Academic journal article e-Journal of Business Education and Scholarship Teaching

Can 'Homo Spiritualis' Replace Homo Economicus in the Business Curriculum?

Academic journal article e-Journal of Business Education and Scholarship Teaching

Can 'Homo Spiritualis' Replace Homo Economicus in the Business Curriculum?

Article excerpt

Introduction

Between 1986 and 1995, the U.S. experienced the Savings and Loan crisis in which 1,043 banks failed with a cost to U.S. taxpayers of about $124 billion (Curry and Shibut, 2000). This was followed by several colossal corporate scandals including Enron (it filed for bankruptcy in late 2001), Tyco International, Adelphia, Global Crossing, WorldCom, and many other firms. These companies were found to use dubious accounting practices or engage in outright accounting fraud to deceive the public and enrich executives. The Sarbanes-Oxley Act of 2002 was enacted in order to prevent future financial disasters such as Enron. Suskind (2008) reports that Alan Greenspan, Chairman of the Federal Reserve, was at a meeting on February 22, 2002 after the Enron debacle and was upset with what was happening in the corporate world. Mr. Greenspan noted how easy it was for CEOs to "craft" financial statements in ways that could deceive the public. He also slapped the table and exclaimed: "There's been too much gaming of the system. Capitalism is not working! There's been a corrupting of the system of capitalism."

Unfortunately, the cost of the above-mentioned debacles will seem trivial when compared to the cost of the subprime meltdown that came to a head in 2008. The financial bailout plan proposed by the U.S. Government could easily end up costing trillions of dollars. The blame for the latest financial crisis must be shared by many different groups. However, there is little question that greed had much do with this fiasco, one that could easily have triggered another depression (Gordon, 2008). The New York Post referred to Wall Street as "Fraud Street" in a September 24, 2008 front page headline. Apparently, the FBI is now investigating four major financial institutions--Fannie Mae, Freddie Mac, Lehman Brothers, and AIG--for their role in causing the near collapse of the financial system which is requiring a huge Federal Government bailout (Mangan, 2008). It seems that fraud may be one of the causes of the crisis. The FBI is investigating another 26 companies as well as more than 1,400 firms in cases that may involve mortgage fraud (Perez, 2008).

It is increasingly clear that there has been a breakdown in the values of corporate America. Financial self-interest has taken root and, unfortunately, relatively few firms are concerned about values and virtue. Even the so-called watchmen and gatekeepers--corporate directors, investment bankers, regulators, mutual funds, accountants, auditors, etc.--have fallen into the self-interest trap and disregarded the needs of the public (Lorsch, Berlowitz, and Zellecke, 2005). It is now becoming clear that the independent organizations, such as Standard and Poor and Moody's, that rated the collaterized debt obligations (CDOs) were not reliable and helped contribute to the financial meltdown (Morgenson, 2008b). The fact that as many as 29% of firms have been backdating options makes it appear that the public is correct in how it feels about the ethics of the business world (Burrows, 2007). According to a Watson Wyatt survey, approximately 90% of institutional investors believe that top executives are dramatically overpaid (Kirkland, 2006). Warren Buffet once said: "in judging whether corporate America is serious about reforming itself, CEO pay remains the acid test" (Kristof, 2008). It is obvious to all that corporate America has not performed well on this test.

Richard Fuld, CEO of Lehman Brothers, earned approximately half-a-billion dollars between 1993 and 2007. Kristof (2008) observes that Fuld earned about $17,000 an hour to destroy a solid, 158-year old company. With respect to AIG, a 377-person office based in London--A.I.G. Financial Products--nearly destroyed the mother company, a trillion-dollar firm with approximately 116,000 employees. This small office found a way to make money selling insurance (known as credit default swaps) to financial institutions holding very risky collateralized debt obligations. …

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