Ethics and the Bottom Line

By John Grennan
Illustration by Curtis Parker

When the economy collapsed in 2008, millions of jobs and trillions of dollars in investments vanished — along with confidence in once-trusted institutions and business people. Lehman Brothers filed for the largest bankruptcy in U.S. history. Investment guru Bernard Madoff was exposed as the perpetrator of the largest fraud in history, an $18 billion Ponzi scheme. Commercial insurer AIG received the largest government bailout in history — $85 billion — after it imploded under the weight of its risky schemes, as did other banks and institutions like mortgage lenders Fannie Mae and Freddie Mac.

Professors David Gill and Barbara McGraw, who teach business ethics at Saint Mary’s, suddenly had a whole new series of case studies of what can happen when businesses behave badly. If memories of Enron and Arthur Andersen from earlier this decade had faded, a whole new cast of malefactors has been revealed.

“During the recent crisis, there was a lack of responsibility all down the line, and incentives were skewed,” says McGraw, who teaches Saint Mary’s undergraduate “Ethical, Social and Political Issues in Business” course.

Recent Saint Mary’s business school alumni say their course work — and the horrors of recent financial events — make them even more aware of the importance of trusting the better angels of their business nature.

“If something happens, I’ll be the one who says ‘I told you so’ — I won’t be the one led off in handcuffs,” says Janet Foster MBA ’06, who works as a director of regulatory affairs for a pharmacy benefit management company.

Systemic Weaknesses Exposed

In the wake of the economic crisis, Congress passed and President Barack Obama signed the Fraud Enforcement and Recovery Act, which expanded the justice department’s ability to prosecute criminal fraud, securities law, and money laundering from predatory lending on Main Street to market manipulation on Wall Street.

The White House also unveiled its “Financial Regulatory Reform” white paper, which proposed a new consumer protection agency to maintain standards for mortgages and credit cards. It also called for new regulations for credit ratings agencies and ways to bring transparency to derivative investment vehicles that contributed to the economic collapse. And the Obama administration appointed a “pay czar” to oversee executive compensation in companies that received billions of dollars of federal bailouts to stay afloat.

Those and other proposals to clean up corporate America may not have been necessary had businesses paid more attention to ethics than driving up their profits through risky and questionable practices. Saint Mary’s professors like McGraw and Gill are teaching the same core values in their classes, encouraging students to build ethics into the business plan and learn from companies that find a way to do more than just make money.

Many alumni put those lessons into practice. Song Woo MBA ’05, who started a human resource firm in Silicon Valley, says it’s essential that he maintain clients’ trust. A short-term profit without a long-term strategy to keep customers satisfied will backfire, he says.

“Whether you are a consumer or a customer, you want to deal with companies that are ethical,” he says. “If you promote your business in an ethical way, people will be more inclined to want to work with you. One of the biggest things that I took out of what I learned at Saint Mary’s is that ethics and profits are not necessarily at opposite ends.”

Best Practices

While revelations about lapses in ethics at firms like AIG and Lehman Brothers may appear to confirm the dog-eat-dog stereotype outsiders have about the corporate world, business veterans like Nicholas Moore ’65 say trust and ethical behavior are the coin of the corporate realm. A former PriceWaterhouseCoopers global chairman who serves on the boards of Bechtel and Wells Fargo, Moore says he and his colleagues have no patience for Madoff and other schemers.

“For people like me who have spent their lives in responsible business, we’re surprised as well,” Moore says. “It’s not something you encounter every day. It’s not what gets rewarded.”

McGraw says that as a corporate attorney, she witnessed people honoring million-dollar deals secured with nothing more than a handshake.

“You can’t approach business as ‘who can get away with what,’ “ she says. “Unless a system is primarily ethical, it will implode.”

Yet shortcomings obviously exist. Gill, the author of several books on business ethics, says that many U.S. companies only began creating ethical compliance programs in 1991. That’s when federal sentencing guidelines for white-collar crimes stipulated that such programs could lead to a 40 percent reduction in penalties for convicted companies or employees.

“Most business ethics, whether in business schools or the marketplace itself, is little more than a reactive damage control,” Gill says. “Classically, however, ethics is less about avoiding litigation and the penal system than about the pursuit of excellence.”

A “damage control” approach to ethics typically fails, says Gill, who compares it to worrying about health care only when you’re sick.

“That approach is an open invitation to problems,” he says. “Of course we need our emergency rooms and procedures. But we need a proactive approach to building our health and our immune system through good nutrition, exercise and other healthy habits. It’s that way in business as well.”

Early in each semester, Gill directs his MBA students to write a business ethics memo to their own parent company’s CEO. Students from corporations like Chevron have to weigh environmental concerns against profit motives, while those from Yahoo tackle thorny Internet privacy issues. Gill also tells them to look at their company’s mission statement; more than half of his class admits they’ve never done so. He then shows them mission statements from companies that successfully walk their talk.

“Companies like Southwest Airlines, Costco and In-n-Out Burger show us that it is possible to live out high ethics and values — and beat the competition,” he says. “Business students and leaders need to be aware of these good examples. They do not need to migrate to the lowest common denominator to be successful.” More holistic approaches to business that are sensitive to the environment and worker’s rights appeal to the current generation of undergraduates, says McGraw. Examples like the Bay Area’s Clif Bar company — a sports nutrition firm that makes millions while promoting healthy choices for its customers and workers — resonate with students who want to see business as a noble calling.

“Sometimes students go into the business world thinking it’s cutthroat and that they have to bite the bullet around ethical issues,” she says. “We try to disabuse them of that notion and show them that one can do well and do good at the same time.”

Foster, the regulatory director at the pharmaceutical company, says her training at Saint Mary’s helped reinforce her convictions. She says that sometimes means having to stand alone within her company when an ethical compliance issues cuts into the bottom line, but upholding ethical business practices also fills her with a sense of honor.

“When firms get in trouble, they print people’s names and the business schools where people graduated,” Foster says. “I am going to make sure I’m not on one of those lists.”

The Wider Context

Professors and students are mindful of the fact that they don’t study or practice business ethics in a vacuum. While at Saint Mary’s, they are also situated in liberal arts and Catholic intellectual traditions that inform lessons learned on the campus.

Moore says the habits of mind and historical perspective he developed as an undergraduate in the College’s Great Books Program had a strong influence on him.

“Even though I majored in economics and accounting, I was required to take theology, philosophy, literature and the Great Books Seminars,” he says. “I would never have signed up for all of that on my own, but I will be forever grateful for the experience.”

The College also draws on its Catholic traditions, even outside traditional liberal arts fields like philosophy and theology. McGraw says the undergraduate business department has made an effort to integrate aspects of Catholic social teaching into each course, whether it’s a unit on companies’ social responsibilities or how businesses can help people in developing countries.

“The mission of Lasallian principles is always at the core of the College,” she says. “We’re always called back to that, and those principles can be lived out in business as well.”

While there’s less explicit emphasis on Catholic social teaching in the Graduate Business Program, it still has a role to play, Gill says.

“While we welcome the broadest possible diversity of convictions and backgrounds, I think it is no accident that our business school, with its deep historical roots in what we might call Catholic humanism, has a special passion for ethical business practices that truly value people and the planet,” he says.

In addition to providing a Catholic context, however, professors know they are sending students into a global business environment. They make every effort to ensure their students are exposed to different cultural expectations around business in other countries.

“Business ethics here might be different than business ethics than India, or the Middle East, or South America,” says Syed Mubeen Saifullah MBA ’06, a software executive who also advises companies looking to do business in the Middle East. “There are a lot of cultural things that people bring to the table. If you do the wrong thing, it could be very insulting or in violation of their religious tradition or the country laws.”

Even with all the complexities of global business, Gill says many aspects of business ethics come down to a few simple guidelines.

“Ethics all flows from a primary mission,” he says. “Part of my job is helping people look for good examples. A lot of times problems come from lack of imagination. And in business, imagination is as important as logic or reasoning.”