As the summer progresses and bankers head to the beaches, thoughts naturally turn toward things other than nonperforming loans and allowance coverage ratios. Hopefully, you’ll reconnect with family and remember what’s important in your life. A well-deserved break is in order after the pummeling we took this year, despite the hard work of so many professionals to come to grips with the economy and our portfolios.

Let’s leave the office behind for a bit and regain a sense of perspective. I recall someone writing that when he left his office for vacation he would turn and face the door, point his finger, and sternly order, "Stay!" While I probably won’t adopt that exact practice, I can appreciate the sentiment.

Once back in the office, it’s important to maintain the sense of perspective that time away can offer. This is true not only in the context of work/life balance, but also in the context of our work as risk managers. Do we have the right perspective on the balance of risk and reward? Do we have the right perspective on what is ethical and proper? Just because something is legal doesn’t mean that it should be done.

Business schools and law schools do a fairly good job of preparing students to analyze a problem, dissect it, and achieve a result. However, they do an especially poor job of equipping students with the intellectual framework to analyze a problem to achieve an ethical result. Courses on legal ethics tend to be rules-based and are focused almost solely on avoiding a malpractice claim for breach of fiduciary duty. These rules-based courses are certainly necessary (consider, for example, insider-trading rules), but are they sufficient?

The current economic crisis had many root causes, but a significant contributing factor was the ethical compromises people made. Politicians, bankers, and borrowers alike have suffered from ethical lapses along the way. Regrettably, there has not been a serious dialogue about the nature of ethical behavior in a commercial context.

Beyond case studies in which business students learn to diagnose and fix a problem with a balance sheet or business plan, shouldn’t there be case studies that present different implications for the shareholders, the customers, the employees, the board of directors, the environment, and the public? Why not study John Stuart Mill’s harm principle, or Kant’s ideas on social contract, or Sartre’s ideas on personal responsibility, and then ask students to apply those ideas to specific business problems?

Obviously, there is no single answer to such a case study. The schools of thought referenced above are quite different. The point is to provide a framework in which a dialogue on ethics and the implications of various courses of action can be examined in a business context.

So, you may say, that’s all well and good for students, but what about those of us out in the real world? Even without studying modern philosophy, we can and should engage in a serious dialogue with our many constituents about the behavioral lapses that got us into this mess, not just the technical or structural reasons for it. For example, it’s fine to say that certain complex models failed us, but is the answer to create more complex and more "accurate" models? Isn’t it better to ask if we have become so fond of models that we’re willing to ignore our blind spots and override our common sense? The latter question gets more directly to the behavioral issues that we should be thinking about.

What does our use of models have to do with a discussion of ethics? It has everything to do with it because what we do every day as risk managers affects other people. When what we do affects others, then a reasoned consideration of ethical implications is important.

As business people, we’re in the business of making money. That’s what we’re supposed to do. But we don’t have to become sociopaths in the process. There are consequences when we fail to ask questions or to challenge assumptions. There are consequences when we fail to think of the implications of our intended actions or when we fail to remember that there can be unintended results. There are consequences when, so early into a potential recovery, we start loosening credit standards and loan structures. As we have seen, these consequences can be broader than the individual deals on our desks.

On our vacation breaks this summer, let’s have fun, reflect on what’s important, and then return to work with a fresh perspective—a perspective that includes a heavy dose of common sense and a willingness to ask the tough questions, both technical and ethical. v