Addressing Corporate Scandals through Business Education
Gray, Kenneth R., Clark Jr., George W., The World and I
Kenneth R. Gray is an associate professor of international management at the School of Business and Industry at Florida A&M University in Tallahassee, Florida. George W. Clark Jr. is associate professor of organizational behavior and ethics, also at Florida A&M University, where he holds the 3M Chair in Business.
Given revelations of numerous corporate scandals since the turn of the century, we can no longer ignore the negative impact that unethical and unlawful behaviors have had on the economic stability and capital welfare of the nation. Organizational culture is based on a set of widely shared meanings, beliefs, principles, and values and is supposed to set the tone for ethical behavior. Unfortunately, the executives who are responsible for helping to set this tone, as the organizational role models, have failed in their responsibilities.
Courses in business ethics are now jokingly referred to as an oxymoron in many business educational programs. The integrity of old here--in which a person's word was their bond and honesty was the best policy-- has suffered because of mistrust and a lack of confidence in the capitalist way of doing business. The lack of confidence in corporate America by its stakeholders, including, but not limited to, its shareholders, as well as its employees, customers, and the communities at large, has dampened the belief that a market-driven economic system can be a fair system to all involved in its transactions. It is time to stand back and take a look at what has transpired since the beginning of this new century and to think of alternatives available to us so as to regain confidence in values that were once the foundation of the American way of life.
The editor of Business Ethics magazine, Marjorie Kelly, believes that ethical scandals come in waves. She recalls the early wave of government procurement fraud, then the Medicare billing fraud, then the insurance sales frauds from the Prudential scandals. In the 1980s, we had the Ivan Boesky and Michael Milken junk bond fraud, insider trading, and stock parking scandals; and let us not forget the savings and loans scandals.1
More currently, the integrity of U.S. corporations has continued to be assaulted with the collapse of Enron, the energy company that was the seventh-largest firm in the U.S.; followed by the fall of the twin telecommunications companies, Global Crossing and WorldCom, which independently went into bankruptcy. Not long ago, it was reported that the Xerox Corp. had overstated its profits from 1997 to 2001 by $1.4 billion. In the year 2002, some 250 American public companies have had to restate their accounts compared with only 92 in 1997 and 3 in 1983.2
Thus, the first two years of this new century have been marked by almost unprecedented corporate crisis and scandal. Some chief executive officers and other high-ranking organization members have been arrested for fraud and for "looting" their companies. It was found that some of these bankrupted firms' financial statements had deliberately misled the public, overstating earnings by billions of dollars. Accounting firms have been found guilty of obstruction of justice; and the credibility of supposedly independent Wall Street stock analysts and outside accounting firms has become suspect.
To whom should public corporations be accountable? Is their only obligation to shareholders, or do they have equivalent responsibilities to their stakeholders-their employees, their communities, and society in general? Our legal system appears implicated too; white-collar crime is treated far more leniently than "street" crime, even though its economic and social costs are of greater magnitude.
The effects associated with these scandalous practices have been worldwide and severe. Pension plans have been negatively impacted, employees who had nothing to do with these wrongdoings have lost their jobs, as well as their life savings which were invested in 401(k)s, pensions, and mutual funds. Some executives have been indicted and some companies have declared bankruptcy and/or failed. There has been a considerable loss in investor confidence and an even greater loss of trust in corporations and their executives.
TRUST AND INTEGRITY NEED TO BE RESTORED
The first and most obvious economic fallout from corporate wrongdoing is the legitimacy of wealth creation. With free markets under threat from protectionist politicians and anti-globalization protesters, corporate sandals are the propaganda gifts for those in the developed world who are well enough off not to worry about lower growth. They also seem to be short-sighted to recognize the adverse consequences for poor countries. Hence, governments are increasingly charged with the task of wealth creation.
There is a more fundamental question that needs to be asked. In what sense does the concept of ethics affects economic activity? The 1998 Nobel laureate in economic science, Amartya Sen, has said, "A basic code of good business behavior is a bit like oxygen: we take an interest in its presence only when it is absent."3 Ethical conduct creates the valuable quality of trust. Trust is defined as, "the assured reliance on the character, ability, strength, or truth of someone or something: one in which confidence is placed."4 So as defined, if trust can be established throughout the organization, then we might find a reduction in the monitoring and transaction costs in many companies and in the wider economy as well. As Norman Bowie indicates,
The essential point is that trusting relationships change the nature of monitoring. In non-trusting relationships, the supervisor functions as a policeman; in trusting relationships, as a mentor....[trust] reduces the amount of bias in forecasts and budgetary requests....[and] one would expect to see more joint ventures between corporations that have higher levels of trust.5
At the most basic level, one might argue that ethics is a low-cost substitute for internal control and external regulation. If we conceal truth or erode trust, transactions in business becomes unreliable and the organizational system must absorb the additional cost to maintain its vitality.
That is why the accounting scandals at Enron, WorldCom, etc., the recent restatement of corporate accounts, and the subsequent collapse of Arthur Andersen, the auditors for the two firms that accounted for the two largest bankruptcies in American history, are so vitally important. Auditors are the guardians of the integrity of our capitalist economic system.
Former U.S. Chief Justice Warren Burger explains it this way, "the public watchdog function demands that the accountant maintain total independence from the client at all times and requires complete fidelity to the public trust."6 Ethical behavior is thus, a necessary condition for investors to benefit from the auditor's product--the credibility of the auditors' attestation to financial statements. They must have the skill and competence required to detect misrepresentations or omissions in financial statements. It is important for auditors to posses the ethical traits necessary for rendering honest opinions.
Being able to trust the guardians of our financial capital is paramount for the integrity of America's reputation; and this point extends far beyond just accountancy and audit issues. In economic terms trust, truth telling and loyalty create externalities. Though they cannot be traded in markets, these qualities have a real value that increases the efficiency of the wider economic system. To work well, markets need both a robust legal framework and a behavioral infrastructure of accepted rules and codes of conduct. Where laws, rules, and codes are flouted, transaction costs go up. Insider dealing provides a clear example. In markets where informed speculators are known to be extracting gains at others' expense, market makers will widen their spreads to protect themselves, causing the cost of dealing to rise. Investors who are not insiders will demand a discount on the price of securities when they are issued.
Corporate executives are overachievers and are sometimes guilty of testing the borders of ethics. At each new and more inflated level of a stock market bubble, the robustness of executives' ethics are tested and a large number of them succumb to temptation and greed. So our society needs penalties and incentives that make good use of the self-interest motive and at the same time encourages economically productive ethical behavior. One reason the U.S. capital market model has gone off the rails is precisely that the incentives and punishments are badly skewed.
Consider the auditors: their appointment and pay are provided by management. So their independence is eroded at the outset, because impartial competent auditing practices could lead to the loss of future income. Plus, there are controls to counteract unethical practices such as the loss of reputation if audits go wrong and the threat of costly litigation, or a potentially lethal criminal investigation by the U.S. Justice Department. This is what ruined the global brand name of Arthur Andersen. Yet it is clear that the threat of such sanctions did not stop Andersen from dismissing its reputation as the toughest of the big five audit firms and becoming more pliant towards its top paying clients. Unfortunately, there is no adequate solution to this immediate problem until the innate conflict of interest in the auditor's relationship with their corporate client is addressed. One such problem was an unresolved conflict of interest between the auditing and consulting functions of Arthur Andersen's business interest. With that kind of close relationship, human bias gets in the way.7 Even the suggestion of a hypothetical relationship with a client distorts an auditor's judgment. A long-standing relationship involving tens of millions of dollars would surely magnify this distortion. Harvard business professor, Max Bazerman and his research associates came to the conclusion that auditors should be regarded, "as more like tax collectors than partners or advisers."8
ROOT CAUSES OF THE CURRENT CRISIS
In the current version of stock market capitalism, the criterion for success is shareholder value, as expressed by a company's share price. This is corroborated by one view of a root cause to the current crisis articulated at the Academy of Management Annual Meeting during the summer of 2002. Thomas Kochan of the MIT Workplace Center says "The overemphasis American corporations have been forced to give in recent years to maximizing shareholder value without regard for the effects of their actions on other stakeholders" is the problem.9
This is further explained by pressures from Wall Street growing in the aftermath of the contests for corporate control in the 1980s. Executives turned more and more of their attention to meeting the short-term expectations of analysts and to restructuring operations to boost earnings.10 Board committees and compensation consultants restructured executive contracts to better align management incentives with investor interests. Boards likewise turned to chief executive officers (CEOs) who could best manage relations with the financial community and project an image of confidence. The era of the charismatic CEO was born.11 Wall Street, the business media and press, and business school case writers alike reinforced these trends by committing a classic attribution error- -they attributed the successes of organizations to the leadership and vision of the CEO and his (mostly his) top executive team. This error served to increase the perceived value of CEOs. The self-reinforcing escalation of executive compensation that ensued eventually led in the year 2000 to a 600-to-one ratio of CEO compensation to that of the average worker (this compares to just 42 to one in 1980). As a result of this error, power became highly concentrated at the top levels of the organization.
The growth in stock options awards to the U.S. CEO and the amounts of boardroom pay is another classic illustration of the law of unintended consequences. In 1993, the U.S. Government attempted to cap directors' pay by imposing a $1 million limit on its tax deductibility. When the Financial Accounting Standards Board insisted that the cost of options should be charged in the profit-and-loss column, the suggestion was defeated by big business. Business leaders justified extravagant option awards by claiming they aligned top executives' interest with those of shareholders. Yet in practice, options gave them a powerful incentive for the company to buy more of its own stock. In this way, the stock price is driven up, at which time, CEOs and directors exercise their options (i.e., cash in) at the higher stock price. In many cases this resulted in a debt-financed transfer of wealth from shareholders to managers as they bought stock at bubble-inflated values.
The Commission on Public Trust and Private Enterprise set up by the Conference Board, a business-led research organization, has said recently:
The commission shares the public's anger over excessive executive compensation, especially to executives of failed or failing companies, and finds that compensation abuses have contributed to a dramatic loss of confidence in the governance of American publicly held corporations-- with visible and damaging financial market effects.12
In sum, there is a need to get at the conditions that created the incentives for misconduct and that, if not addressed, will likely do so again in the future. To stop with the legislation of new laws means we will rely on lawyers to be the guardians of ethical behavior.
REMEDIES TO THE CURRENT CRISIS
Corruption is not a new phenomenon; nor are proposals for dealing with it. For example, the Indian political analyst Arthashastra Kautilya, in the fourth century B.C., carefully distinguished between forty different ways in which a public servant can be tempted to be financially corrupt and described how a system of spot checks followed by penalties and rewards could prevent these activities.13 A clear system of rules and penalties, along with rigorous enforcement, can make a difference to behavior patterns.
In many societies, there is reliance, to a great extent, on compliance with codes of behavior rather than on financial incentive to be non- corrupt. This forces attention on the norms and modes of behavior that respectively prevail in different societies. Plato suggested in the Laws that a strong sense of duty would help to prevent corruption. But, he also noted that this would be "no easy task." What is at issue is not just the general sense of dutifulness, but the particular attitude to rules and conformity, which has a direct bearing on corruption. All of this comes under the general rubric of what Adam Smith called "propriety." Giving priority to rules of honest and upright behavior can certainly be among the values that a person respects. And there are societies in which respect for such rules provides a bulwark against corruption.
How people behave often depends on how they see--and perceive--others as behaving. Much depends on the reading of prevailing behavioral norms. A sense of "relative justice" vis-a-vis a comparison group (in particular, others similarly placed) can be an important influence on behavior. Indeed, the argument that "others do the same" is one of the more commonly cited "reasons" for unethical behavior. The importance of imitation--and of following established "conventions"--has been emphasized by those commentators who felt moved to study the bearing of "moral sentiments" on social, political and economic life. Adam Smith noted:
Many men behave very decently, and through the whole of their lives avoid any considerable degree of blame, who yet, perhaps, never felt the sentiment upon the propriety of which we found our approbation of their conduct, but acted merely from a regard what they saw were the established rules of behavior. (emphasis by the authors)14
In emphasizing "established rules of behavior," importance may be particularly attached to the conduct of people in positions of power and authority. This makes the behavior of senior corporate officers especially important in installing norms of conduct. Indeed, writing in China in 122 B.C., the authors of Huai-nan Tzu, an ancient Chinese syncretic compendium of knowledge stated the problem as:
If the measuring line is true, then the wood will be straight, not because one makes a special effort, but because that which it is ruled by makes it so. In the same way if the ruler is sincere and upright, then honest officials will serve in his government and scoundrels will go into hiding, but if the ruler is not upright, then evil men will have their way and loyal men will retire to seclusion.15
Corrupt behavior in "high places" can have effects far beyond the direct consequences of that behavior, and the insistence on starting at the top does have reasoning behind it.
A number of measures have been suggested to address the current crisis of corporate lawlessness. At one extreme (the market end), a publicly traded company could take out insurance on their financial statements.16 This could cover investors against losses arising from misrepresentation in accounts, while the insurers would appoint and pay the auditors. The alternative approach, which is much discussed, is to set up a public agency by shifting control over the auditor's appointment and pay to listing authorities or public sector watchdogs. Here there would be a system similar to the U.S. internal revenue service that would have a corps of auditors to evaluate publicly traded companies. The idea is that both approaches force auditors to become more independent.
In the case of stock options, there has been a similar problem with skewed checks and balances. This arises because the huge sums managed by institutional investors in the United States comply with the directives of corporate management. Few proxy votes have been cast against egregiously large option awards. Poor trusteeship may also explain why so little had been done in many cases, where non-executive directors' independence was compromised by consultancy contracts and the granting of stock options.
Thus far, the solution to the current crisis has come in the form of the Sarbanes-Oxley Act that became law in July 2002. The goal of this act is to clean up the auditing process. It creates the Public Company Accounting Oversight Board to oversee auditors and strengthens auditor independence by rotating audit partners every five years. The act also requires executive certification of financial statements, expands rules governing conflicts of interest and heightens criminal penalties. In addition, it imposes tougher penalties on directors and along with restrictions on auditors providing non-audit services. This legislation was the most significant change to regulation in 70 years, but it does much less to address the more fundamental conflict inherent in the way auditors are appointed and remunerated by management. In other words, it does not address the problem of perverse incentives.
On another front, the New York Stock Exchange has proposed improving corporate governance at NYSE-listed companies by insisting that directors of corporations must be independent, i.e., have no material relationship with the company they direct. There is also the idea of separating the jobs of chief executive officer and the chairman of the corporation. This is an American management approach that is often used, but an approach that is not standard practice in many European countries where the separation of the two positions is viewed as an important line of defense in the protection of shareholders' interest. Whether these proposed reforms will prove to be sufficient remains to be seen.
These measures in themselves will not provide the solution in the long term. The business environment itself does not provide an important constraint on companies. There was a time when leading banks, institutional investors and law firms would not have connived in setting up dubious special purpose entities involving questionable accounting and acute conflicts of interest between managers and the quoted company's shareholders. Restoring positive values and a sense of trust within the organization is, of course, more difficult than passing laws and introducing regulations. Yet, having a trustful ethical organizational culture clearly matters and an important step towards bolstering the restraints on unlawful and unethical behavior is to acknowledge the importance of the ethical dimension in economic activities and organizational leadership.
CAN BUSINESS EDUCATION PROVIDE A REMEDY?
An article entitled "Learning to Put Ethics Last,"17 presented the results of a study that found that MBA students business schools with virtuous intentions and relatively idealistic ambitions; but by the time they graduated, they were more concerned with increasing corporate share price. The article indicated, "it might appear a benign transformation were it not for the specter of Enron, where MBAs Jeffrey Skilling (Harvard 1979) and Andrew Fastow (Northwestern 1987) apparently pursued such a strategy to the hilt, with disastrous results."18
The Aspen Institute survey of 1,978 MBA students who graduated in 2001 from 13 of the top business schools in the nation, asked what a company's top priorities should be. When they first entered the MBA programs they cited customer service, shareholder value, and producing quality goods and services (in that order). Upon graduation, students cited maximizing shareholder value, satisfying customers, and producing high quality goods and services. Percentage wise the results presented indicated,
Some 75 percent cited maximizing value for shareholders, 71 percent said satisfying customers, and 33 percent put a high priority on producing high-quality goods and services. Only 5 percent thought the top goals should include improving the environment, and just 25 percent said creating value for their local communities. Two years earlier, when these students started B-school, 68 percent had opted for shareholder value, 75 percent cited customer satisfaction, and 43 percent voted for producing quality goods and services.19
The schools stated that students were not learning what was being taught. The schools stress that they were in fact teaching the students to be more conscious of social responsibility; however, students were saying that ethics was not stressed in their core classes, only in the ethics electives.
The study also found that more women than men (14 percent vs. 7 percent) judge a company by its ethical standards when considering a job offer, while more men than women (79 percent vs. 67 percent) see financial returns as a company's primary goal. Not surprisingly, 31 percent of men equated good compensation with a high quality of life vs. 21 percent of women. One disappointing finding was that if the MBAs disagreed with the values of a company, they were most likely to leave and find another job. The researchers found this to be a disquieting tendency because they felt it would be better for MBAs to attempt to evoke change in the organization instead of running from it. It seems that the MBAs who are graduating in the beginning of this new century are living by the philosophy of "show me the money," rather than "doing well by doing good."20
Dr. Amitai Etzioni, a renowned sociologist stated that, "Ever since Enron, business schools-the training grounds for corporate tycoons -have been forced to face the fact that they have failed to produce honest brokers."21 In this same article he shares from his personal experiences at the Harvard Business School (HBS) where he taught from 1987 to 1989; the years where many of today's corporate officers were doing their college training, that the Harvard Business School at that time had little in the way of formal ethics classes. This was typical of most MBA programs. He refers to a 1988 survey of MBA programs that found that only one-third of the business schools had a required ethics class.22
While teaching an ethics class at Harvard, he found that students resisted his argument that executives should be concerned with ethics as part of their decision making process. The students at that time thought that a company should focus entirely on efficiency, and students felt that a corporation simply could not afford to be ethical. Ethical considerations only had value as a "goodwill" account on the balance sheet. Currently, many schools now teach courses that do promote values other than the maximization of investors' and managers' incomes. Again Etzioni indicates that "such courses generally favor social values, and usually liberal ones, such as concern for environment or the well-being of minorities and workers in the Third World rather than traditional values, such as personal integrity, veracity and loyalty."23
AN OPPORTUNITY FOR CHANGE THROUGH BUSINESS EDUCATION
Jane Eisner explains how most Americans fail to acknowledge that greed has seeped into our national psyche, skillfully justified by continued prosperity. Greed has become a sin masquerading as a reward and we seemed to be so absorbed in a false notion that wealth is a virtue--that we become blinded by reality and have come to believe that the wealthy must be virtuous--and we don't really recognize greed for what it is except in its most exaggerated displays.24 USA Today reported in a major cover story possible reasons why the former CEO of Tyco purchased a $15,000 umbrella stand and a $6,000 shower curtain.25 This is not a virtuous act; but a vice, or as listed below, the capital sin of avarice.
Avarice or greed can be defined as "an insatiable desire to possess or acquire wealth or property far beyond what one needs or deserves; wanting or taking all one can get with no thought of the needs of others."26 Most of us can probably name a majority of the seven capital (or deadly) sins, but can you do the same with the seven virtues. For those of you who might have forgotten, they are listed as follows:
Seven Capital Sins27 Seven Capital Virtues28 Gluttony Humility Lust Liberality Avarice (Greed) Brotherly Love Sloth Meekness Envy Chastity Pride Temperance Wrath Diligence
Eisner also argued that "built deep into the foundations of the advertising process is the belief that we, as consumers, never have enough. Enough of what can vary with every sixty-second commercial, but it's the sense of dissatisfaction, of yearning for something we didn't know we wanted that has turned citizens into consumers and seven-year- olds into the new target demographic." She adds, "who doesn't want more in a culture founded on manifest destiny, in an economy fueled by desire for the next new thing?"29
So as a culture of consumers, what have we become? What is the result of this conditioning process that we have accommodated ourselves into believing is a pseudo-virtuous way of life? How has this way of living affected our relationships in our families, our work groups and our connections and affiliations with our neighbors in our communities? Has this attitude of egotistic self-fulfillment affected our perceptions of what we consider right and wrong; and if it has, is there hope in repairing this torn fabric of our society? Eisner sees the irony in the American psychological makeup that gives us our strong religious beliefs, on one hand and on the other that "every great religion in the world treats greed as the Mother of All Sins. Jesus, Muhammad, Buddha, the Tao Te Ching--all preached against the wanton desire of more than one requires or deserves." What are we to do?30
An alternative approach to educating the future business leaders might be to supplement the traditional approaches to teaching Business Ethics which are mainly done on a cognitive level with reading assignments, class lectures, group discussions of ethical dilemmas and/or "case studies." In some classes students might also be required to participate in community or volunteer service that would give them an appreciation of some altruistic behavior. These teaching techniques can be worthwhile in getting the students to recognize and hopefully understand the ethical issues and dilemmas that many managers find themselves up against in the highly competitive and profit oriented business environment. The objectives of business ethics courses include:
-- Studying business ethics issues and definitions, theories and frameworks;
-- Identifying and recognizing ethical issues;
-- Understanding the interrelationship of ethics and social responsibility;
-- Relating an ethical controversy in business to moral philosophy;
-- Understanding the impact of significant others, of group influences and the corporate culture on an individual's decision making process;
-- Choosing and defending a theory or principle that is used in resolving an ethical dispute or business decision; and
-- Examining the consequences of unethical and ethical business decisions.31
The alternative or supplemental approach that is being proposed would include behavioral activities that attempt to internalize within the individual student an affective and behavior transformation in their attitude patterns toward what they believe to be right and wrong, in terms of ethical behavior.
Giving students the opportunity to practice good behaviors that can be internalized and externalized can help to cultivate character and reinforce virtuous behaviors. Many philosophers believed that morality consists of following defined rules of conduct, such as "don't kill," or "don't steal." A student had to first learn the rules of correct behavior, and then, attempt to conduct themselves in a way that would enable them to live up to these rules.
Virtue theorists, however, place less emphasis on learning rules, and instead stress the importance of developing good habits of character, such as truthfulness or honesty.
DEVELOPING CHARACTER IN A BUSINESS EDUCATION PROGRAM
Character can be defined as a composite of good moral qualities typically of moral excellence and firmness blended with resolution, self-discipline, high ethics, force, and judgment.32 So the question is, can character be taught? Well, the definition for virtue is given as a moral practice or action: conformity to a standard of right (divine law): moral excellence: integrity of character: uprightness of conduct.33
Leonard Pitts, writes that, "reputation is about who you are when people are watching; character is about who you are when there's nobody in the room but you. Both matter, but of the two, character is far and away the most important. The former can induce others to think well of you. But only the latter allows you to think well of yourself."34
Stephen R. Covey, the author of the best seller The 7 Habits of Highly Effective People, contents that:
Character is made up of those principles and values that give your life direction, meaning and depth. These constitute your inner sense of what's right and wrong based not on laws or rules of conduct but on who you are. They include such traits as integrity, honesty, courage, fairness and generosity--which arise from the hard choices we have to make in life.... Many have come to believe that the only things we need for success are talent, energy and personality. But history has taught us that over the long haul, who we are is more important than who we appear to be.35
Virtue ethics assumes that what is moral in a given situation is not only what conventional morality requires, but also what the mature person with a "good" moral character would deem appropriate.36
So it is proposed that character can be developed through the practice of virtuous behavior. According to Aristotle, although we are endowed by nature with the capacity to acquire virtue, we are not virtuous by nature. We become virtuous by performing virtuous acts repeatedly until such acts become "second nature."37 It is at this point when the virtue is internalized; that it is no longer a virtue of deed, but of character.
The main point being made is that by mixing a traditional cognitive approach to teaching ethics with a progressive and imaginative behavioral/affective approach, we create a holistic methodology. We teach to the whole being of the individual. Good employees are also good people and vise versa. The virtues that we practice at work as part of our business life carry over to our personal life. It is the integration of the multiple roles that we play in our lives both professionally and personally that determines our ethical behavior, and defines our character. Here is a partial list of some relevant virtues that could be identified as being beneficial to having a harmonious environment within the workplace:
Honesty Loyalty Sincerity Courage Reliability Tolerance Prudence Trustworthiness Strength Tactfulness Sensitivity Benevolence
Clearly, the pedagogy of many business programs have proven their influences on students and they have graduated a very skilled group of people who are going out to become the captains of industry. However, upon introspection there is much more that can be done. The following are suggestions gleaned from a recent meeting of the Academy of Management.
1. Too many Business Schools don't take ethics training seriously as part of their business curricula. Ethics courses are not perceived as serious or "core" courses, such as finance, accounting, and economics. As a result of this oversight, the teaching of ethics, corporate social responsibility, and other business-and-society courses have been marginalized.
2. External organizations that rank Business Schools, both nationally and regionally, could be of more assistance. Ethics courses and training should be a measured criteria that determines these rankings. Currently, they are ignored and have no influence in the rankings.
3. Perspectives other than economics must be considered in Business School education. The rise of the economic perspective that has become dominant in Business Schools' curricula. For all the good that economic perspectives do, they nonetheless emphasize a view of the world in dollars, profits, returns on investment, etc. which de-emphasizes other ways in which we might conceptualize the responsibilities and contributions of businesses to society.
We have come to realize that the self-interest motive which creates the energy and drives our market economy is in need of careful study. The dynamic homeostasis between the penalties and incentives that are used to control and regulate our capital market is in need of fine tuning. Some of the current methods used in maximizing shareholders value at the expense of other stakeholders, who are dependent on the long run success of the organization, have not proven viable. The proclivity towards a short run myopic vision for success is not the ideal approach for all the stakeholders who have a vested interest in the prosperity of the organization.
Several remedies to the current crisis have been presented, hopefully, as a stop gap in an effect to restore positive values and a sense of trust within the many organizations that contribute to our economic well being. The idea of providing insurance against misrepresented financial data, or the use of an external public agency similar to the Internal Revenue Service were brought forth in the hope of forcing the auditing function to become more independent. The Sarbanes-Oxley Act was quickly passed by the legislators in 2002 with the intentions of cleaning up the current auditing processes. So both externally, through legal statutes, or internally, by insisting that top level executives of corporate organizations become totally independent from material relationships; these new reforms are attempting to help establish order and lessen the inequities that were becoming a type of modus operandi.
In the long run, changes in the underlying causes for these scandalous circumstances can only be resolved through the educational process that would address the attitudes and moral character of those individuals who lead us in the future. We are recommending an alternative pedagogy where a holistic approach to teaching business ethics will be integrated into business curricula. The traditional approaches of teaching on a cognitive level through cases, discussions and lectures have proven to be inadequate. The traditional approach could be strengthened and reinforced by adding behavioral and affective components to the teaching of business courses.
It might be necessary to enforce change through the criteria of standards adopted by the accreditation agencies, e.g. the Association to Advance Collegiate Schools of Business, (AACSB). In addition, the study of ethics should be part of the criteria used in the annual rankings of educational programs, which influences many individual's decisions on where to matriculate.
Instilling a greater sense of trust and honesty into an organizational culture though the role models of its managers will not necessarily guarantee outstanding financial success; it will help to shape and support a corporate culture that will benefit all stakeholders: customers, employees, suppliers, and investors.
1. Marjorie Kelly, "Building Economic Democracy," Business Ethics, September 30, 2002; available from http://www.business- ethics.com/thenext.htm; Internet accessed 13 February 2003.
2. "Corporate America's Woes, continued," The Economist, November 30, 2002, pp. 59-61.
3. Amartya Sen, Development As Freedom, New York: Anchor Books, p. 264.
4. Merriam Webster's Collegiate Dictionary, 10th ed., s.v. "Trust."
5. Norman E. Bowie, "Companies are Discovering the Value of Ethics," USA Today Magazine, January 1998, pp. 22-24.
6. John Plender, "What Price Virtue?" Financial Times, December 2, 2002, p. 13.
7. M. Bazerman, G. Loewenstein, and D. Moore, "Why Good Accountants Do Bad Audits," Harvard Business Review, November 2002, p. 102.
9. T. A. Kochan, "Addressing the Crisis in Confidence in Corporations: Root Causes, Victims, & Strategies for Reform," Papers presented at the special presidential panel, Academy of Management Meeting, August 2002.
10. M. Useem, Investor Capitalism, New York: Basic Books, 1996.
11. R. Khurana, "Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs," Princeton: Princeton University Press, forthcoming, 2003.
12. Ibid., John Plender.
13. Arthashastra Kautilya, The Arthashastre Kautilya, trans. R. P. Kangle Bombay: University of Bombay, 1972, pp. 86-88.
14. Adam Smith, The Theory of Moral Sentiments, London: A. Strahan, 1759; reprint, Oxford: Clarendon Press, 1976, p. 162 (page citation is to the reprint edition).
15. Huai-nan Tzu, The Sociology of Corruption, trans. Syed Hussein Alatas, Singapore: Times Books, 1980, p. 17.
16. J. Ronen, "Insurance on Financial Statements," Stamford Law and Business Review, Forthcoming, 2003.
17. Mica Schneider, "Learning to Put Ethics Last," Business Week, 11 March 2002 [magazine online]; available from http://www.businessweek.com/bschools/content/mar2002/bs2002038_0311.htm; Internet; accessed 14 December 2002.
21. Amitai Etzioni, "When It Comes to Ethics, B-Schools Get an F," The Washington Post, August 4, 2002, p. B04.
24. Jane Eisner, "What's behind our high tolerance for the sin of greed?" Tallahassee Democrat, July 31, 2002, p. 9A.
25. Bruce Horovitz, "Scandals grow out of CEOs' warped mind-set," USA TODAY, October 11, 2002, p. 2B.
26. Richard Paul and Linda Elder, The Miniature Guide to Understanding the Foundations of Ethical Reasoning, Dillon Beach, CA: Foundation for Critical Thinking, 2003, p. 36.
27. Second Exodus, "Catholic Definitions: Capital Virtue," [definitions online]; available from http://www.secondexodus.com/html/catholicdefinitions/capitalvirtue.html; Internet; accessed 22 December 2002.
29. Eisner, "What's behind our high tolerance for the sin of greed?"
31. O. C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 4th edition, Instructor's Resource Manual with Test Bank, Boston: Houghton Mifflin Company, 2000, p. xiii.
32. Webster's Third International Dictionary of the English Language Unabridged, s.v. "Character."
33. Ibid., s.v. "Virtue."
34. Leonard Pitts, "Your kid's going to pay for cheating-eventually" Tallahassee Democrat, June 24, 2002, p. 7A.
35. Stephen R. Covey, "Why Character Counts," Reader's Digest, January 1999, pp. 132-135.
36. O. C. Ferrell, John Fraedrich, and Linda Ferrell, Business Ethics: Ethical Decision Making and Cases, 5th edition, Boston: Houghton Mifflin Company, 2002, p. 57.
37. Christina Sommers and Fred Sommers, Vice & Virtue in Everyday Life: Introductory Readings in Ethics, Fourth Edition, Fort Worth: Harcourt Brace College Publishers, 1997, p. 577.…
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Publication information: Article title: Addressing Corporate Scandals through Business Education. Contributors: Gray, Kenneth R. - Author, Clark Jr., George W. - Author. Magazine title: The World and I. Volume: 19. Issue: 10 Publication date: October 2004. Page number: Not available. © 1999 News World Communications, Inc. COPYRIGHT 2004 Gale Group.