that policy (SEC, Supreme Court), these duties might actually mean something.

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  7. Minh Ly says:

    The real problem is not the individual managers but the economic incentives during financial bubbles. Even cautious managers were forced to make risky loans during the boom, because the risky loans were so profitable. If the managers remained cautious, their profits suffered, and they had less money to pay interest to attract depositors and dividends to attract investors. Managers made risky loans not because of stupidity, exceptional greed, or malfeasance, but because cautious managers could not compete effectively in the marketplace during the financial bubble.

    Minh Ly

    Brown University

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  8. Joe D says:

    Expanding on Otter’s (@3) idea, why don’t we label those who buy and sell rapidly as speculators, which they are, rather than investors?

    How about graduated tax rates on capital gains depending on length of hold? Aren’t gains on a security held under thirty days a complete windfall? And investors should be given an incentive to wait five or ten years for their profits, if that’s what we believe is driving this quarterly number-shuffle to show profits. Since we already keep track of when securities have been bought or sold, it doesn’t substantially increase record-keeping (although it does increase audit costs).

    Have tax policy wonks already studied this, and if so, what’s the downside? (Other than campaiging: “Yes, I voted to make your taxes more complicated!”)

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