Accounting for Behavior Educators Probe the Breakdown of Business Ethics

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To some, Enron's collapse -- with its revelations of shady accounting and inflated financial statements -- was the last nail in the coffin of the "irrational exuberance" that fueled stock prices and stoked economic growth in the late 1990s.

But for others, the fall of Enron and other, once high-flying businesses, is cause to question the very ethical foundation of the business community. Since Enron's fall, other companies have issued revised earnings reports, dropping accounting procedures used to pump the value of the company. At the same time, accounting firms have tried to separate their consulting and auditing practices to reduce apparent conflicts of interest.

While some see those steps as beneficial to the investing community, they also illustrate just how deeply compromised many companies have become in recent years.

That begs the question: If some successful businesses achieved their positions through fraud and chicanery (at times destroying the life savings of thousands of investors), what does that say about the moral underpinnings of our economic system?

For James Kenderdine, associate professor at the Price College of Business at the University of Oklahoma, the answer is clear: The state of ethics today is "for the most part, pretty poor."

Kenderdine blames the lack of business ethics on a wide range of factors that have been developing for decades. Reversing that trend will take years and won't be easy, he said.

"You have to start holding people accountable for their behavior," Kenderdine said. "You have to send Enron executives to jail. We have to say just because they've got college educations and live in million-dollar homes and drive BMWs doesn't mean that they can't do hard time in jail if they screw up."

But where Kenderdine sees a long, drawn-out deterioration of business ethics and community values, others see well, the same old, same old.

"Not much has changed over the last 500 years," said Jonathon Willner, an associate professor of economics at Oklahoma City University.

Willner noted that when economist/philosopher Adam Smith described the "invisible hand" of the markets in the 1700s, he assumed business owners would engage in "this very self-interested behavior pattern" in which they devised "methods to raise prices or restrain trade in some fashion" -- in short, that self-interest would always trump nebulous appeals to community spirit.

That's a lesson people have forgotten in recent years, he said.

"In the `20s, basically the executives weren't making any claims of ethics. They were saying, `Business is business. My job is money and if I can get it I'll get it,'" Willner said. "And we had a lot of people in the `90s who I think were portraying themselves as sort of above-average human beings in terms of their ethical standards. And they got caught with their pants down flashing somebody, and so now they have to give up on that particularly principled stand and be down here with the rest of us."

Kenderdine agrees that people are driven by self-interest, but he believes society once provided a series of checks and balances that kept those impulses under control. Today, he believes that system has been wiped away by moral relativism.

"I think if you went back 75 years in this country and you asked people, `Is there such a thing as good and evil?' they would have said, `yeah.' I think today a large part of the population would say, `Well, that's really not evil, it's just different,'" Kenderdine said.

The roots of that problem may go as far back as the Great Depression of the 1930s, Kenderdine said. Before the Depression, he said most people believed in the American ethic -- that if you work hard, you would make your way up the economic ladder. The Depression dashed that theory to pieces for many Americans.

"They lost their savings. They lost their farms. …