Business Students Must Prepare for Ethical Decisions

The Fresno Pacific University School of Business mission statement includes this phrase: “faculty…dedicated to nurturing Christian commitment through integration of faith, values, and ethics.” My desire to integrate “faith, values, and ethics” preceded the school’s mission statement; for me it began when I graduated from college with a passion to help to change the world. A vision I attribute to a collegiate Christian organization I was affiliated with while a student at Ohio State University and for whom I worked the first 13 years of my career.

My work for this Christian organization was quite formative. There I learned how to manage people and work in a large business organization (over 3000 employees). It was there I met my wife Kathy, and we began our family. I became exposed to some outstanding men and women who challenged me spiritually. However, it was also there that I encountered my first ethical dilemma. In my position as assistant controller, I encountered several business practices where the organization’s actions didn’t match its words. After much soul searching, I decided to bring my concerns to those in authority over me in the chain of command, up to the vice president. Later, after considering his response, I resigned from my position to pursue a different opportunity I hoped would not have issues of ethical challenge.

That turned out, however, not to be the case. You see, I thought that by working for a Christian, or a company owned by Christians, there would be a strong ethical culture in the workplace. For me, integrity and acting in an ethical manner was just a matter of doing the right thing. Although I understand how not everyone knows what that “right thing” is, I had this basic belief that we were all made in God’s image and as such have been given a conscience and by following it, we would be directed to the right decisions.

During those intervening years, I observed company leadership that charged significant personal expenditures to the business as though they were deductible business expenses. In another, the owner of the business hid assets from creditors in a bankruptcy proceeding; in another the managing partner set aside company profits in a holding account in order to smooth earnings, making the company seem more successful than it was; and another owner enhanced items on government reports in order to improve his clients’ situations. These unethical practices were in stark contrast to one employer (not mentioned above), that not only had ethical integrity, but encouraged my own strong desire to do things right. From these varied experiences over 28 years of working in business, I have come to believe that every FPU business graduate, whatever his or her emphasis, will likely encounter some similar disappointing ethical issues. It is with these thoughts in mind that I make the following observations.

Learn to live a life of integrity
“He who walks in integrity walks securely, but he who perverts his ways will be found out.” (Proverbs 10:9) Integrity is the concept of integrating one’s actions with an internally consistent framework of principles.

As this definition clearly explains, when one’s actions are consistent with one’s words, he is said to have integrity: “his walk matches his talk.” We have all seen politicians who when campaigning for an elected position proclaim one set of standards, “that won’t happen on my watch” only to display a different set once they are in office. We have also heard of religious leaders who spoke of “righteousness” from the pulpit, only to be caught in an unrighteous situation later on. We would say these people did not have integrity; their actions were not consistent or congruent with their principles. Seeing these situations is always a great disappointment.

In the verse noted above, to “walk securely” is to be confident that what you are doing is the right and ethical way of acting. When I think of someone “walking securely” I think of someone who sleeps well, who never has to second guess what he told someone because of some lie he is perpetuating.

Ethics in the workplace has become a very important topic in business today, and in the field of accounting many new rules have been put in place to help ensure the integrity of financial reporting. Courses in ethics are being added to the curriculum in business schools across America as a result of the rash of corporate scandals witnessed in this country and around the world since the beginning of this century. It seems that they have helped since the incidence of Securities Exchange Commission investigations has fallen somewhat dramatically in the last five years. It is, however, my concern that it is not possible to legislate ethics. Ethics are more often “caught” than “taught.” A person needs to decide that they will always do the right thing when confronted with a questionable ethical situation, even when it might cost them a raise or tarnish her or his personal reputation. When we are doing things the right way then we can rest assured that all of the stakeholders will be benefited.

Develop a mentor
Over the years, I have developed a small group of people I can ask technical accounting or tax questions in order to judge the ethics involved in the situation. I have another group who advise me on “life” issues. These “counselors” are important to me when I am not sure whether what I am being asked to do is legal or ethical. Just having someone to listen is invaluable. By having an individual or group I could share with would give me the opportunity to expose the “secret” that has been robbing me of my sleep. Secrets have power and the only way to dispel them is to bring them into the light of day. However, just bringing the secret to the attention of another also creates problems; now that you have told someone else, that person will likely ask you about what you did about that situation, and now you are accountable to do something about it.

Learn to be brave
One must be brave to act in an ethical matter. It takes great courage just to bring up the situation with your supervisor. If you have already done that, then it is time to take it to the next level. You can go to that level if you have permission to do so. Enron VP Sharon Watkins took a great risk when she wrote a memo to Chairman Kenneth Lay. She risked being fired.

To raise the issues with a person in the chain of command is a risk, but sometimes it is a risk worth taking. In order to contribute, we must feel what we are doing has meaning, is beneficial to mankind and is worthwhile work. Of course, the opposite of bravery is fear. Fear keeps us following the company line. Fear of what others will say, and possibly do, keeps us in place. Fear of losing our job keeps us quiet and the company secrets safe.

Understand the term “rationalization”
In order to stay employed, we often try to rationalize the secrets we hold. One rationalization I have used is, “well, they took my suggestion the last time and changed their behavior.” I have thought that small gains, even though followed by larger losses, were okay as long as we were making some progress. It is amazing what we do to rationalize our actions. In a recent article, Margaret Steen shares an example of classical rationalization: “I’m not the person who falsified the safety data for the product; I just reported the data that I had.” We tend to reframe a situation that may be in the gray area, neither totally white nor black.

Establish an ethical corporate culture
To help mitigate the effect of rationalization, a corporate culture to just do the right thing needs to be fostered. In a recent article on the house cleaning necessary in the New Mexico State Treasurer’s Office, Douglas Brown wrote in “A First Hand Look at a Scandal”: “I have come to regard it (corruption) as a fairly natural state of affairs. While some people have a moral compass that will keep them doing the right things when no one is looking, many don’t.” He continues, “If there is inadequate oversight and a lack of checks and balances, stir well and you will have corruption. This behavior transcends race, ethnicity, or nationality, and the vulnerability to it can be anticipated in corporations and nonprofits, as well as government.”

An ethics survey recently prepared by KPMG revealed that “without ethical guidance and related internal controls, organizations risk vulnerability to illicit acts from between 80-90% of employees. With a sound ethical culture in place, that number can be dramatically reduced to between 10-20%. This culture will be further aided by having ethical behavior modeled by corporate leaders who follow the guide lines. There are also needed internal controls and procedures written that provide a checks and balances system to ensure that liberties are not taken along the way. As the leadership proves its adherence to policy and procedures, then the rank and file employees are motivated by this example to do the same. These two elements would greatly reduce the risks of the company to loss from fraud or low ethical behavior.”

Conclusion
Even in places where we expect high ethical judgment, there are ethical lapses. During one of the first accounting classes I taught as an adjunct professor at Fresno Pacific I told the story of a Wall Street financier, Ivan Boesky, who was able to amass $200 million in the stock market based on his personal knowledge of certain internal transactions that were taking place, known as insider trading. Once discovered he became an informant to the SEC and later testified against some of his former partners in the scheme. He was fined $100 million and sent to prison for 3.5 years, after which time he was free to live off the remaining $100 million. I asked if anyone in the class would be willing to go to prison for three and a half years if they could keep $100 million. More hands went up than I would like to admit. So I continued. I asked how many would be willing to go to prison for $50 million, some hands still stayed up; as you would expect, some of the students were not willing to go to prison for any amount of money, however, there were several who calculated the cost and as I reduced the amount offered each time, students dropped out. The last one was willing to go to prison if he could still keep $100,000 per year for his time in prison. He felt that $100,000 was a fair trade for the time he would spend in prison. I was surprised students were willing to trade their reputation for a life time for as little as $100,000 per year. I then shared with the class this verse: “a good name is more valuable then silver or gold.” (Proverbs 22:1)

That verse is still true today; you will never be paid enough to lie for your company, to cover up inappropriate business transactions and to lose your good name and reputation in the process for the rest of your life.

Brown, D. (retrieved September 9, 2008) “First Hand Look at Scandal.” Stanford Magazine, http://www.gsb.stanford.edu/news/bmag/sbsm0808/feature-firsthand-scandal.html

Canadian Centre for Ethics and Corporate Policy. (retrieved September
9, 2008) “Developing and Maintaining an Ethical Corporate Culture.”
Management Ethics, http://www.ethicscentre.ca/EN/resources/ManageEthicsNL_Summer08_FA.pdf

Steen, M. (retrieved September 9, 2008) “How to Prevent Corporate and Other Organizational Cheating.” Stanford Magazine, http://www.gsb.stanford.edu/news/bmag/sbsm0808/feature-preventcheating.html

Dean Gray, MBA, CPA, CMA, teaches accounting in the Fresno Pacific
University School of Business.