Liar, Liar In the race to make money, some American businesses have been lying their pants off--but is success at any cost really worth the price?

A major U.S. company's chief resigns after authorizing large payments to top executives while negotiating a deal to slash average workers' pay. A multinational with significant business in the United States restates its revenue by nearly $1 billion. A leading American firm based in a southern city is charged with massive financial fraud; its CEO, who had lived an extravagant lifestyle, is indicted. Scenes from scandal-ridden 2002? Nope. All these events-the resignation of American Airlines' chief, the restatement of revenues at food-service giant Ahold, and the charges against HealthSouth and Richard Scrushy-happened this year, just one year after the biggest wave of corporate scandals in decades and after the passage of new legislation to combat corporate malfeasance.

Indeed, businesspeople and ethics specialists say, it's apparent that despite the 2002 scandals and legislation, little has changed in American business culture. Change appears slow in coming because lying and dishonesty simply have become a much more accepted part of business-and of American life. To fight this trend and to inculcate the idea that dishonesty is unacceptable, companies, business schools and corporate leaders will need to undertake massive, systemic reforms.

Nothing Changes, and Why

This year has been a bad rerun. In 2002, Congress passed theSarbanes-Oxley law, which forces chief executives of publiclytraded companies to verify their financial statements, providessome protection for corporate whistle-blowers, and creates a boardto oversee accounting at public companies. Meanwhile, New YorkAttorney General Eliot Spitzer negotiated a settlement withfinancial institutions that forced them to pay significant finesand further separate their research and investment bankingbusinesses.

Yet in addition to the scandals at Ahold, American Airlines andHealthSouth, ExxonMobil has come under investigation for paying afixer to funnel bribes to the Kazakhstan government, while the NewYork Stock Exchange is questioning employees for allegedlyillegally profiting from trades, and drug giant Bristol-MyersSquibb has been hit by an FBI fraud investigation. In the mostrecent survey by the Society for Human Resources Management, an HRtrade group, nearly half the respondents said ethical behavior wasstill not rewarded in the workplace.

"Not much has changed. We're still seeing the samebehavior because the whole culture hasn't changed," saysDawn-Marie Driscoll, executive fellow at Bentley College'sCenter for Business Ethics in Waltham, Massachusetts. The culturein the workplace remains one in which, even with more safeguardsagainst poor ethics, there is no notion that ethical behavior is initself something to strive for, she says.

Other ethics specialists agree. "Greed still rules the day.A lot of people in the executive suite are thinking the scandalswill just blow over," says David Batstone, the author ofSaving the Corporate Soul."Executives are focusing on compliance with ethics rules, butthey haven't come out and tried to attack the root causes ofthe problem--the idea that if you're making money, any behavioris acceptable."

Small companies have hardly been immune to the continuingethical morass. According to a recent survey of entrepreneurs byThe Southern Institute for Business and Professional Ethics, smallcompanies today are less likely to have ethics programs than largerbusinesses. In a study conducted by Batstone, 53 percent ofemployees in small and large companies said they would be willingto misrepresent corporate financial information if asked to by asuperior.

Indeed, many businesspeople and ethics specialists saydishonesty has become so ingrained in business that regulation orprosecution of a few supposed "bad apples" is unlikely tohave a major impact. "You can't legislate morality,"says Arthur Brief, director of the Burkenroad Institute for theStudy of Ethics and Leadership in Management at TulaneUniversity.

There are several reasons why unethical behavior has become soingrained-and so hard to combat. Corporate leaders haveincreasingly become divorced from workers as executive pay hasmultiplied, a problem at both large and small companies. As aresult, Batstone says, many executives seem to have lost touch withbedrock ethical values.

In addition, according to Michael Lissack, director of theInstitute for theStudy of Coherence and Emergence, an ethics researchorganization in Naples, Florida, more Americans have come to relyon market forces rather than government to police ethics in recentdecades, yet the market is not set up for policing. "When wesay the market will handle ethics-the market will punish ornot punish ethical problems-we divorce ourselves fromresponsibility for ethical decisions, and we get rid ofgovernment's function of policing ethics," Lissacksays.

Meanwhile, business experts say, regulations adopted in the pastyear are relatively ineffective. According to Eliot Schrage, seniorfellow in business and foreign policy at the Council on ForeignRelations, a think tank in New York City, too many of the recentstatutes are "command and control type" regulations,which don't change the fundamentals of the problem, rather thanincentive-based regulations, which would provide inducements forwholesale change. And some of the regulations have been underminedby a lack of enforcement and by provisions that watered down someof their mandates.

What's more, Lissack notes, in recent years, businessschools have paid lip service to ethics training, yet have notfocused enough on inculcating honesty. "Business schools aresupposed to be training professionals in real-world situations, butthey're staffed mostly by academics who haven't spent thatmuch time in the business world and don't know how to confrontbusiness ethical situations," Lissack contends. Indeed, in arecent poll of students at 12 top business schools done by theAspen Institute, a research organization, only about 20 percent ofrespondents thought their schools were seriously preparing them todeal with fraud and ethical dilemmas.

More broadly, many social scientists believe American culturehas actually come to celebrate dishonesty, which encourages lyingand cheating in business. During the 1990s and early 2000s, asbusiness leaders were exalted, greed and satisfaction were toutedas positive forces in society because they supposedly led togreater returns for businesses and, in public companies, forshareholders. In 1996, a poll by Harris Research Group reportedthat more than 60 percent of Americans believed Wall Street was"dominated by greed," yet in the same poll, over 70percent said Wall Street generally benefits America. Also duringthis time, a culture of charismatic superstar CEOs developed, inwhich chief executives were lionized for supposedly growing bottomlines, even if they used questionable means to do so.

Outside corporate America, the trend is apparent as well."Popular culture has, over the past 20 years, had thisemerging trend where success is craved at all costs, and evenpeople who do dishonest things to achieve that success arecelebrated," says Batstone. Indeed, several ethics specialistssay, as American society has become more wealth-oriented and moresocially and economically competitive, antiheroes who deliverresults but may play fast and loose with the truth have beencelebrated.

Other commentators agree. Writing of Stephen Glass, the serialfabricating journalist who attempted a comeback earlier this yearwith a splashy new novel, critic Lee Siegel of MSN's e-zine,Slate, notes: "[Glass] senses that in a commercialsociety that constantly stimulates the libido and makessatisfaction the highest criterion of success, any shortcut tosatisfaction is permissible. Lies become a consumerist tool. Theireffectiveness as a tactic earns them the quality of truth. In ourmoment, the Glass type is becoming more and more common."

Similarly, Philip Kennicott, culture critic for TheWashington Post, argues that Americans generally "arehaving one of our perennial flirtations with the idea that allhuman civilization is built on the most venal of motivations,"and that now, more than ever, we allow ourselves to satisfy thesemotivations. Indeed, Kennicott notes, Americans have become"the most primitive opportunists," abandoning the ideathat one man's profit can sometimes be another man'sharm.

Few ethics commentators think American society is heading in theright direction. Leaders are "not contrite and simply considerthe fines and penalties as a means to make a problem go away,"Sen. Richard Shelby (R-AL), who has taken the lead in Congress inhandling business ethics problems, recently told a Senate BankingCommittee hearing.

"There's been almost no general social change,"says Lissack. Without this change, he says, specific regulationswon't affect society, and people will continue to believe theyshould do whatever is necessary to succeed and concentrate simplyon avoiding being caught.

Breaching and Repairing Trust

This engrained tolerance of lying and bad behavior has seriouslydamaged trust in American business. In recent USA Todaypolls, nearly 70 percent of respondents now say they distrustbusiness executives. Large institutional investors, such as pensionfunds CalPERS and TIAA-CREF, have started voting against managementdecisions in publicly traded companies.

Ultimately, experts say, changing the ethical climate must beled by businesspeople themselves. "What Sarbanes-Oxley mandates,directors of companies and entrepreneurs could already have beendoing. Corporate best-practices cases that follow Sarbanes-Oxleywere already out there to be studied," says Driscoll. To makewholesale changes to the ethical climate, Driscoll says, businesseshave to drastically change their internal systems of governance,creating truly independent internal monitors of behavior; offeringstronger protections to whistle-blowers; putting systems in placethat can anticipate ethics problems; and having corporate leadersnot only talk about ethical behavior, but also set out specificchanges that will be instituted to improve ethical standards.

But for the ethical climate to truly change, society as a wholemust change. Batstone contends the general public needs to embracethe idea that the process is as important as the result, and thatmaterial success is not the ultimate determinant of self-worth andstatus. He argues that leaders in society need to show theirorganizations-and the general public-that they arecontributing to society in ways other than providing a product, agood or another material item. Meanwhile, Batstone says, leadershave to shed the idea that material success equals entitlement,including entitlement to take whatever actions-ethical ornot-are required to achieve success.

For his part, berinvestor Warren Buffett has argued thatone way to force society, and leaders in particular, to focus moreon ethics is to limit the compensation paid to leaders in allfields, forcing them to focus less on material wealth. In fact,Buffett has urged shareholders to protest executives who receiveextravagant salaries.

Even as lying has become more common, significant evidence showsthat Americans increasingly say they favororganizations-corporations, nonprofits, politicalgroups-that embrace ethical practices and ideas. According toBusiness for Social Responsibility, a nonprofit advocacy group, ina 2002 study by DePaul University in Chicago, the overall financialperformance of companies rated highly in Business Ethicsmagazine was better than the performance of firms that received alower rating.

As John Brennan, chairman and CEO of investment management firmThe Vanguard Group, told Bentley College's Center for BusinessEthics, "Companies that mislead or lie always pay a priceeventually." Maybe. But for now, old habits still have astrong pull.

Teaching By Example

To reduce unethical business behavior, the hardest change of allmay be transforming American popular culture's attitude towardhonesty, money and easy satisfaction. Many ethicists suggest thatgrade schools, elementary schools, universities and graduateschools need to make character education a larger part of theircurricula.

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 programcalled "Excellence Through Ethics," designed toincorporate ethics into the classroom in elementary and secondaryschools. Meanwhile, the Markkula Center for Applied Ethics at SantaClara University in Santa Clara, California, has launched an ethicscamp for California elementary and middle school teachers.

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

"Business schools tend to be hard to change because theyare rigid. We've been through past crises without much changein business education," says Arthur Brief, director of theBurkenroad Institute for the Study of Ethics and Leadership inManagement at Tulane University. Schools must give business ethicsa full department so it has prestige and is seen as worthy ofattention by students, expand the number of ethics-related coursesin their core curricula, and encourage more interactions betweenstudents 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 actuallyraised the ethics bar even before classes start, by checkingapplicants' resumes and personal statements more closely forfabrications (a practice few schools had followed in the past) andby including more questions about ethics when interviewingpotential incoming students.

Joshua Kurlantzick is a writer in Washington, DC.