Purdue University's business school dean and an engineering graduate who went on to be CEO of his own company say rebuilding investor confidence comes down to the personal ethics and integrity of individuals.
Richard A. Cosier (KO-shur) dean of the Krannert School of Management and Leeds Professor of Management, stressed ethics in his commencement address to new graduates of the German International School for Management and Administration in Hanover, Germany, in early July.
Michael Birck, a Purdue electrical engineering graduate who is CEO of Tellabs, spoke to the Association of American Collegiate Schools of Business at the Beta Gamma Sigma Recognition of Excellence luncheon in April. Most telephone calls and Internet sessions in several countries, including the United States, flow through equipment from Tellabs, a Naperville, Ill.-based communications equipment manufacturer.
"The Krannert School of Management was named for Herman Krannert, a CEO who held ethics in high regard," Cosier said. "Enron, Arthur Andersen, Tyco and WorldCom have brought about a call for reform in modern accounting practices and procedures.
"But I agree with Bruce Claflin, the chief executive officer of 3Com, who said, 'I would argue that we don't have an accounting problem. We have an ethics problem.'"
Cosier said ethics comes down to the individual. "We're taught from an early age to do the right thing. The honest thing. The ethical thing.
"For too long, many top executives in the business community have considered ethics and business practices as parallel lines, never to intersect. In fact, some have considered the term 'business ethics' to be an oxymoron."
This year, Birck's company, Tellabs, was named to Business Ethics Magazine's list of Best Corporate Citizens and Fortune's list of most-admired companies.
"We in the business community need to reaffirm on a day-by-day basis, particularly with the young people who join us, the need to focus on values," Birck said. "It can always be done by emphasizing the values that businesses cherish, and accountability is a big part of that.
"There is a need to provide the kind of guidance to youngsters, to students, to those entering business, that says standards are good and accountability is important."
Cosier agrees with the importance of accountability.
"To underscore that accountability, I would propose that a professional code of ethics be adopted for CEOs and managers worldwide," Cosier said. "It's time those in charge talk the talk and walk the walk and set a standard for their employees and stakeholders."
While Cosier and Birck call on individuals to be responsible in their business behavior, the stakes are of global proportion.
"Although the scandals have been centered in the United States, in today's networked world, they could spell disaster for the global economy," Cosier said. "Russian President Vladimir Putin recently praised U.S. President George Bush for raising concerns about the WorldCom scandal at the Group of Eight economic summit in Canada. 'Under the circumstances of the world,' Putin said, 'a lot depends on the state of the U.S. economy.'"
And the effects on individual companies and their employees are high, too.
Birck said: "There are some longer-term implications in all of this. One of those is the trust and confidence that investors will place in companies like mine."
Cosier said he wrote an article several years ago on corporate social responsibility that addressed the issue of why corporations and their executives may act in an irresponsible manner.
"I believe three conditions lead to such actions," Cosier said. "First, executives feel it is unlikely that they will be caught. Second, if they are caught, the penalties are low. Third, it is easier to continue past unethical business practices than change.
"This argues for more enforcement of responsible actions, stiffer penalties and encouragement of change toward higher ethical standards. It will be interesting to follow the scandals in today's headlines to see if their resolutions will help change attitudes about ethical behavior, or will reinforce the current seemingly relaxed attitude toward ethics."
Cosier said the monetary stakes have gone up in the business world, which has led to some of today's scandals.
"Greed is firmly at the root of many of the problems facing the business world today," he said. Over the past 15 years, CEO pay in the United States has risen 866 percent, to an average of more than $10 million. In that same time period, worker pay has risen only about 63 percent.
"Many CEO compensation packages are tied to stock reports, which give those in charge a personal incentive to manipulate numbers and strategies. When a leader puts himself or herself first and makes decisions based on personal greed, failure is likely."
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