I hope that the new rules on prosecuting individuals represent a step toward the recognition that corporate misdeeds are almost invariably the product of corporate culture, and corporate culture is a product of the aims and values of senior management.

Culture cannot be seen — formal communications are often designed to hide it — but after just a few months in a corporation almost everyone knows what senior management wants by virtue of which employees get bonuses, promotions, and other forms of formal and informal recognition.

Is senior management's orientation to business profitability short or long term? That is the key question. If the emphasis is all on this quarter’s profits, the chances of misdeeds are sharply increased.

Gus Levy, the legendary former senior partner of Goldman Sachs, put it well in describing the reason for that company’s enormous success: “Be long-term greedy, not short-term greedy.” With long-term greed, money was made with clients, not from them. As revealed in the 2008 financial crisis, that culture unfortunately had changed, shifting to a no-holds-barred focus on making the greatest profit for the firm, no matter the impact on its clients.

The solution to the problem of financial malfeasance is therefore not the advocacy of a disinterest in the bottom line. That is a recipe for suicide. The fundamental issue, rather, is whether the focus is on today’s earnings, no matter what the long-term costs, or on the creation of sustainable long-term value.

I'd like to hear your thoughts on this topic as well.  Please enter them in the comments section below:

This blog first appeared on Sirota's website on 09/23/2015.

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