Just as worrisome as these theoretical difficulties are the practical difficulties
with the legalistic view.

Although Friedman (1993) talked about the law, he did not really grasp how
the law is viewed by people who are developing new products in an effort to
make profits. As a banker, I was acutely aware of how much laws regulating
business lag behind the private sector. For example, I helped develop a nation-
wide network of processing centers. Corporations (e.g., AT & T) would have
their customers remit checks and payment slips to a post office box near the
customers' home. First Chicago Processing personnel would then go to the
mailbox, gather these receipts, sort them, and send the data to Chicago where
the dollar value would be posted to our customer's (e.g., AT & T) account in
Chicago. By having many of these post office boxes around the nation near to
a corporation's customers, First Chicago could help these corporations make
money by cutting down postal times and enabling corporations to thereby get
their receipts more quickly.

At the time the law governing interstate banks was written, no one envi-
sioned that banks would have this idea of a network of processing centers.
During the 1980s, therefore, it was very much an open question how the laws
prohibiting interstate banks were to be applied in this case. Under existing
federal legislation, a bank was defined as an entity that both took deposits and
made loans. Because the centers clearly were not making any loans, a person
could argue that they were not banks. And even if a person read the law in the
fashion most unsympathetic to banks and saw Congress as intending to outlaw
any institution that either took deposits or made loans, it would still be unclear
whether a mailbox emptying-data submitting center should be seen as a taker
of deposits, particularly since no posting was occurring outside of First Chi-
cago's home state of Illinois. In this environment, my boss and I had to decide
whether it was right to go ahead and push this innovation, forcing a lawsuit
if we had to. We could not simply say to ourselves, "Well, we must maximize
profits within the law," given that our innovation did not obviously fall within
or without the law.

This example is, I think, fairly representative of the kind of moral issue
product developers face (and always will face) simply because the law plays
catch-up with those who have new and clever ways of making money by
helping customers. The practical ethical questions center not on whether a
given act is within the law and maximizes profits, but rather upon how the  innovator should treat the law: Should

he or she look to its spirit or to its
intent? Should he or she listen to those in government (e.g., the Comptroller
of the Currency) who supposedly know the law? Or should a person simply
reconcile him or herself to be forever "pushing the envelope" of the law, even
if it puts him or her in a semiantagonistic position vis-à-vis government offi-
cials? The legalistic position does not even acknowledge this sort of problem,
much less provide any real world guidance for grappling with it.

The position also ignores the very real problems posed by enforcement of the
law. In order for people to feel compelled to obey the law or even to take
guidance from it, they must believe that the law is enforceable. My experience
within the corporate world has led me to think that corporations are basically
unregulable from the outside for several reasons. First, to put the matter rather
crudely, the brains tend to be in the private sector, not in the offices of
government regulators. President Clinton would not have to be struggling so
hard to make a case for the virtues of public service if such service had not lost
whatever luster it had during the earlier Kennedy era. For a host of reasons,
public service has not had much allure for people who are educated risk takers
with many job opportunities. People in the private sector are not more moral
than those in the public sector, but they generally seem to be more financially
sophisticated. The anecdotal evidence I have gleaned in consulting suggests
that managers in the private sector are involved in practices and deals beyond
the comprehension of many regulators. One banker with whom I consulted
told me that she had to explain the statistical model she was using to gauge her
banks' loan exposure to the federal regulators who knew far less mathematics
than she did. I also recall reading in the mid-1980s about regulators' experi-
ences in trying to unwind the deals of Texas saving and loan (S & L) owners.
The deals were complicated, and it took several regulators 8 months to unwind
a single deal in one of the S & Ls. People can certainly be forgiven for
wondering whether business people have much to fear from those who are
supposedly enforcing the rules of the game. If they do not, then the question
arises as to what, if anything, motivates people to obey the law?

Friedman (1993) seemed to simply assume that people, on the one hand, are
going to be extremely aggressive in pursuing profits but will, on the other hand,
passively fall in line with the letter of the law. Is it not far more likely that people
who have been given carte blanche to maximize profits aggressively will view the
law equally aggressively? Will they not reason "The law is only to be feared if it
can punish me. But regulators are unlikely to figure out this lucrative deal.
Therefore, I will go ahead and perform it?" A certain contempt for the law can
thus easily permeate the reasoning of profit maximizers. Far from being a remote
possibility, this contempt often seems a reality. For example, when Congress
made it illegal for banks to issue commercial paper, the banks simply kicked the

issuance upstairs to bank holding companies and went ahead and issued paper in
the name of the holding companies. The Doonesbury cartoon in which Michael
Millken tells his students at UCLA that breaking the law is just another risk one
takes in business is not that far off from reality.

In fact, to some extent, corporations have the government running scared.
During the recent debate over whether insider trading laws should be revised,
some members of Congress actually were reduced to arguing that these laws
should be left purposefully vague despite the risk this vagueness poses to
individual liberty because to attempt to clarify the laws would simply make it
easier for corporate attorneys to find still more loopholes in the law. Better to
stick with a known ineffective law than to risk changing it and making it still
more ineffective in dealing with people who make a living out of arguing that
the law does not apply to them.

To put the same point slightly differently, it is no good simply talking as
though the ethics of business practice were no problem because we have legal
rules of the game that reflect communal norms. We must also consider what
people's attitudes are toward the law. When it comes to business, it is terribly
misleading to think of these laws as rules of a game akin to baseball because
in sports, the rules themselves are more or less unchallenged. A baseball player
may argue as to whether a particular ball was in the strike zone. No player,
though, quarrels with the rule "three strikes and you are out." In business, by
contrast, people not only challenge unclear and conflicting rules, some people
think they are entitled to challenge every rule. That attitude means that regula-
tion is not unproblematic.

In games, too, there are usually referees whose rulings are more or less final.
These referees are a constant presence in the game and help to ensure that the
rules are followed. In business, by contrast, referees are not present. Regula-
tors come relatively infrequently, so it is not surprising that when illegalities
have been uncovered, it is often with the help of a competitor who "rats" on
the competition (e.g., the bond scandal at Salomon Brothers was uncovered
using information from competitors) or of inside informants who finally balk
at playing the game. Precisely because the game metaphor is so weak, Fried-
man's advocacy of a kind of legalistic gamesmanship is not a very promising
practical strategy for producing ethical business behavior.