In the late 80s we had the insider trading scandals on Wall Street. In the mid-90s the rogue trader Nick Leeson tanked the oldest merchant bank in UK history, Barings Bank, with his ‘risk-unmanaged’ trading. In the early 00s we had the Enron fiasco, and fewer than ten years later we had the sub-prime mortgage debacle (and all of its after-shocks, some still coming). In late ‘08 FBI agents arrested the infamous Bernard Madoff for committing the mother of all Ponzi schemes. In ‘10 insider trading scandals tarnished the markets in the U.S., related to ‘expert networks’, and in Japan, related to short-selling on the Tokyo Stock Exchange. The scandals are coming in waves and the waves appear more frequent.
Mike Milken, the junk bond king, went to jail in the aftermath of the 80s insider trading scandals, and so did Ivan Boesky, the arbitrageur. Enron’s CEO Jeff Skilling is serving a 24-year sentence. His CFO, Andrew Fastow, is scheduled to be released from prison at the end of next year. Madoff is in the clinker for life. Leeson did some time in a Singapore prison and is now a conference and after-dinner speaker.
I was visiting Harvard Business School (HBS) right after the Enron scandal broke, graciously hosted by a school official. When we finished a 3-hour tour of HBS, I was asked if I had any questions. I said, “Just one: how does Harvard teach ethics?” The school official gave me a look as if he had just swallowed a canary, and ushered me into the school’s inner sanctum, where the faculty confer.
We sat at an mahogany conference table about the size of the Queen Elizabeth 2, if not the USS Lexington. The official then proceeded to tell me about the debates among the faculty regarding different approaches to teach ethics at the school. One approach was to require all students to take courses on ethics, a second was to integrate ethics throughout the curriculum, and a third was to make ethics courses elective offerings. Some believed that teaching a discrete elective or required course on ethics would not have an impact on those unethical in character. Either they would not elect the ethics course, or if they did take an ethics course, required or elective, the lessons taught would run off their backs like rain in a New Orleans tropical storm.
Indeed, HBS includes a required ethics course in its core curriculum: Leadership and Corporate Accountability. Good for Harvard. What is sorely needed is not to ‘ebb and flow’ the teaching of ethics, giving it a high but short-lived profile in the aftermath of a scandal, but rather to make the teaching of ethics an interwoven part of the fabric of MBA school curricula.
Fortunately, many MBA schools are doing this. Stanford Graduate School of Business teaches Ethics and Management in the first-year autumn term. Wharton requires students to take Ethics and Responsibility. The Darden School of Business includes Business Ethics in its core. Leadership and Business Ethics is required at Georgetown’s McDonough School of Business.
It’s obvious. Leaders at the top set the ethical tone by their own actions (or inactions). The rank and file generally follow.
In teaching global leadership to my clients, I emphasize that the quintessential responsibility of a top leader is twofold:
• to roll out and negotiate the strategic vision
• to serve as the critical role model for an organization’s ethics.
Ethics in practice. When the guys or gals at the top do not follow the rules codified in a company’s policy on ethics, the code means nothing but empty rhetoric. Never could that be more true than in the case of Enron. And never could it be more true than on Wall Street. When a banker’s bonus reflects the volume of financial derivatives that he or she peddles and senior leaders don’t have a tight enough handle on the bank’s risk management, a potential disaster is in the making. Ex-bankers at Lehman Brothers understand that point all too tragically.
All the best,
Warren J. Devalier
©2010 Warren J. Devalier