Enron, Worldcom scandals prove valuable

At Seattle University, John Dienhart conducts autopsies by examining the ruined carcasses of corporate empires like Enron and WorldCom, looking for the lesson.

“Most people are really ethical people,” insists Dienhart, who teaches business ethics and helps other professors incorporate ethics into their courses. “They just don’t know the rules or the traps.”

So what impact, if any, have the recent corporate scandals, the enduring images of executives hauled away in handcuffs, had on the teaching of ethics? And, beyond that, can one teach another to be ethical?

These are questions many have pondered, as schools and corporations work to identify not just ways to prevent another Enron, but to deal with the more indistinct ethical dilemmas that businesspeople face each day.

“Arguably, the greatest teacher of ethics, Socrates, is famous for saying ethics can’t be taught,” said Thomas Donaldson, the Mark O. Winkelman professor at the University of Pennsylvania’s Wharton School of Business. “But that prickly phrase means, in the mouth of Socrates, that you teach it in a different way.”

On a recent weekday at Seattle University, Dienhart begins his first business ethics class of the semester by scrawling the words “Ethics as excellence” on the board. Most of the 41 master of business administration students here work in management positions at local companies. Many have faced ethical dilemmas.

Dienhart’s first assignment to them: Pick a manager you admire and identify a set of key strengths. The second part: If this manager would have been a senior executive at WorldCom or Enron, would these companies have collapsed?

Andrew Esham, who works in sales, shares the experience of a former boss who was forced out of a family-owned company after she raised questions about its accounting practices. He related this example to a leader’s influence within a company.

The intersection of business and ethics that underlies Esham’s observations has been debated for centuries. Greek historian Polybius wrote of a nation’s decline, “At Carthage, nothing which results in profit is regarded as disgraceful.”

The modern discussion can be traced back four decades. In the July-August 1961 issue of Harvard Business Review, the Rev. Raymond Baumhart published a groundbreaking study titled “How Ethical Are Businessmen?”

Baumhart, a professor at Loyola University of Chicago, found that while most executives professed “a lofty level of ethical aspiration for themselves,” they had a lower opinion of the “average” businessman. Most respondents also acknowledged the presence of generally accepted practices that were unethical.

“I think people were surprised that these executives thought that ethics really was just whatever they thought it was,” Dienhart said. “No one really looked into the ethical attitudes and beliefs of executives before.”

While the field of business ethics took form in the latter 1970s, it wasn’t until the early 1990s that major corporations began instituting ethics officers.

These internal programs were a direct result of the U.S. Federal Sentencing Guidelines, which in November 1991 offered the first comprehensive sentencing and enforcement policy for corporations convicted of criminal wrongdoing.

The “carrot and stick” approach gave corporations financial incentive to follow the rules. Under the guidelines, a judge could reduce millions in monetary penalties if a corporation proved it had established an ethics program before a law was violated or vice versa.

“The thinking was: If the company did everything it could do to prevent the wrongdoing, then it’s the fault of the individual,” said Ed Petry, executive director of the Ethics Officer Association.

As the resulting internal ethics programs have evolved, observers say they’ve gained a better understanding of programs that work and those that don’t.

They describe a good program as one in which leadership practices what it preaches and ethics is ingrained in the corporate culture. When something does go wrong, they say ethics officers need the power to elicit change, whether that means they occupy senior management positions or have the ability to report directly to the board of directors.

Critics of current approaches point out that Enron had an ethics program – one that won awards. Business Ethics magazine editor Marjorie Kelly says in an article that companies like Enron fool the public because many of the things ethics programs measure are beside the point.

The real issue – pressure to maximize profits, quarter after quarter, year after year – overrides everything else, she said. “The message they send is, ‘We’ve got an ethics program, but you are being paid to meet your goals and you better meet your goals, no matter what,'” she said. “Really what they’re saying is, ‘Trample on ethics if you need to.'”

Petry, the ethics association’s executive director, says Enron had a corporate-social-responsibility program officer who dealt mostly with external engagements, such as environmental groups, and the company’s image. It did not have an inward-facing focus, he said.

“They didn’t have anything that we would consider an internal ethics officer,” Petry said.

Still, Petry concedes the balance between increasing profits and staying within the lines is “one of the biggest obstacles that ethics officers struggle with.”

“You do have short-term pressure and it affects everyone in the company,” he said. “Even good people who want to do the right thing are going to be tempted to cross the line.”

At Seattle University, students in Dienhart’s class continue their discussion on whether their favorite manager would have swayed the destiny of an Enron or WorldCom.

“I don’t know whether one person could do anything,” Jeff Williams, a purchasing manager, said.

Esham said he likes to think his former boss would do the right thing. After she was pushed out for raising questions about the company’s accounting practices, she agreed to return as a consultant to train the accounting staff.

He says she put her feelings aside so she could ensure the employees were properly trained. “She was gracious in style and consistency and demeanor,” he said. That company, by the way, is no longer around.

Is this kind of discussion repeating itself more frequently in class sessions across the country? Have these scandals changed the way business ethics is taught?

Some professors point to anecdotal evidence that course enrollment is rising. All agree the field receives more attention these days.