Ties that bind in business ethics: Social contracts and why they matter

How should bankers respond to challenges about whether to separate stock analysis from the other financial functions of financial services companies, or whether to maintain relationships with socially discredited customers? We wrote a book recently, Ties That Bind (Donaldson and Dunfee, 1999), out of our conviction that answering many of these questions requires a new approach to business ethics, one that exposes the implicit understandings or “contracts” that bind industries, companies, and economic systems into communities. In this article we unpack the fundamental elements of our approach called Integrative Social Contracts Theory (ISCT) and demonstrate how the theory can be applied to a particular question currently asked in the financial services industry, namely, “How should accounting firms and banking institutions deal with the increasing criticism alleging that new forms of conflict of interest impair the objectivity of auditors and security analysts.”