Liar, Liar

Breaching and Repairing Trust

This engrained tolerance of lying and bad behavior has seriously damaged trust in American business. In recent USA Today polls, nearly 70 percent of respondents now say they distrust business executives. Large institutional investors, such as pension funds CalPERS and TIAA-CREF, have started voting against management decisions in publicly traded companies.

Ultimately, experts say, changing the ethical climate must be led by businesspeople themselves. "What Sarbanes-Oxley mandates, directors of companies and entrepreneurs could already have been doing. Corporate best-practices cases that follow Sarbanes-Oxley were already out there to be studied," says Driscoll. To make wholesale changes to the ethical climate, Driscoll says, businesses have to drastically change their internal systems of governance, creating truly independent internal monitors of behavior; offering stronger protections to whistle-blowers; putting systems in place that can anticipate ethics problems; and having corporate leaders not only talk about ethical behavior, but also set out specific changes that will be instituted to improve ethical standards.

But for the ethical climate to truly change, society as a whole must change. Batstone contends the general public needs to embrace the idea that the process is as important as the result, and that material success is not the ultimate determinant of self-worth and status. He argues that leaders in society need to show their organizations-and the general public-that they are contributing to society in ways other than providing a product, a good or another material item. Meanwhile, Batstone says, leaders have to shed the idea that material success equals entitlement, including entitlement to take whatever actions-ethical or not-are required to achieve success.

For his part, berinvestor Warren Buffett has argued that one way to force society, and leaders in particular, to focus more on ethics is to limit the compensation paid to leaders in all fields, forcing them to focus less on material wealth. In fact, Buffett has urged shareholders to protest executives who receive extravagant salaries.

Even as lying has become more common, significant evidence shows that Americans increasingly say they favor organizations-corporations, nonprofits, political groups-that embrace ethical practices and ideas. According to Business for Social Responsibility, a nonprofit advocacy group, in a 2002 study by DePaul University in Chicago, the overall financial performance of companies rated highly in Business Ethics magazine was better than the performance of firms that received a lower rating.

As John Brennan, chairman and CEO of investment management firm The Vanguard Group, told Bentley College's Center for Business Ethics, "Companies that mislead or lie always pay a price eventually." Maybe. But for now, old habits still have a strong pull.

Teaching By Example

To reduce unethical business behavior, the hardest change of all may be transforming American popular culture's attitude toward honesty, money and easy satisfaction. Many ethicists suggest that grade schools, elementary schools, universities and graduate schools need to make character education a larger part of their curricula.

To some extent, this has already begun. Junior Achievement Inc., an organization with headquarters in Colorado Springs, Colorado, that teaches children about entrepreneurship, has planned a program called "Excellence Through Ethics," designed to incorporate ethics into the classroom in elementary and secondary schools. Meanwhile, the Markkula Center for Applied Ethics at Santa Clara University in Santa Clara, California, has launched an ethics camp for California elementary and middle school teachers.

But to change the culture, business schools have to respond to the ethics crisis as well. In the past, too many have compartmentalized ethics, offering one class on the subject rather than making it a focus of each course. "Most business school courses on ethics are about complying with rules rather than about broader issues of the social impact of business," says David Batstone, the author of Saving the Corporate Soul (Jossey-Bass). "Who wants to take a course on filling the regulations of Sarbanes-Oxley?"

"Business schools tend to be hard to change because they are rigid. We've been through past crises without much change in business education," says Arthur Brief, director of the Burkenroad Institute for the Study of Ethics and Leadership in Management at Tulane University. Schools must give business ethics a full department so it has prestige and is seen as worthy of attention by students, expand the number of ethics-related courses in their core curricula, and encourage more interactions between students and businesspeople who are focused on ethical practices, he says.

Some business schools are already following Brief's advice. In addition, several schools, including Wharton, have actually raised the ethics bar even before classes start, by checking applicants' resumes and personal statements more closely for fabrications (a practice few schools had followed in the past) and by including more questions about ethics when interviewing potential incoming students.

Joshua Kurlantzick is a writer in Washington, DC.

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This article was originally published in the October 2003 print edition of Entrepreneur with the headline: Liar, Liar.

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