On the first day of business school, Elena Perron’s study group is called to the front of the lecture hall to explain how the Enron Corp. violated principles of corporate social responsibility.
Marker in hand, Perron draws a boxed “gray area” in the middle of a horizontal line on the white board. At one end, the line reads “legal”; at the other, “illegal.” In the boxed area, Perron argues, Enron violated its fiduciary duties to its shareholders. Managers set up bogus partnerships to hide millions of dollars in losses and did not report millions of dollars in loans. “Their entire objective was to hide information from investors,” she says.
Weeks before, Perron was talking over those same issues with her colleagues at Goldman Sachs in New York, where she worked in the investor marketing group. “People there were very concerned about how we can improve the financial reporting and the transparency of companies,” she says. They were also very curious about how her professors at the Graduate School of Business would teach ethics.
Here’s how: David Brady, professor of political science and ethics, cuts to the chase in the first 10 minutes of class. “Should I steal if I can get away with it?” he asks Perron and her 61 classmates. “No!”
Welcome to P235: Ethics, a course about managerial decision-making that Brady, David Baron and other Stanford faculty have been teaching for 30 years. They examine ethics as a basis for self-regulation and look at theories that provide moral guidelines, including utilitarianism and justice. Also on the syllabus: what is a company’s responsibility beyond maximizing profits? What is the role of financial institutions?
For the past five years, students have taken the intensive, weeklong course as part of the required preterm curriculum. “We look at how to conduct business in a corrupt society, at genetic testing in the workplace, environmental justice, and Nike and the sweatshops,” Baron says.
Last February, as details about Enron’s corporate greed and collapse became public, Baron was finishing the fourth edition of his textbook, Business and Its Environment (Prentice Hall, 2003). He quickly inserted material about Enron before sending the manuscript to the printer. Baron also spent a lot of time on the phone responding to reporters. “They want to know, ‘Is everybody doing what Enron did?’ And the answer is no, of course not. And [they ask] ‘Are we changing the curriculum?’ And the answer is no, we have always done ethics, and we’ve always had it integrated into other courses.”
David Kreps, MA ’75, PhD ’75, senior associate dean for academic affairs at the Business School, concurs. “If you looked at our catalog, you’d see E200: Managerial Economics and think, ‘No ethics here,’” he notes in an online forum for alumni. “But you’d be wrong, and the fact that ethics is there and, I suspect, woven into many of our courses makes for much more effective teaching and discussion.”
Take the course Ed Lazear teaches about incentives and productivity. “It’s a numbers-oriented course, and people tend to think that’s inhuman—to think about people as numbers,” says the professor of business and Hoover Institution senior fellow. “But there are ways to structure buyouts, for example, so that both the firm and the workers benefit. The basic theme is that if you do the right thing, workers benefit more.”
Back in P235: Ethics, Brady displays a cartoon of a CFO, feet on desk. It says, “I swear that, to the best of my knowledge (which is pretty poor and may be revised in future), my company’s accounts are (more or less) accurate. I have checked this with my auditors and directors who (I pay to) agree with me.” But Brady’s parting shot is perfectly serious: “What caused the Enron collapse? Greed gone awry.”
