Addressing Corporate Scandals through Business Education

By Gray, Kenneth R.; Clark Jr., George W. | The World and I, October 2004 | Go to article overview

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. …

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