Scandals compel schools to adjust
Executives at some of corporate America’s heavy hitters are being read their Miranda Rights. Martha Stewart’s financial advisors are testifying against her on alleged insider trading. Locally, Vincent A. Cianci, Jr.’s conviction and the Plunder Dome case have become unsightly blemishes on the capital city’s history.
Fortunately, the high-profile wrongdoing is not being overlooked in the classrooms of Rhode Island’s business schools. Instructors are using the offenders as examples in teaching their business students about corporate greed.
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“A lot of this has been precipitated by the events that are going on now and for the past year-and-a-half,” said Edward M. Mazze, dean of the College of Business Administration at the University of Rhode Island.
“There’s no question that what’s been going on has caused a lot of people to rethink the content of their courses,” he said.
However, he added, “there’s no ‘ENRON 101.’”
Business schools are focusing more attention on a number of issues, in light of recent corporate scandals, he said, including:
Corporate governance – the role of directors, their backgrounds and the relationship of the director with the CEO of the company, the director’s responsibilities on boards and committees, especially the auditing board
Accounting principles and how corporations are reporting data and making entries on their expenditures and revenue sources
Executive compensation – the disparity in pay between the top senior management and the rest of management, how the senior management is being compensated – based on performance rather than replacement value, the use of option and stock grants
“Executive compensation is well out of proportion with the rest of management,” said Mazze, who is a member of both the Philadelphia-based Technitrol Inc. and Washington Trust Bancorp Inc. board of directors. “These all play a role in corporate greed.”
He added, “There’s no such thing as elementary greed and advanced greed. It’s all greed.”
One thing to recognize, he added, is that students going to college today are more “worldly” than their predecessors. Mazze said you’d be hard-pressed to find a business student who doesn’t know someone who was financially scarred by the Enron and other corporate scandals. But that doesn’t mean that URI’s College of Business Administration has to change the way it teaches its students, he stressed.
“As a dean, I do not believe that you take a curriculum very sound with its principals of business and try to change it based on what’s going on outside,” said Mazze, who has been in business for 40 years.
Instead, classes like accounting simply incorporate the scandals into the existing curriculum.
“Now you find out if the books are cooked,” he said.
When there are corporate leaders making millions of dollars a year, there will be individual greed, Mazze said.
“How can you justify paying people $10 million a year when it takes a lot of people to make a corporation work?” he asked, adding that the president of the United States only makes $400,000 a year. “What do you do with seven homes, unless you’re running from the law?”
Joseph McCarthy, professor of finance at Bryant College, agreed that the scandals have changed the way people view business.
“It caught a lot of people’s attention in and out of the classroom,” he said. “Before the scandals we taught the importance of ethics and don’t sign it if you know it to be untrue. I think that’s being taught with greater urgency.”
McCarthy said it’s not a case of changing the curriculum; the lesson to be learned is already there. “You don’t have to change the lesson plan, you just have to emphasize what’s already on the books,” he said.
Political science professor and co-director of the John Hazen White Center for Ethics and Public Service at URI, Alfred Killilea said corporate leaders make bad examples for business students, and professors must help to change that attitude, starting with the business leaders of the future.
“One of the things, in my view, we see happening is that there is very little sense that they (CEOs and corporate leaders) are in any sense stewards of the public well-being,” he said. There has always been a working balance between dual interests – personal and community interest – and that, he said, has kept greed from taking over. Now, community interest has taken a backseat to personal interest.
“People at Enron and corporations in general tend to do much more damage to the public well-being with their ethical lapses,” Killilea said. “Up until now, they have had an easy ride. They don’t realize they have responsibilities beyond their corporate positions.”
In order for things to change in the world of business, there needs to be stricter punishments for those who think they are above the law, said former URI business ethics professor C.N. Hetzner, who is now a realtor and novelist.
“I don’t care if you’re talking to a dog, a child or an adult, it’s like asking them to be good – it’s just not effective if you don’t have sanctions,” he said. Students must be taught honorable behavior, honesty and “judicious truthfulness,” with the knowledge that there are consequences for those who choose to be unethical. There must however be a balance between honesty and protecting the company.
