Crossing the ethical divide

Temptation: The situations at Enron and Allfirst are not new in business, but complexity of today's finances has created opportunities for wrongdoing.

February 10, 2002|By Michael Hill | Michael Hill,SUN STAFF

EVERY SPRING, Stephen Loeb takes a group of business students on a field trip. It's not to the New York Stock Exchange or some other lofty aerie of American capitalism. It is to a federal correctional facility in Cumberland or Allenwood, Pa.

The trip is part of a noncredit course on ethics required of all full-time students working on master's degrees in business administration at the University of Maryland's Smith School of Business. At the low-security prison camps, they hear from a few prisoners, white-collar criminals who have made the types of mistakes that have been in the headlines in the past few weeks with stories about outrageous accounting at Enron and allegations of huge fraud at Allfirst.

Students also get a tour of the higher security facility where life is lived behind walls and barbed wire, and every minute is accounted for to the omnipresent authorities.

The visit has an effect on the students that is palpable. The men who speak to them once wore three-piece suits and fashionable suspenders; now they are in prison garb. Their lives are controlled by guards and schedules, but a few years before, they might have been students working on MBAs

As a student, it's easy to think that cutting corners, pushing the envelope, maybe stepping over the line a time or two, is part of the world you are about to enter. These things happen. Big-time business is not a garden party.

The prisoners tell them how tempting it is, once you've stepped across the line, to go there again and again and again, until you find yourself permanently encamped on the wrong side.

Loeb, an accounting professor who came up with the course, is proud of it.

"Business ethics as a discipline tends to take a secondary role because it doesn't make you money," he says. "But ultimately the people who are ethical are the ones who prosper, in part because they stay out of trouble."

Despite the explosion of recent ethical troubles in American business, economic historian Louis Galambos does not think the country's financial institutions are in a new moral slump.

"It has always happened, and is always happening, I think in the past even more so than today," says Galambos, a professor at the Johns Hopkins University. "Although I do think that the increasing complexity of financial transactions, the complexity of the instruments that can be used in financial transactions, probably changed the environment for this, in that it may have created more opportunities than in the recent past.

"I don't know if globalization of economic affairs has increased the opportunity, but I do know that increased complexity makes it more difficult to control."

Galambos says sudden growth often creates opportunities for such misdeeds, much as the tremendous increase in population in American cities in the late 19th century gave rise to political machines, such as New York's Tammany Hall, that saw opportunities for profit in a situation that had expanded beyond the boundaries of previous control mechanisms.

"You are almost always going to have problems of control and corruption when institutions grow very fast," he says. "In corporations, it is the same thing. You had a wave of change in the banking industry. It stopped being a `give them 3 percent interest and leave at 3 o'clock and go out to the golf course' business and changed into something much more competitive and complex."

In such cases, Galambos says, the regulatory controls might not be able to keep up with change.

But Galambos sees no breakdown in American business values. "If anything, it seems to me we have a higher set of values than we used to," he says.

Fred Guy, trained in philosophy, was not sure what sort of standards he would find when he came to the University of Baltimore a decade ago to direct the Hoffberger Center for Professional Ethics, which does programs for businesses and students.

"I've worked with a lot of corporations," he says. "I think for the most part they realize it is in their best interest, certainly to appear ethical and, in fact, to be ethical. They've got clients to make happy. They can't afford the bad exposure."

Guy says ethics start at the top.

"It all depends on the leadership," he says. "Any place you go, you are going to have your bad apples. But the smarter ones in business know that in the long run it pays to be ethical. You are going to get these kinds of rogues who take off with the money, but it's short-sighted stuff, people who don't want to pay attention to the repercussion of their acts, the quick-fix mentality. The better ones know that their reputation is important.

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