The questions not asked

Every new corporate scandal brings with it a new wave of public hand-wringing and outrage. The financial media will always ride in on their white horses from the local horse arena construction. They will tell us how unethical conduct by employees significantly impacts business in the United States. A typical business, they will tell us, can lose up to six percent of its annual revenues to employee fraud. Overall, employee misconduct will cost our businesses more than $660 billion annually. The stakes are enormous, they will tell us – and they are correct.

The financial media will also always point to management flaws and ethical lapses of the company’s leaders. They will refer to the moral bankruptcy of those who did not expose the dishonesty. They will always shine a light on the lack of moral authority of those leaders who didn’t lead by example. And as they continue to enlighten us, all we will know for sure is the questions they will never ask. For example, they will never ask -

• What responsibility they have for the carnage they have just described?
• Was it just a strange coincidence that the percentage of college and university students who cheat at school is about the same as the percentage of employees who engage in misconduct on the job?
• Why do business students (graduate and undergraduate) cheat more than others?
• Why would we expect morally bankrupt students who cheat at school to stop cheating when they graduate?
• What are the business schools doing about this?

What the surveys show

According to studies and surveys, it is indeed true that the percentage of college and university students who cheat at school is about the same as the percentage of employees who cheat at work. For all the reasons the financial media has already shared with us, this is enormously significant as is the fact that, if our future business leaders believe that cheating is not a serious issue, can they seriously be expected not to cheat themselves when the opportunity presents itself in the larger marketplace once they have graduated?

What should particularly attract the attention of the business school deans, however, is that, according to surveys over the past 15 years, the problem is pervasive amongst business students – our future business leaders.

What is quite remarkable about the following statistics is that the business school graduates who were working at Enron and other scammed companies in the mid-1990s cheated in school at the approximately the same rate as those who came under closer apparent scrutiny in the aftermath of Enron when the schools were challenged to bring a greater sense of ethical propriety to new generations of future business leaders. In fact, according to these surveys, the level of cheating actually increased in the post-Enron days.

• In a 1995 study of graduate business students, 81.2% admitted cheating.
• In a 2001 a study of undergraduate management majors, 96.7% admitted cheating.
• In a 2004 study of undergraduate business majors, 88.7% admitted cheating.
• In a 2009 a study of undergraduate management majors, 100% made this admission.

How did the business school deans view this shocking admission of pervasive cheating by business students? In a recent survey of business school deans, 78% of the deans believed that fewer than 40% of their students engaged in cheating. How does one explain this huge discrepancy in the amount of cheating as admitted to by the students and as perceived by the deans other than in terms of “self-delusion” of the deans?

Assuming we accept the deans’ lower number and assuming over half the business students who admitted cheating actually did not cheat, we are left with an astounding one-in-three business students cheating. Isn’t this still a chilling statistic and a serious problem worthy of immediate and urgent attention? How would the deans react to this?

Based on the recent survey, the vast majority of the deans were unconcerned. Only 5.1% of the deans regarded cheating as a very serious problem and just under 30% said it was either a slight problem or not at all a problem. 48.3% of the deans regarded it as moderately serious. Their subsequent actions were consistent with their view of the seriousness of the problem.

And what about the financial media who had all of the same statistics and facts at the fingertips? Has anyone noticed even a single story in which the deans are even asked about what they are doing to eliminate this pervasive cheating?

The enormous responsibility of the business school deans

The deans of our business schools are tasked with an enormous responsibility. They somehow have to imbue in our next generation of business leaders the ethical standards that were so lacking in those who represented and advised companies like Enron and the financial institutions at the heart of the sub-prime mortgage crisis. All that was clear was that the schools had failed miserably in imbuing these ethical standards in their students.

In my book, Detecting the Scam: Nelson Mandela’s Gift, a recurring theme is how, when some of our finest and brightest (many of whom were graduates of the best business schools in the country) had to choose between integrity and financial gain, too often they looked away and abandoned integrity too easily.

Similarly, unlike the recurring theme of Nelson Mandela’s life in which he always put the interests of those he represented ahead of his personal interests, when many of our finest and brightest had to choose between their personal interests and the interests of those they represented, too often they chose their personal interests. Why was this?

There were some who always suspected that our schools had dropped the ball. As the dust was finally beginning to settle on the Enron implosion, Texas AM’s then-President, Robert Gates, now Secretary of Defense, offered a breath of fresh air to the discussion. At last, someone would acknowledge that the universities were at least partly to blame and had to take responsibility for the values and actions of their graduates:

All of these liars and cheats are graduates of our universities. The university community cannot avert its eyes and proclaim that it is not our problem, that there is nothing we can do, or that these behaviors are an aberration from the norm.

So how have the business schools responded?

Apart from some schools introducing mandatory ethics courses for freshman and honor codes, what emerged from the aftermath of Enron is a curious but typically-academic internal debate at the schools. The debate continues today as to whether ethics should be taught in a specialized course versus integrating ethical analysis throughout the curriculum. And as the debate continued, surveys suggested that student cheating continues unabated. If the students were cheating in those same ethics classes, would this surprise anyone?

As for the Honor Codes that the deans felt so proud about introducing into their schools, I was reminded about Enron’s remarkable 64-page Code of Ethics that was personally crafted and then ignored by Ken Lay.The inescapable inference was that, unless the leaders who installed the Codes of Ethics and Honor Codes demonstrated by example that they would tolerate no deviance from the standards laid out in those documents, the documents would become totally meaningless. Put differently, if deans came out clearly and unambiguously against student cheating and then followed through with a zero tolerance policy, does anyone doubt that this would have a greater effect on student cheating than the present do-nothing alternative?

A growing perception is that many of the deans of the business schools are ineffective because many appeared to lack any moral authority as leaders. Because few of the deans treat the problem of cheating as a serious problem, the students themselves don’t view cheating as a serious issue. And why is this a clear and present danger to our economy and society? As the deans of business schools turn and look away when confronted with ethical issues, students will do the same. As the schools continue to turn out graduates for whom systemic academic dishonesty has become the norm, this could have a devastating effect on our economy and society. The stakes are therefore quite high.

How to get this back on track

If the issue with which every business school should be concerned is moral authority, leadership by example, ethical business and negotiating practices, and the courage to confront those with hubris who are demanding unethical behavior, surely the deans should require their students to study the man who is regarded as an icon around the world for these qualities and skills?

Surely, if the issue with which every business school should be concerned is to avoid the scams that have plagued us in recent years, those scams should be studied through the lens of the same man? What we have done and how would he have handled those situations?

Despite this, few deans appear to have any knowledge or appreciation of Nelson Mandela. Few seem to understand that his life represents the very values so lacking in our failed business leaders and their advisors. How can these schools teach moral authority without studying the man who epitomizes it?

It was the late Justice Potter Stewart who commented that to act ethically is to know the difference between what you have the right to do and what is the right thing to do. The single greatest failure and lesson arising from the Enron and other recent high-profile scams is that graduates of our best schools refused to act the critical question: Was what they were being asked to do, the right thing to do?

Until the deans of our schools themselves have studied Nelson Mandela, they will never become leaders with the moral authority necessary to get our young students back on track.

Finally, the Subway Test

Finally, in my book, I have offered the following hypothetical that also demonstrates the ethical dilemma facing the deans. I have called this the Subway Test:

Suppose you are in a subway tunnel. Someone approaches you and offers you a watch that resembles a well- known designer watch that costs $30,000 in the stores. It looks exactly like the real watch, but it doesn’t feel like one. It is as light as a feather. He wants $50 for the watch and you buy it as a joke. Have you been scammed? No, not even close. You simply bought a fake watch knowing it was fake.

But here is more interesting question:

Assume your friend wants to borrow your fake watch. He’s having dinner with a prospective investor who you happen to know. When your friend learns that you know the potential investor, he invites you to the dinner. You accept. At the dinner, your friend proudly shows the prospective investor his new watch and tells him how you and he bought the watch together at a high-end jewelry store. You know he’s trying to impress the prospective investor that he’s someone of substance. The prospective investor is impressed, because he knows that the particular model of that watch costs more than $30,000. As the prospective investor looks at you, you turn away and say nothing.

Here is the question: Approximately how soon after you have looked the other way and said nothing have you become a member of the scammer class? In my world, the answer is clear: “Approximately immediately!”

Sitting in their ivory tower and seeing that a large percentage of their graduates engaged in significant academic dishonesty, what are the deans to do? Do they say and do nothing? And if this is their path of choice, approximately when do they become complicit in the damage their graduates are about to wreak? In my world, the answer is clear: “Approximately immediately!”

And what about the financial media who see this going on and who choose to take the easy path and say nothing? Approximately when do they become complicit in the damage the deans and the graduates are about to wreak? Again, in my world, the answer is clear: “Approximately immediately!”