Making Profit by Breaking Rules
Maximizing shareholder value has long shaped corporate governance. It offers a benchmark for managerial action: executives should run the company in ways that increase the capital entrusted to them. Yet it can acquire a different meaning inside organizations. Once translated into quarterly targets, sales quotas, stock-based pay, and market expectations, the pursuit of value may become a source of pressure. Compliance with the law may then appear less as a condition of business activity and more as an obstacle to financial performance.
Is Profit to Blame?
My paper “As Long as You Make Money” examines the relationship between shareholder value maximization and corporate misconduct. Its argument is careful in scope. The profit motive alone cannot explain misbehavior. The relevant issue concerns the governance arrangements and incentives that increase the likelihood of wrongdoing when they place exceptional weight on financial results and fail to discipline the methods used to obtain them. The analysis draws on the scandals of Enron and Wells Fargo.
Enron and Wells Fargo
Enron shows how the pressure to keep share prices high can shape corporate culture. Financial outperformance became the main measure of success, encouraging risky accounting and making rule-breaking appear acceptable when it helped achieve results. Wells Fargo shows a similar logic at branch level: aggressive sales targets pushed employees to sell more products, and many responded by opening accounts without authorization. Both cases show how badly designed incentives can increase the risk of misconduct.
White, Grey, and Black Hats
However, not every corporate actor is the same. They can be grouped in three main categories: white hats, grey hats, and black hats. White hats generally comply with legal and ethical duties even when doing so is unprofitable. Black hats are more willing to violate rules and less likely to be constrained by ordinary compliance systems. Grey hats occupy the decisive middle ground. Their behavior may change depending on the context: reward systems, managerial signals, peer conduct, and credible controls.
Such trichotomy clarifies the central point: corporate wrongdoing often emerges at the meeting point between firm-level incentives and individual judgment: for some agents, wrongdoing is never an option; for others, it is always the option; for most, it depends on the environment existing around them.
This framework operates on three levels. At the individual level, bonuses, promotion prospects, fear of failure, detection, and sanctions may shape conduct. At the organizational level, culture, leadership, reporting channels, and tolerance for shortcuts become decisive. At the market level, investors and competition for corporate control can intensify pressure for visible performance. The connection matters: compensation may encourage risk-taking; culture may normalize it; the market may make resistance appear irrational.
So What Is to Be Done?
The conclusion is practical rather than radical. There is nothing wrong with maximizing share value. The problem arises when profit becomes the dominant measure of success and when organizations reward outcomes without any attention to how those outcomes were achieved. Under those conditions, the pressure to “make the numbers” can make rule-breaking more plausible.
The practical solution follows from this diagnosis. Companies should align profit with compliance before misconduct occurs. Targets should be ambitious while remaining attainable through lawful conduct. Compensation systems should evaluate the means used to achieve results, along with the results themselves. Internal sanctions should be credible and predictable, to reduce fear of failure. Whistleblowing channels should offer genuine protection. Hiring and promotion should consider integrity, not only performance. Cooperation with enforcement authorities can also help firms respond to misconduct early on instead of relying on punishment after the fact.
Looking at Incentives
The aim should be to attract and retain white hats, keep black hats away from positions of influence, and design incentives that push grey hats toward lawful conduct. The paper thus offers a framework for understanding how legitimate business objectives may create criminogenic pressures when combined with poorly designed incentives, weak controls, or permissive cultures. By looking at incentives before misconduct occurs, it helps explain why compliance requires more than formal rules.
The aim is not to weaken business ambition, but to make lawful ambition the easiest path.
