Bottom Line Ethics

If you wake up as Alan Mulally, it’s not as good as waking up as Warren Buffett, but nowadays it has to feel pretty close to it. Ford’s CEO and Automobile magazine’s 2010 Man of the Year, Mulally has shown himself to be a skilled leader, both at Boeing and at Ford. But even he knows it could have turned out very differently.

In November of 2008, he was being treated contemptuously by Congress and the media, along with Bob Nardelli of Chrysler (one of the all-time bad CEOs and worth a column of his own) and Rick Waggoner of GM, for his pay package. In the end, he really did not apologize for his salary and perks, and as is often the case, it turned out he was worth what he was making.

Mulally’s job was not an easy one. He took over his role from Bill Ford, who walked out the door scratching his head at what was apparently unsolvable slippage in the company’s fortunes. He cleaned house to the extent necessary and focused on cars the public wanted, including hybrids. He even seems to be succeeding with bringing back the Taurus. (Note: I have often told my students that the two great evils on earth are Enron and the 1995 Ford Taurus Wagon.)

But the most important thing Mulally did in his time of crisis was to state his values, and Ford’s, clearly. No bankruptcy. No bailout. We will do it ourselves, whatever it takes. Then he went out and got the financing to turn the boat. Now Ford has passed GM in unit sales. This may only be temporary, but it is psychologically empowering for his company, at the very least.

There is a moral component in these statements of self-sufficiency that resonates with the American people. They do not like sycophants like GM who take bailout money, and they do not root for incompetents like Chrysler’s Nardelli. They love to support folks who stand on their own. And they are not very fond of ethical calculators who put a price on human life. Ford learned that lesson long ago with the Pinto’s exploding gas tanks.

Not all the waters will be smooth for Alan Mulally in the days ahead. But it is entirely possible that Ford’s clearly stated values will help them solidify their gains and compete at a new level, particularly in the United States.

This is a lesson for all of us, and one I am taking to heart as I begin my Ethics class again in a few weeks. What I am interested in hearing from readers in the response area below is this: In 50 words or less, what values drive you?

Well, there goes my political career. A statement like, “Fraud is not a bad thing,” can follow you around like Gordon Gekko’s, “Greed, for lack of a better word, is good.” But as someone who prepares auditors to prevent and detect fraud, I want to make a case for why I believe fraud is a symptom of something good.

Fraud does not happen in a vacuum. Fraud can only take place when there is trust between parties, since fraud involves the intent to deceive. You cannot readily deceive someone who does not trust you. But trust is necessary for personal relationships and business relationships.

Divorce and infidelity happen, too. Infidelity involves a kind of fraud, but it is largely able to happen because spouses trust one another. If they had detectives monitoring each other 24 hours a day, it would be expensive, but you would have a lot less infidelity. There would also be a lot fewer people getting married. Divorce is not a good thing, but it is an inevitable by-product of a good thing, the long-term commitment of a trust relationship called marriage.

What has happened in the American economic marketplace has led to an environment that is exceptionally low in trust. If you want to avoid infidelity, don’t get married. If you want to avoid fraudulent loans, don’t lend money at all. The government pumped money into banks and banks would not lend it out. People were infuriated. But banks had just been excoriated for making all kinds of liar loans in a real estate bubble, and doing so had endangered their capital levels. Why start dating again so soon when you have been burned?

The market was well lubricated with trust (and had a few bad incentives mixed in), and that provided a significant opportunity for fraud. Long-term economic success will do that. But in addition to high levels of trust, people were involved in transactions they didn’t understand, like derivatives and mortgage-backed securities. When people trust and they are poorly informed about something, there is frequently someone willing to take advantage of them.

Trust is the lubricant for markets. It can only be maintained when there is a habit of truth-telling in a market, whether that market is for love or money. If everyone is lying, immense resources are consumed verifying the truth from outside sources. And when lying is revealed in the form of fraud, it takes a while to recover.

Of course, banks could do a much better job verifying income, and in some cases verifying it at all. And people could do a lot better job verifying the character of the people they marry before they marry them.

Fraud does not make me feel good, and neither does divorce. But both of them signal something positive, the existence of a trusting atmosphere based on the goodwill that derives from a habit of truth-telling. And if you don’t interfere and turn either markets or marriage into a police state, you can be pretty sure that, given freedom, people’s desire for love and money will insure healthy markets for both.

Fraud is not a good thing. But as a guy who has studied it for a long time, I have to say that, much like marriage, the risk of trusting is worth the return.

“Before destruction the heart of man is haughty, but humility goes before honor.” This proverb often comes to mind for me, usually when I am being mocked by some UT fan or other person reminding me they are superior to me, as are their teams. When I am in despair over being inferior, I wish deeply that this proverb would come true, and in a hurry. But my focus on the “destruction” half prevents me from taking advantage of what the second half of the proverb provides: the road to honor.

This proverb is a way of life in the political arena. One party gains power, forgets Jefferson’s assertion that governments “deriv[e] their just powers from the consent of the governed,” and does what it pleases. The American people toss that party out on its ear, and then the other party takes its turn and does the same thing

So let me speak out on behalf of those who do the wrong thing, recognize it, and change their ways. They do not call press conferences to give constant updates on how they are changing. In fact, they avoid both public self-flagellation and public self-praise. Nothing made me more comfortable about Tiger Woods than that he disappeared from public view. It is not important to me what he is doing or where he is doing it. None of us need updates on this. I am quite confident that what he is going through right now is sufficiently humbling for him to be on the path to honor. I have no idea whether he will do it, but I root for him to find that path and stick to it. My concern is that carefully orchestrated press conferences do not normally reflect humility.

But I recognize in my own life that when I experience success, I am most subject to becoming haughty, to turning down the road to destruction. People around here so desperately want to beat UT at everything, to prove that we are better. But it is that process of becoming better that is the sweetest part of life. At A&M we strive and work and toil to be recognized for what we clearly see ourselves to be.

I work with the greatest group of colleagues I have ever had the privilege to call friends. These people have amazing gifts and use them to benefit students. But I hope we never lose the sense that we have to prove ourselves every day to be just as good—to be better!—than those folks over in Austin. And I hope that we can laugh at ourselves for becoming so fixated in comparing ourselves to others.

I grew up in Baltimore, a town that has a history of working class sports heroes. For me, and for most Baltimore fans my age, that list is really three people long: Johnny Unitas, Brooks Robinson, and Cal Ripken. We have loved other players—Frank Robinson, Boog Powell, and Raymond Berry to name three—but if we had to pick three, the first three would get overwhelming support.

What Unitas, Robinson, and Ripken have in common is that they overachieved through hard work, and they never considered themselves bigger than the team. Unitas is at the top of most lists of the best quarterback of all time, Robinson at least in the top three of all third basemen. Ripken holds a record that will never be broken.

But they are identified with the city as much as they are with their achievements. They represent the folks who scrapped and saved the money to be able to go to the stadium to cheer them on. Except perhaps for Ripken, they hung on too long, but no one resented them for doing so. The fans did not want to let them go, any more than they wanted to leave. For more than four decades, fathers pointed to them and told their sons, “Be like him.”

They faded into the sunset, but they did not experience destruction from their fame. They resisted the siren call that said that they were better than the great unwashed, and they embraced, with humility, the gifts that they had been given. Recalling people like them is why each sport established a Hall of Fame. Humility went before honor.

I am thankful to have had them in my life, and I call on their example as I seek to live wisely in a business school environment. In business, as we all know, the lure of fame and fortune is a strong one, and it changes people. The same is true in academe. It can make people haughty, especially if they teach at, or graduate from, a great university.

I can only hope that my students will never forget the proverb that began this column. And I pray the same will be true of their professor.

John Edwards. Ouch. Just the name makes me flinch. Having just written about Mark McGwire’s shortcomings in apologizing, John Edwards reappeared in the headlines. If you’re a professor, there’s nothing like an immediate opportunity to apply a theory!

In my last piece, I indicated that an apology for integrity issues should (1) avoid progressive revelation, (2) acknowledge the reason for the timing of the confession, (3) show visible evidence of a changed heart, (4) not attack those who raised the issues, and (5) embrace the consequences in a way that will prevent you from making a similar mistake. Doing this, of course, assumes that the apologizer is interested in a changed character.

John Edwards’s painful statement about his two-year-old daughter is an object lesson in how allowing progressive revelation can swamp the positive effects of taking any of the other steps. Stage one for Edwards was denying his affair with Rielle Hunter, referring to it as “tabloid trash.” Stage two was denying paternity of her child, stating that it was “not possible . . . because of the timing of events.” At the same time Edwards was, according to former aide Andrew Young, convincing Young to assume public responsibility for fathering the child. The final stage was his recent admission that he has been secretly supporting the child because he is, indeed, the father. We can safely say that John Edwards has done about as bad a job as any public figure in the last decade of providing progressive revelation of his culpability.

Second, he has not acknowledged the reason for revealing the information now, though most observers expect that the imminent release of Mr. Young’s tell-all book is what motivated Mr. Edwards’s written statement. In fact, personal advisor Harrison Hickman denied to NBC News that the book’s release motivated Edwards’s statement.

Having failed to follow my first two suggestions, it appears that people are not paying much attention to the final three. Despite his admissions, it is hard to show visible evidence of a changed heart when you are invisible to the public. He is not attacking those who raised the issues, but he has in the past. Actually he is, in a sense, embracing the consequences of his actions; perhaps most people believe this behavior could happen again, even if he is assuming responsibility for his child.

I recognize that it is hard to expect an attorney like John Edwards to follow my advice, when doing so might cause him to sacrifice legal protections. But the cost of his reticence is a jaded public’s resignation that they will always receive hollow apologies from those who betray their trust.

With Mark McGwire apologizing for his steroid use recently, I thought it would be appropriate to address the subject of saying “I’m sorry.” Years ago I expressed my view that a major gap in the implosion of Andersen after Enron was that they had never actually apologized. So kudos to Mark McGwire for coming out and saying he actually did it, albeit at least four, and perhaps ten, years too late.

However, his explanation seems a little less than forthcoming, in that he characterizes his use as only designed to maintain his health. It reminds me of the explanation offered by his companion both in the 1998 record home run chase and at the Congressional hearings, Sammy Sosa. In 2003, when there were already whispers about steroid use, Sosa’s bat cracked unexpectedly in a game and was discovered by the umpires to be corked. Caught with irrefutable evidence about his cheating to gain an advantage, he referred to it as a “mental mistake.”

As I said in an article at the time, mental mistakes do not bring into question integrity, but competence. In baseball that might include throwing to the wrong base or forgetting how many outs there are. But the questions with Sosa’s actions, and McGwire’s, are all about integrity.

The apology for issues of integrity is entirely different from the apology for issues of competence. I will sometimes have students apologize to me for their performance on an exam. I respect these apologies, but for the most part they are unnecessary, unless they are used by students to motivate themselves to give a better effort in preparing for the next exam. However, if a student apologizes for an issue of integrity in my class, it matters how that apology is expressed.

I have on many occasions apologized to my wife for my incompetence—in home repairs, car repairs, investments, you name it. Acknowledging my failure is usually more than sufficient to satisfy my wife, and often she does not even require that. I am guessing that for Tiger Woods simply saying, “Hey, I’m sorry, I messed up” was not sufficient.

So what should an apology look like for issues of integrity? My first piece of advice is to avoid, if at all possible, progressive revelation. McGwire’s confession to Bob Costas appears to be the kind of halfhearted trickle of information that often leads to a feeding frenzy as other reporters build a case for there being more to the story. And there are always the Jose Cansecos of the world around to fill in the details.

Second, the reason for the eventual confession ought to be acknowledged. These confessions are virtually always delayed until after some event that triggers the need to say something. In McGwire’s case, he not only received fewer Hall of Fame votes this year than Tim Raines, but he has been hired as the hitting coach for the St. Louis Cardinals, who are unlikely to be happy if he is a spring training sideshow. If these are not the reasons, why did he wait until now to apologize? These apologies ought to be prefaced with a simple acknowledgement that the time was right for specific reasons.

Third, there ought to be visible evidence of a changed heart. By this, I am not referring to the crocodile tears that seem prevalent when revelations are made. But when people get the sense that the confessor would do it all over again, given the chance, there is no hope of repairing a reputation. Even Pete Rose’s strongest supporters for entry into the Baseball Hall of Fame would be unwilling to bet their fortunes that, given the same set of circumstances, he would avoid the kinds of gambling he engaged in.

Fourth, there can be no residual attacks on those who have raised the issues. This has to be especially hard for people like McGwire, who is faced with continuing assertions that he was injected with steroids by Jose Canseco, one of the most unlikable truth-tellers in modern sports history. Of course, this attacking behavior is often part of the legal defense team’s strategy if there are still issues being addressed in court. But when you are apologizing for integrity failures, no one wants to hear you blame others.

And, as hard as it is, embrace the consequences of your action in a way that will lessen the chance that you make that choice again. My son’s first hero, when he was a five-year-old baseball player on the Rookie Cardinals, was “Mark-uh McGwire.” We have a picture together in our uniform shirts taken from the back, like the old Maris and Mantle pictures, and he wears that number 25 so proudly.

Today, he only winces when I mention the name McGwire. Mark McGwire will never see that, just as CEOs like Ken Lay and Dennis Kozlowski are often insulated from the betrayal of trust felt by investors and employees. But coming face-to-face with the consequences of a trust betrayal is often the most powerful deterrent to repeating the behavior.

Life is always better if you can avoid integrity failures, but it is relatively certain that most of us, from time to time, are going to fall short and need to say, “I’m sorry.” Being up front about what we have done and communicating a genuine rejection of the values that led us to fail are important. Leave the opinions about others’ culpability to others. And, as painful as it is, face up to the impact. It is the shortest route to refining character.

I was sitting in Starbucks this morning, the day after Lane Kiffin announced that he was leaving after one year at Tennessee to become head football coach at USC. Just as I began to write this piece, Texas A&M women’s basketball coach Gary Blair walked through the front door. I do not know Coach Blair, but I was prompted to walk up to him and shake his hand to say thanks for what he brings to the table here. He is a fantastic recruiter, and there is no question that he is a salesman. But he has brought a stability and an integrity to the women’s basketball program that makes it easy to be a fan.

As I chatted with him, he mentioned that we are all struggling with ethical issues in our own lives, and that he had brought up a number of examples at a Lions Club speech the day before. I agree. But there is something deep in a person’s character that leads to a pattern of behavior. Certainly we all fall short of what we want to be. And a single failure can have disproportionate results in our lives. But it seems worthwhile to seek out the kinds of relationships that will give us the ability to live consistently, to make good choices as frequently as possible. And, as a society, it is worth our while to have the kinds of values that reward those who live this kind of life.

But, to be honest, we value far too many vacuous things as a society. Which brings me back to Lane Kiffin. The love of sports is deeply ingrained in me. But in so many ways, sports, particularly big-time intercollegiate sports, has abandoned virtue for success. And it results in fans and alumni who reward people like Lane Kiffin.

One of my favorite C. S. Lewis quotes about the importance of teaching virtue comes from The Abolition of Man: “We make men without chests and expect of them virtue and enterprise. We laugh at honour and are shocked to find traitors in our midst.” This must be the feeling in Knoxville this morning. One minute you are mocking Urban Meyer and Florida and thumbing your nose at the NCAA, and the next minute the head mocker is headed for Southern California. But these are chances to look inward at what we have become as fans.

I am no more a fan of the somber grinders like Alabama’s Nick Saban than I am of the Lane Kiffins of the world. His is another example of rewarding success, and success alone. Does anyone look like he’s enjoying what he does less than Nick Saban? His Gatorade dousing after the national championship game was perhaps the most painful celebration event I have ever witnessed. He seemed as likely to punch his players as to embrace them. I respect the fact that he did neither. But I cannot imagine having my son play for someone so humorless, so consumed by his work that he can’t even publicly enjoy reaching the pinnacle most coaches can only dream of achieving.

I am trying to teach my children, and my students, to embrace the types of values that make them the parents, spouses, and friends that can sustain a civil society in the next generation. Sports gives me a regular chance to examine my own heart, whether I am having a running conversation with a referee at a basketball game or critically evaluating my children’s performance. I do not claim to have the right balance. Competition reveals character more than it creates it.

But when I see the good in sports, I want to make sure that I say something publicly. Gary Blair, the consummate salesman, offered me tickets for the game tonight. I turned them down—this time. For once, all I wanted to say was, “Thank you.”