Under scrutiny - Scandals shine spotlight on ethics classes

BY CAROL HAZARD
TIMES-DISPATCH STAFF WRITER Aug 11, 2002

You're the top executive of a public company hit hard by the recession. Orders have slowed, revenue is hurting.

Layoffs are imminent, but no announcement has been made. An employee targeted for termination comes to you for advice about making a down payment on a house.

What do you do?

Telling the person that his job is in jeopardy might be the right thing to do on a personal level, but it could be violating the law - especially if someone uses information about a significant layoff to buy or sell huge blocks of stock in the company.

The answer is not always clear, said Michael Sesnowitz, dean of the business school at Virginia Commonwealth University.

"These situations can get complicated. Sometimes you need to go beyond the surface before you realize the issue," he said.

Leaking news of an impending layoff mightseem mild compared to the scandals that have rocked American corporations in the past six months. But such ethical dilemmas are more common than flagrant violations.

Either way, the big question centers on business ethics.

U.S. business schools, which are training grounds for corporate chiefs, are taking a hard look at corporate morality.

Today's headlines provide fodder for lively classroom discussions: Enron Corp.'s fishy accounting practices, the siphoning of profits at Adelphia Communications Corp., allegations of tax fraud and lavish personal spending of company money at Tyco International and WorldCom Inc.'s bid to hide billions of dollars worth of expenses.

The harsh spotlight has led some business schools to pump up the attention given to business ethics. Others, while they haven't changed the curriculum, are weaving discussions of ethics into accounting and economic courses.

Business schools can help people become more sensitive to the issues, Sesnowitz said. "But if someone is dishonest, what we do in a classroom will not transform them."

Basic character is formed in childhood, he said. "Most takes place in the family well before they get to college."

Sesnowitz said he's not convinced the recent rash of scandals is different from other ignoble periods of corporate history, such as securities violations in the late 1980s.

"Part of the reason this seems worse is because the market is taking it hard," he said. "Lots of investors are losing lots of money."

Alec Horniman, professor at the University of Virginia's Darden School of Business, said the last six months have highlighted the significance of thoughtless, bad behavior. "The free enterprise system is based on trans- parency and integrity," he said.

Transparency is being open to public scrutiny, even for a private company, Horniman said. Integrity is about keeping promises, telling the truth and acting fairly and responsibly.

"If you hide stuff and create artificial accounts, that will get you into trouble," Horniman said.

Personal harm aside, lost public confidence comes with a high price. "Thousands of secret deals in Argentina, Thailand and Indonesia have punished [the economies] of those countries," he said. "Who can you trust?"

What can business schools do to right the wrong?

They can reinforce the need for business ethics and morality, Horniman said.

"When the integrity of the system is shaken, the system loses value," he said. "I can't imagine a school of business where these conversations are not taking place at formal and informal levels."

A course in business ethics is required for a master's degree in business administration at U.Va. The Olsson Center at the Darden School was founded in 1966 specifically to promote business ethics and morality.

Douglas A. Hicks, professor at the University of Richmond's Jepson School of Leadership Studies, said the undoing of Enron has become a case study in failed systems and actions.

"We can't literally teach people to be ethical, but people can learn from lessons in the past, successes and failures," he said.

"Sadly, there are always examples of unethical business behavior to show how important it is to study ethics."

Students often think they only need to learn business basics and improve their technical skills.

"Business ethics is regarded as a soft subject," Hicks said. "It's easy to miss how crucial it is."

Contact Carol Hazard at (804) 775-8023 or chazard@timesdispatch.com