Abstract

When a series of corporate scandals erupted soon after the collapse of the 1990s bull market in equities, policy makers and reformers chiefly responded by augmenting and refining the checks and balances surrounding publicly traded corporations. Through measures such as the Sarbanes-Oxley Act of 2002, securities regulations were intensified and corporate governance was tightened. In essence, reformers followed the tradition of modern political philosophy, developed in the 17th and 18th centuries, in its insistence that pro-social outcomes are best produced through institutional mechanisms that harness self-interest. The empirical evidence, however, suggests the institutional approach will do little to prevent future ethical breakdowns. To corroborate this finding, we survey the literature on board composition, auditor consulting practices, shareholder activism, and executive compensation. Consequently, we look to another stream of political philosophy, the ancient tradition comprising Plato and Aristotle, which argues that social groupings, such as corporations, work best when led by individuals of good character. Applying the ancient view to modern commercial realities, the paper concludes that Benjamin Franklin's attempt to connect virtuous character with enlightened self-interest offers a compelling ethic for corporate leaders