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Where Can Execs Learn Ethics?

Given the ethical lapses at Enron, Andersen, Sotheby's and Christie's, Merrill Lynch, and, most recently, the clouds hanging over Tyco and ImClone, it would seem logical for business schools to put a sharper focus on teaching future business leaders to do the right thing. Sure, most B-schools are loudly condemning such ethical breakdowns. But what are they doing to really combat recurrences of such behavior? The short answer: Not much.

To their credit, schools haven't been ducking the issue. Across the U.S., B-school professors say they've devoted class discussions to Enron and its ilk, whenever possible relating news stories to school work. Deans have issued elegant statements of indignation in alumni newsletters. But don't expect to see an accounting case study about Andersen anytime soon.

Academics say it'll take three years or longer before such a seemingly simple concept is rolled out. By then, Enron and Andersen probably will have ceased to exist, and Tyco's recently departed Dennis Kozlowski and ImClone's Samuel Waksal will no no longer be making headlines.

GLACIAL PACE. Part of the reason for the slow pace is that academics are, well, academics. And "academe is a sloth when it comes to change," says Thomas Donaldson, who has taught business ethics at the University of Pennsylvania's Wharton School since 1996. Business schools have been down this road before, says Kirk O. Hanson, executive director of the Markkula Center for Applied Ethics at Santa Clara University in California.

Top-flight B-schools began to treat ethics seriously as a discipline after the uproars generated by the Watergate and aerospace bribery scandals of the 1970s, he says. But it wasn't until years later, in 1978, that Stanford, Harvard, and Wharton added ethics professors to their business faculties, notes Hanson, who says those appointments marked the first instances of a serious commitment to the subject outside religiously affiliated schools.

Although they teach "rapid change management," B-schools move glacially, they say, in order to be satisfied that a subject is worthy of curriculum status. To sway numbers-minded colleagues from disciplines such as finance and economics, business ethicists have strived to show that good ethics makes sense economically as well as morally. It isn't an easy thing to prove -- despite the obvious recent evidence that the marketplace can impose huge penalties for poor ethics.

VIRTUE PAYS. One of the latest attempts at establishing statistical validity comes from Marc Orlitsky, a lecturer at the Australian Graduate School of Management in Sydney. His forthcoming study, co-authored with two University of Iowa professors, analyzes 30 years' worth of corporate data and affirms a link between social performance -- which includes broader measures than ethics alone -- and solid financial performance.

Using empirical data from other studies, the paper finds that companies' social responsibility affected their financial performances up to 83% of the time. Yet even Donaldson remains skeptical of such claims. "I don't think we have the hard results," he says, to change and expand curricula.

Even if such a link is established, adding a strong ethics component to the B-school culture will be no sure thing. After all, it's a fine line that schools must walk: MBA programs pack into two very expensive years a lifetime's worth of functional tools for graduates, who see their primary role as making money for shareholders and themselves -- and not necessarily in that order.

THE DARK SIDE. Nearly all B-schools offer some form of ethics instruction: It's a requirement for accreditation by the Association to Advance Collegiate Schools of Business. Some, such as Stanford, Wharton, and Harvard, have gone so far as to establish institutes for social responsibility. And, this fall, Northwestern University's Kellogg School will roll out for its MBAs something called "Business and its Social Environment," which will emphasize social responsibility.

Still, business ethicists complain that the subject is seldom woven into other courses by their colleagues. And when it is, they gripe, students greet such material with all the enthusiasm of a 6-year-old facing a plate of spinach. Seemingly, that would call into question the standards imparted in B-school to former Enron President Jeffrey Skilling (MBA, Harvard '79) and CFO Andrew Fastow (MBA, Kellogg '87), not to mention Wharton grad and busted financial manipulator Michael Milken.

Indeed, the "dark side" of the MBA culture is the attitude that demands bending the rules, says Santa Clara's Hanson, who taught ethics at Stanford -- where, incidentally, recently resigned Enron board member Robert Jaedicke was B-school dean from 1983 to 1990.

"TOO BUSY TEACHING"? So just how often do B-school professors talk about ethics? "It's rare," concedes Howard Frank, dean of the Smith School of Business at the University of Maryland. "I can talk about practical implications all you want," adds Frank, who came to academia from industry and has served on nine boards of directors. But, he says, many B-school professors, who have spent their entire careers doing research, seldom need to consider ethical conundrums in the Ivory Tower.

Other common excuses at the nation's B-schools include: "We're too busy teaching our core material," or, "MBA students are grown people -- we can't teach them ethics."

Both positions are valid, to a point: How many kindergarten teachers are blamed for letting future serial killers slip through? Still, if professors make it clear that they don't much care for teaching ethics, they create an atmosphere in which the subject is devalued, argues Ken Goodpaster, business ethics chair at the University of St. Thomas in Minneapolis.

INCENTIVES. "Faculty have a powerful eraser," says Goodpaster, who left Harvard -- where he helped develop the MBA ethics curriculum -- for St. Thomas, where he routinely leads intrafaculty discussions about how to incorporate ethical issues into classes such as statistics and marketing. "If teachers aren't on-board, the students pick up on it really quickly," he says.

If the examples of Enron and Andersen aren't motivation enough to jump-start professors, deans can build incentives into their faculty reward systems for those who integrate ethics into their classes and research. The addition, notes Goodpaster, could be as simple as one question to be considered in a case study.

If schools don't lead the way, the chances are small that students will eat their vegetables, so to speak. Leigh Hafrey, a professor of business ethics at the Massachusetts Institute of Technology, has taught an elective ethics course at the Sloan School of Business for five years. This past semester, even as billions of shareholder dollars were evaporating in corporate scandals, about two dozen students signed up for his class -- no more than the usual number.

"BURNED OUT." Hafrey says a dozen other students preregistered for ethics but ultimately decided against the course in favor of the hard-skills classes that catch the eye of recruiters. "The students didn't have jobs yet," says Hafrey. In a tight employment climate, "they wanted something recruiters perceived as directly relevant."

It's hard to say if students who skipped Hafrey's course will be worse off than those who didn't, once they're back in Corporate America. Auden Schendler, Aspen Skiing's director of environmental affairs, notes that by the time many new MBAs ascend to senior management, "the ethical mandate has burned out. They go out into the real world and hit a wall." Schendler wrote an article in June's Harvard Business Review on how to run a socially responsible business.

Many business ethicists now hope the latest round of corporate chicanery will spark enough indignance to provoke jail time for white-collar miscreants. That, along with alumni pressure on schools to protect their reputations -- and, thus, those of their grads -- can "change cultural assumptions" both in B-schools and in Corporate America, says Hanson.

TWO KINDS OF COSTS. In the meantime, Schendler says, statistics correlating economics and ethics may be fine, but ethical decision-making has to go beyond the numbers. To illustrate, he tells of his efforts to install energy-efficient lighting in a hotel garage. His analysis showed a 60% return on investment, but the initiative was ignored by a disbelieving management. "I made that case, and I got destroyed," Schendler says. Only after he challenged his managers to uphold their public pledge to be environmentally responsible did they agree to let him proceed -- and, by the way, realize their 60% return.

The not-so-novel idea upon which strong ethics rests is that, "Ultimately, it has to be about right and wrong," says Penn's Donaldson. There should also be an understanding, adds Goodpaster, that "sometimes moral integrity costs" in terms of a missed sale or a lost promotion.

What B-schools apparently aren't teaching very well is that lack of integrity costs, too. Plenty of shareholders have learned that this year. The question remains: Will MBAs? By Brian Hindo in New York

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