UC Irvine Business Ethics Class: In a Word, Enron

As business schools around the nation rush to explore recent revelations of corporate fraud, UC Irvine has taken an extra step, planning a course this fall exclusively on Enron--with company whistle-blower Sherron Watkins as the star speaker.

Over the past two decades, business schools have increasingly emphasized ethics as part of the curriculum. But professors from a number of major business schools say the host of scandals over that same period suggests that schools should do more to moderate a culture in which profits and stock prices are valued above all.

“Business schools have trailed the development of the business culture in the [United States] rather than led it,” said Kirk O. Hanson, executive director of the Markkula Center for Applied Ethics at Santa Clara University. “Business schools are creatures of the dominant culture rather than creatures of a better culture.”

Hanson said ethics classes were introduced in major U.S. business schools in the 1970s after revelations of illegal contributions to Richard M. Nixon’s 1972 presidential campaign and later of U.S. companies paying bribes overseas to get business. Since then, the number of professors teaching ethics in business schools has climbed from 20 to more than 700.

But in the meantime, the country has seen one business scandal after another--from insider trading to the savings and loan debacle, starring characters from junk bond king Michael Milken to Enron Chief Executive Kenneth Lay.

While business schools must teach ethics to be accredited, it doesn’t have to be a separate course, and it’s often pushed to the side.

Ben Hermalin, interim dean of UC Berkeley’s Haas School of Business, said his is one of the few schools that requires MBA students to take an ethics class.

Success and Setbacks

And W. Michael Hoffman, executive director of the Center for Business Ethics at Bentley College in Massachusetts, said his college is one of the few in the country where students can choose a specialty in business ethics. Hoffman said he couldn’t convince faculty members that ethics should be a required course.

“Everybody liked the idea, but nobody wanted to give up their part of the academic pie to do it,” he said. Instead, ethics is folded into other courses.

The professors need ethics training before integrating it into their courses, said Hoffman, who also founded the Ethics Officers Assn., a group of more than 800 such corporate specialists.

“You need to be comfortable about what you’re teaching,” he said. “It’s not something you have just from sheer osmosis. It has to be developed and cultivated ... and that’s part of what ethicists have been trained to do.”

For the past decade, Harvard MBA students have been required to take a nine-week course in leadership, values and decision-making. A task force recently recommended that the course be expanded to 15 weeks and broadened to include law, regulation and corporate accountability.

“We finally got to the stage that we should work harder to get our students to recognize that as future leaders of organizations, their actions would define the values of those corporations,” Harvard MBA program Chairman Carl Kester said. “They should set high standards for themselves.”

A recent survey, by the Aspen Institute’s New York-based Initiative for Social Innovation Through Business, suggests that business students learn to value high stock prices so much that their innate sense of social responsibility fades. The survey found that as they go through business school, their priorities shift from consumer needs and product quality to shareholder value.

The survey of 2,200 MBA students from 13 major business schools--including Columbia, Yale and UC Berkeley--also found that many MBA students believe they will have to make decisions that conflict with their values, and that they cannot change a company’s culture.

“We’re still a long way from integrating what we call ‘social impact management’ ... into the core MBA curriculum,” said Nancy McGaw, the group’s associate director. The initiative’s mission is to increase the number of business leaders who balance business success with social and environmental concerns. “What business schools need is to have students understand that business is part of the greater social environment,” said David Besanko, associate dean for academic affairs at the Kellogg School of Management at Northwestern University.

The continuing headlines on Enron, Global Crossing and WorldCom, among others, underscore that point.

“I think it’s making all of us somewhat more sensitive to ethics,” said Dave Stewart, deputy dean at USC’s Marshall School of Business.

Professor’s Homework

At UC Irvine, 55 students have signed up for Richard McKenzie’s six-week Enron class, which will be offered in the fall. Unlike other business courses at the university, the class will include traditional MBA students and those in the executive MBA program.

“I’m sure we could have had 100 people on the waiting list,” said McKenzie, who holds the Walter B. Gerken endowed chair in enterprise and society at the Graduate School of Management.

McKenzie hopes the course “becomes an investigation into Enron’s rise and collapse, what Enron did right and wrong. There are lessons to learn.”

To prepare for the course, McKenzie is studying the intricacies of the company’s rise and fall. After looking at an Enron-commissioned report that explained the off-the-book partnerships that got the company into trouble, he complained, “You need a PhD to understand some of this stuff.”

When reminded that he has one, he laughed. “I write about economics, not about finance.”

The class will use Enron to discuss broader topics, such as what effect incentives have on the management of a company. For example, he said, stock options were once thought to be a way to align executives’ personal goals with corporate goals. But since many of the scandals have involved propping up the stock price, people now question the tactic.

Each session will have a different speaker: a partner from the accounting firm Deloitte & Touche to discuss accounting fraud, an energy economist from Rand to provide the backdrop for the changing regulatory market, and faculty members addressing ethics and corporate strategy. One session will pair an assistant U.S. attorney with a defense attorney to discuss legal aspects of the case. Watkins will speak Oct. 14 on corporate reform.

“One of the questions she can address is how you keep a job after being a whistle-blower,” McKenzie said.

Judy Rosener, a professor of public policy at the school of management, persuaded Watkins to speak at UC Irvine. The two met at a Forbes magazine conference this year in San Francisco.

UC Irvine will cover Watkins’ plane fare and hotel, but she won’t receive a speaking fee.

As the class proceeds, former Enron executives could be on trial, providing students with more fodder, McKenzie said.

Other Schools React

While UC Irvine’s appears to be the only large U.S. business school devoting an entire course to Enron, professors elsewhere are incorporating the company’s real-world lessons into their classes.

David Baron, a Stanford University professor of business ethics and strategy, said Enron will show up in at least two courses required of first-year MBA students.

Jerry E. Trapnell, dean of the business school at Clemson University in South Carolina, said Enron is already being discussed in a variety of classes there, from accounting to personnel to management strategy to ethics.

USC’s Stewart, however, said some professors don’t believe business schools need to change their courses to prevent what are clearly misdeeds or corporate meltdowns.

“What Enron was involved in was a Ponzi scheme,” Stewart said. “We have generally at USC focused on how do you generally create value; you deliver a product or service to people that meets needs to make a profit.”

Indeed, how much impact these courses will have is uncertain, say some professors.

“No walk of life is immune to people who don’t have the will or conscience to keep them from responding to temptation,” Berkeley’s Hermalin said. “There’s a lot of money out there.”