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American Businesses Place Renewed Emphasis on Ethics in Wake of Corporate Scandals

Over the past year some of the top business executives in the United States were found guilty of fraud. The recent spate of corporate scandals have some Americans wondering if this isn't some kind of worrisome trend . . . or if perhaps business ethics is in itself a contradiction in terms. Not at all, say business school academics, who claim ethics can be taught at the graduate level as effectively as finance or management.

There are two types of lawbreakers in the corporate world says Tom Selling, a professor at Thunderbird, The Garvin School of International Management in Glendale, Arizona. "There are criminals and there are people who commit crimes out of acts of desperation."

Mr. Selling points to lifestyle guru Martha Stewart -- who was convicted of insider trading last year -- as an example of someone who is not a criminal, but lied to federal prosecutors to preserve her public image. He says by weaving such real-life situations into business courses, important lessons about ethics can be taught. "What we can do is use the classroom," he says, "to put students hypothetically in situations where they're between the proverbial 'rock and a hard place.'" Then the class together can figure out how to resolve the dilemma and determine, he says, "what's ethically right, what's consistent with their values, how others would see them and also see realistically what the potential consequences of their actions are."

Corporate CEOs and other top-level managers are handsomely compensated with 6-figure salaries, stock options and other benefits. So why do some executives find it necessary to steal. . . or manipulate accounts (also known as "cooking the books" ) in order to show higher company profits? According to Marjorie Kelly, editor and founder of Business Ethics Magazine, they're just trying to keep their jobs.

"It's easy to blame CEOs and say, 'Oh, they got so greedy.' But you have to look at how the system was designed." Ms. Kelly explains, "The Board says to them, 'We want you to make board members fabulously wealthy and if you do, we'll make you fabulously wealthy and if you don't we'll fire you.' So there's just enormous pressure that's come to bear on single individuals." She says because the U.S. corporate system has come to define success as "a rising share price," she says, "people got in the habit of making that price go up no matter what."

So, for executives at Enron and Worldcom, the end justified the means. And Thunderbird business school professor Tom Selling says that rising share price represented their ability to out-perform the competition.

"It's not necessarily about the money but it's about a fear of failing," he says, citing convicted Enron financial officer Andrew Fastow as an example. "Andrew Fastow said very notably that it wasn't really about the money but it was that he wanted to be seen as the best at what he did. What he did was criminal."

But for every company undergoing federal investigation, there are many more that consistently earn high marks for excellence in business practice and ethical behavior. Every year Business Ethics Magazine recognizes 100 of those companies with its Best Corporate Citizens List. They are rated not only according to profits and product performance, but by how well they serve their community, their customers, and the environment.

The Number One winner for 2005 is Cummins Engine, a diesel engine maker in Columbus, Indiana. Magazine editor Marjorie Kelly says Cummins has long enjoyed a reputation for maintaining high ethical standards within the company and for its relationship with the community. "For example, they pay architects to build local buildings," she says. "So the town in Indiana has outstanding architecture for a small town in the mid-west."

Whether the motive is purely altruistic, fear of a potential federal investigation, or the recognition that good ethics are good for business, American executives are taking the issue of ethics more seriously than ever. More companies are implementing ethical training programs for their employees, aided by the growing field of ethical consultants. And on Wall Street, according to a report in The New York Times, there has been an increase in the number of stockbrokers dismissed for anything perceived to be unethical behavior. It is evidence of the growing belief that the companies with the ethical edge will also be those with the competitive one.