Published February
2004
Recent
ethics scandals
are hot topic in classroom
By
Bryan Corliss
Herald Business Writer
Recent ethics scandals
at the Boeing Co., Enron and other corporations are providing up-to-date
case studies for college business schools, professors said.
University of Washington
finance professor Jonathon Karpoff said in January that he planned to
start discussing the issues that led to the resignation of Boeing chief
executive Phil Condit with his students who are pursuing their doctorates.
And at Edmonds Community
College, accounting instructor Andy Williams said he hands out copies
of newspaper stories about finance officers going to jail.
Ethics discussions
have “filled up my accounting classes,” said Williams, who also teaches
part-time at Seattle University. “It gets students interested. It illustrates
some of the key points.”
For Williams, the
accounting scandals at WorldCom and Enron have been particularly useful.
WorldCom’s accountants misstated billions of dollars worth of expenses
to make the company look more profitable, while Enron’s chief financial
officer admitted in January that he and other top managers had manipulated
public financial statements to mislead investors and boost the company’s
stock prices and credit ratings.
The lesson for accounting
students to learn, Williams said, is that “standards are more important
to them than any one job.” Whistleblowers sometimes pay a high personal
cost, but “the costs of not taking a stand are greater.”
The Boeing ethics
issues came to light so recently that Williams said he hasn’t had time
to incorporate them into his curriculum. In late November, Chief Financial
Officer Mike Sears was fired amid allegations that he had offered a job
to the Pentagon weapons buyer who was negotiating the 767 tanker deal.
Boeing also fired the former Pentagon official, Darlene Druyan.
“I could see doing
something about that when we get to a lesson on conflicts of interest,”
Williams said. “Even if there were no objective conflict of interest,
the appearance was there.”
For Karpoff’s graduate
students, the lessons are more subtle.
In general, corporate
scandals are costly, he said. “Firms pay pretty heavily through their
lost reputations.”
But that’s not always
true when it comes to defense scandals, he continued.
Large defense contractors
caught breaking the rules have “symbolic and short-lived penalties imposed
on them,” Karpoff said.
There are a couple
of potential reasons, he said.
For starters, big
defense contractors such as Boeing are “just too important,” Karpoff said.
The Defense Department couldn’t do its job without them, so officials
feel it’s not in the national interest to punish contractors too severely.
“They have too much
specialized knowledge,” he said.
In addition, the
ties between officials in the Defense Department and contractors are very
close, Karpoff said. Many defense contractors used to work with the government
officials they’re doing business with. That can create a reluctance on
the part of regulators, who feel awkward punishing their former colleagues.
In one case in the
past, the Pentagon punished Boeing by barring its Washington, D.C., office
from submitting bids on government contracts — but allowed Boeing to send
in bids from other locations, he said.
More recently, the
Air Force barred Boeing from bidding on satellite launch contracts after
it was revealed that executives had taken documents from competitor Lockheed
Martin.
That ended up costing
Boeing close to $1 billion. That could be a sign that the government “wants
to see some real discipline in this case,” Karpoff said.
But if past patterns
hold, “Boeing’s losses on the defense side are going to be more symbolic
than real,” he said. “Boeing’s going to ride this storm out fairly well,
at least on the defense side.”
Real-world topics
such as these lead to interesting classroom discussions, both professors
said.
“For the younger
ones it’s an eye-opener, and for the older ones it’s sometimes a relief
to talk about these things,” Williams said.
Karpoff’s students
include a high percentage of foreign students who bring different perspectives
on U.S. business. “I’m looking forward to seeing what they have to say
about this,” he said.
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