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Friday, March 31, 2023

For ethical lessons from Silicon Valley Bank, turn to spies

The news of the past few days concerning the failure of Silicon Valley Bank and the cascading set of misfortunes it has spawned has sent my thinking in an unexpected direction. 

Just three weeks ago, I found myself sitting in a large auditorium in front of an audience of junior CIA spies. The topic: professional and organizational ethics. Now, the CIA’s clandestine service is not where most people instinctively turn when thinking about ethical behavior. Its practitioners, after all, are carefully instructed in the fine arts of deceit and manipulation. Those undercover are taught, quite literally, to live a lie. 

I know: I was once one of them. And later, as head of CIA’s famed school of espionage, the “Farm,” I was responsible for teaching them. 

Those in that young audience are among America’s best and brightest. Their attention was fervent and rapt. Decent people assigned to do things they were raised never, ever to do tend to be passionate about the justifications for their actions, and the practical rules and considerations which should guide them. 

There is nothing academic in this. An accepted framework for making ethical judgments is absolutely necessary in the morally ambiguous world intelligence officers inhabit. The ethical responsibilities of our spies apply not just to themselves and their organization, but to all Americans. It is we who empower them, and to us, they are ultimately accountable. 

That day, I was able to share with these young people the ways in which their organization has evolved since the days when I, not they, pursued terrorists and rogue regimes. Those years taught me a great deal about moral behavior in an amoral world. Ethics in espionage is hardly new; but the ways in which the CIA attempts to reinforce ethical behavior on an organizational basis are comparatively novel, and may provide lessons for corporate America, which faces its own ethical dilemmas, even if it does not always consider them in ethical terms. 

For an organization to be truly ethical, all its members must understand the core values which guide it and the specific ways in which those values are expressed in their daily work. Moreover, that understanding must be broadly accepted and overtly promulgated to empower even the most junior practitioners to proclaim the organization’s values, and to hold their superiors accountable for following them. 

One hears a great deal these days about ESG, the environmental, social and governance policies of businesses. ESG purports to promote the social good, and increasingly informs the investment decisions of the U.S. financial sector. Whether viewed as a mechanism for fostering “woke” environmental and social goals, as its critics claim or simply as an alternative business strategy, ESG as currently practiced is largely a top-down phenomenon, essentially divorced from daily business fundamentals, even if it is influenced to some degree by the youthful social consciousness of people within the concerned firms. 

Leaving the “E” and the “S” aside, none of their goals can be effectively pursued without a laser focus on the “G,” on governance tied to a broad sense of corporate social responsibility, of obligations inextricably tied to one’s core business. The virtuous essence of ESG is an appreciation of the fact that the genuine stakeholders in a business of virtually any size extend far beyond the narrow interests of its shareholders, and that its operations therefore must take those stakeholders into account.   

Nice sentiment, but for a G-centered ESG to meet its essential responsibilities and to have a reliable and substantive effect, corporate social responsibility has to permeate the entire culture of an organization and reflect an understanding of how corporate values should be practically expressed in one’s day-to-day business, even in situations which are hard to anticipate. When properly promulgated, corporate values convey not just a collective, but a personal ethical responsibility up and down an organization. 

Which brings us back to SVB. Its influence, and therefore its responsibility, extended far beyond its immediate stakeholders. The organization provided banking services to nearly half of the country’s venture capital-backed technology and life-sciences companies, as well as to some 2,500 VC firms. And although not huge by U.S. banking standards, the consequences of its failure have threatened the entire financial structure of a continental nation. 

Yet a stroll through SVB’s very lengthy ESG report conveys little that’s relevant to the extensive failings which led to the bank’s demise. One wonders the extent to which the combination of great social responsibility and growing indications of SVB’s financial distress informed the decisions of the bank’s management before its seemingly sudden fall. 

We will learn much in the coming days about where SVB’s managers’ minds were, and whose interests they felt compelled to serve, but initial indications are not edifying:  SVB’s CEO, we are told, sold some $3.6 million in personal shares in the bank just 11 days before it was shut down, while other executives handed out bonuses just hours before the Federal Deposit Insurance Corporation stepped in. 

SVB’s board included eminent names in U.S. business. What did they know, when did they know it, and what did they do about it? Many, up and down the company’s structure, had to know the firm was in serious trouble. It seems to me we are entitled to inquire as to their grasp of the ethical responsibility such knowledge entailed, and how, if at all, such considerations figured in internal corporate deliberations both when business risks were expanding, and when the bank’s failure became imminent. 

Ethical responsibility for SVB’s insolvency is surely shared by Congress and the Trump White House, whose loosening of regulations was driven by the lobbying of some of the very people whose risk- and profit-fueled negligence produced this crisis, and now threatens to extend it. But that can hardly excuse SVB and others for their own failings.  

The postmortem on SVB is only beginning. It will include criticism of corporate greed and lack of government regulation, as well as of simple stupidity, which no amount of governance can completely prevent. But in implementing relevant lessons, ones by no means limited to the financial sector, we should look to strengthen genuine corporate ethics.  Perhaps the example of the nation’s spies could help. 

Robert Grenier served for 27 years in the Central Intelligence Agency, ending his career as Director of the CIA CounterTerrorism Center, responsible for all CIA counter-terror operations around the globe.  He is the author of “88 Days to Kandahar:  A CIA Diary.” 

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