Bottom Line Ethics - Part 9

Lead Story

Harambe and Polyanna

Michael K. Shaub, July 21st, 2022

I recently wrote an essay describing my view of the impact of the accounting profession’s latest cheating scandal. My basic view is that we have proven repeatedly as a profession that we do not deserve to be self-governing, with the latest example being firm personnel cheating on CPA ethics exams. Some people in the profession who like me have been checking on my emotional health after reading that piece. Others just doubt my mental acuity and would consider my view of expecting truth-telling and honesty in the profession as being a “Polyanna” approach to our problems.

My friend Matt Morton recently spoke about the incident a few years ago involving Harambe the Gorilla (may he rest in peace) at the Cincinnati Zoo. When a little boy fell into his enclosure, Harambe decided to investigate, dragging the boy around and not heeding the zookeepers’ calls to come inside. This led to a difficult decision for the zookeepers, who shot the gorilla for fear that a tranquilizer would not work quickly enough before the boy was harmed.

After this incident, people blamed the zoo for the exhibit’s design and fencing, and the mother for losing track of her child. Some even blamed the existence of zoos. The hashtag #JusticeForHarambe circulated on the internet. But no one blamed Harambe because, in Matt Morton’s words, “That’s what gorillas do.”

This reminds me of the argument being made to explain the behavior of young professionals and students who get caught up in cheating scandals. You must expect that people are going to cheat given the opportunity because they must keep up with their peers or they are biologically inclined to do so by evolutionary responses to their environment. All we can do is put in the types of controls that will be effective in preventing and detecting it, hoping to reduce the opportunity, or even the motivation, to cheat. Telling people to be better is just spitting in the wind. Those who hold these views do not consider themselves cynical in the same way that I do not consider myself naïve. We may both be fooling ourselves.

But I have seen throughout my career, and particularly post-Sarbanes-Oxley, many students whose perspectives have been changed through an extensive consideration of their duties as CPAs, particularly in the accounting ethics course. A recent paper by Zach Kowaleski of the University of Texas and his co-authors provides evidence that financial advisors who receive more training in rules and ethics actually behave better.

In fact, I think it is silly, and an abdication of responsibility, to say that we cannot significantly influence the ethical behavior of our students or of those under us in the accounting firm. We influence studying behaviors, love for the material, and student interaction behaviors every day in the classroom. Accounting firms influence employees’ views of working late, teach them to sell better, and force feed them technical skills. Why are people’s moral views somehow unassailable by those who lead them?

There is nothing magical in moral learning that is less able to be shaped than any other type of learning. Of course, there are powerful incentives internally that cause people to cross lines, and human nature is unreliable when it comes to doing the right thing. Give a child no moral direction and see what happens.

But the claims of powerlessness in moral education and training are overstated. I have heard for many years that students are fully formed morally by the time they reach the university, and there is little that you can do about it. This has been a sort of received wisdom applied to no other area of reasoning. Despite that, numerous student organizations are designed entirely to change people’s views on a variety of moral issues—to morally educate them.

I need moral education. There are ethical issues I have not encountered yet and that I need to be prepared to navigate effectively. I need to be a better moral leader for people who come from a variety of backgrounds and viewpoints. This is not easy work. But in the accounting profession, we are used to undertaking difficult tasks without complaining, of adapting to environments without losing our north star, of overcoming obstacles, of speaking the truth even when it makes others uncomfortable.

We have a chance to preserve something important, not given over to the cynicism of the day, but battling against it by relentlessly speaking truth into society in reliable ways that require others to pay attention. It also requires not undermining our objectivity by selling out to the inevitable temptation to be a hanger-on rather than a true friend to our clients. We need to be “trusted advisors” not because we will tell them what they want to hear, but what they need to know. And the same holds true for us to be “trusted professors” who will help to preserve a profession we all love. We need to tell our students, our clients, and ourselves when we are crossing lines that harm others and undermine a society and an economy that rely on being grounded in truth.

You are not going to learn this on social media. Some will learn the principles in their families or in their faith settings. But you certainly ought to be able to learn it in the accounting classroom. And it is incumbent upon the Big 4 firms, the AICPA, and the rest of the accounting profession to make it a priority to do this before we lose our trusted role in society.

Call me Polyanna if you like. But I am not teaching Harambe in my classroom. I am teaching incredible minds capable of doing far more than settling for whatever makes them richest or most “successful,” regardless of the impact on others or on their own souls. And for as long as I am in the classroom, they are going to be treated with that level of respect.

I may not change a profession. But I am going to change some lives.

This week’s theater of the absurd features Goldman Sachs appearing before the Senate Permanent Subcommittee on Investigations. When it comes to watching these two groups face each other, the moral high ground is an anthill.

The reason CEO Lloyd Blankfein and other Goldman employees, including the silver-tongued vice-president Fabrice Tourre, will be at the witness table is because the SEC has filed civil fraud charges over the Abacus 2007-AC1 deal. Goldman marketed the Abacus synthetic collateralized debt obligations to a bond-insurance company and a German bank, and allegedly told the bank that the bond-insurance company had selected the bonds that would be tracked. Instead, Goldman allegedly allowed John Paulson’s hedge fund to have significant input regarding what bonds were included. And Paulson’s bonds were allegedly designed to be lemons that Paulson could strategically bet against, on the other side of the transaction from the bond-insurance company and the German bank. Paulson’s hedge fund made over a billion dollars on the deal; guess who lost the billion? Oops.

I used the word “allegedly” three times in the last paragraph. This is never a good sign. It means that people who seem to have trouble telling the truth are on the loose again. One person who apparently cannot get enough of telling the truth is the above mentioned Tourre, who made a series of unfortunate comments in girlfriend e-mails, including referring to himself as “Fabulous Fab” who was “… standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!” In another note he indicated that he had “…managed to sell a few Abacus bonds to widows and orphans that I ran into at the airport, apparently these Belgians love synthetic ABS CDO2!!!” He also indicated that he was “[n]ot feeling too guilty about this, the real purpose of my job is to make capital markets more efficient and ultimately provide the US consumer with more efficient ways to leverage and finance himself, so there is a humble, noble and ethical reason for my job. … amazing how good I am in convincing myself!!!” I think this is why the word “ironic” made it into the dictionary.

But Goldman has managed to hit the headlines twice, thanks to allegations that a member of their board of directors, Rajat Gupta, provided inside information about Warren Buffett’s intention to invest in Goldman in September 2008. Unfortunately, the alleged beneficiary of the information was Raj Rajaratnam, Gupta’s close friend and former business partner, and head of the very successful Galleon Group hedge fund. Or at least it was successful until Rajaratnam and others were charged in the biggest insider trading probe in decades and the fund collapsed. Mr. Gupta, the former head of consultants McKinsey & Co., has not been indicted, but he will not stand for re-election as a Goldman director. Federal prosecutors in the Galleon case apparently have phone recordings of everything but Mr. Rajaratnam brushing his teeth, including conversations with Mr. Gupta.

So CEO Blankfein gets to appear before Congress and try to explain his e-mail statement that , “Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts.” Uh huh. There are many internal e-mails discussing being on both sides of these deals. These cases are never as cut and dried as Congress wants to make it appear, and bankers are easy to demonize. And it will be helpful for Blankfein and Goldman to have Tourre to point to as a rogue employee, though this may work to Goldman’s disadvantage in the courtroom one day soon.

Apparently, Goldman Sachs is willing to provide full information. The question is whether they are providing it to people who are actually the ones who ought to get it.

Categories: Business

My fifteen-year-old son, Nathan, has taken up golf recently. This seems like a relatively healthy balance as a spring sport to complement basketball, which is his primary sport. I also know that it is a great skill to have in the business world, as most rounds of golf involve four or five hours of talking, and 20 minutes of actually hitting the ball. Many deals have been done and relationships forged on the golf course. Unfortunately, every sports headline since he took up golf has been about Tiger Woods. And then, last Sunday, things changed.

Brian Davis is not a household name. He is an outstanding golfer, which is why he plays on the PGA tour. But it would be hard to say that he has been burning it up this year out on the links. Until last week, Davis had played in nine tournaments and finished in the top 40 only once, missing four cuts. The Englishman has never won a PGA event.

On Sunday he made an 18-foot birdie putt on the final hole of the Verizon Heritage Classic to force a playoff with Jim Furyk, a veteran with 14 tour victories. On the first playoff hole, Davis’s approach shot hit the green and then caromed into a hazard. In hitting out of the hazard, he thought he saw a reed move in his backswing, a violation of the “loose impediment” rule that results in a two-stroke penalty. He was not certain, however, and called an official over to review the situation. Slow motion replays indicated movement, and the tournament was over.

I have already seen cynical blog posts saying that he had to call it on himself because there were cameras all around. I have also seen comments that the rule is stupid, and they got the rule wrong, and he won $615,000 anyway. But a golfer who respects the game makes that decision to self-report in the moment, without consulting with anybody else, and with almost no time to calculate the consequences. Unfortunately, hindsight provides steroid-level growth for cynicism.

What the world observed on Sunday was the beauty of self-regulation, something largely forgotten in business today. The accounting profession was “self-regulated” for most of my career. The SEC was there to punish egregious behavior, but for the most part CPAs punished each other and tried to root out those who were involved in unethical behavior. There were periodic scandals that led to calls for reform. But CPAs generally were seen as a restraining force reining in the worst impulses of the marketplace.

This is no longer the case. Too often, CPAs have colluded with clients or at least been fraud enablers. At the center of almost every financial scandal is the CFO, almost always a CPA—Andy Fastow of Enron, Mark Swartz of Tyco International, and Scott Sullivan of WorldCom, to name a few. They were the best and the brightest, and they did their very best to bring the profession crashing down.

But they were not real CPAs. They could not have cared less about the public interest, or people’s pension plans, or the hopes and dreams that parents had for their children. They only cared about themselves. And, as I have written elsewhere, we would have been better off without them. Because they could not control themselves, because they were not self-regulated, Congress gave the accounting profession the gift of full outside regulation in the form of Sarbanes-Oxley and the PCAOB.

What we saw in Brian Davis Sunday were the habits and the conscience of a self-regulated man. It was not an accident that he did what he did, and I am confident it was not the first time he had ever told the truth when it was difficult, and expensive, to do so. Brian Davis is a real golfer.

Not everyone is a real golfer, as my son has discovered in his first year playing tournaments. He has been a witness to rampant cheating, tournament after tournament. We are raising up new Andy Fastows on today’s high school golf courses. Kill the conscience, and you kill the habits that go with it.

And not everyone is a real CPA. Some people would rather get rich than tell the truth. There is evidence that this is true on the PGA tour, and I know that it is true in my profession. We used to be a self-regulated profession. But, then, we used to deserve it.

Categories: Athletics

Note: I actually wrote this several years ago, but the interactions on the blog, some comments in class, and a personal encounter prompted me to share it here.

I strained to hear his voice over the din of traffic a few feet behind him. But, in reality, I already knew what he was saying, because I have heard ministers of various denominations say it before. We were down to the things that have to be said when there is nothing else left to be said. While a small group looked on, we buried Michael Saturday in the last row of the cemetery.

In a high school class that included an Olympic gold medallist and number one NBA draft choice, a Miss USA, and two long-time NFL players, Michael was the only “sure thing” I knew. Admired by every girl under five-foot-five, a polished communicator at seventeen, a scholar-athlete with a ready laugh, the world unfolded before him thirty years ago. He was headed to Notre Dame to make his mark and to follow his destiny. All of us who knew him were aware that great success was inevitable.

Because this was so clear to us, we spent that last year of high school consumed with jealousy. My buddy and I made it our mission to make sure that Michael remained humble, so we began referring to him as “Marvelous Mike,” a moniker that remained in people’s memories even as we said goodbye this weekend. We devised a series of glamorous dates that could be had with Michael and advertised ourselves as “Marvelous Mike’s Dating Service.” We set as our goal to embarrass Michael in ways that would keep him within reach of our mortality.

I moved on with my life, but my buddy turned out to be Michael’s most trusted friend through the years. Each was best man in the other’s wedding, and Ed made sure to keep close ties with Michael wherever he went.

Michael had many successes and some failures as well. The scorebook is perhaps not all that important to the story. He was about to start a great opportunity when they found him in his L. A. apartment, the victim of a heart attack. I do not know the whole story of his life, and I have no need to. I sensed a trace of sadness about it that pervaded the conversations of those more intimately acquainted with the details.

In fact, I felt welcome in the conversations because the days we spent together were actually days in his life pervaded with laughter. I could remember triple dating with Michael and his twin brother in a Volkswagen beetle (what were we thinking?). I recall flying across the grounds of an elementary school in that same Bug, and winning the city soccer championship. I was a co-conspirator in a boondoggle that allowed him to go on a French club trip, even though the required “two years of French” he had taken were in first and second grade. The hardest I ever saw Michael laugh was when I accidentally won a competition on that trip, despite the fact that I had answered the multiple choice test randomly before I ever heard the questions.

In some sense that accidental success characterizes my life. Who knew that I would find Christ and my wife within a year of each other, and that both would shape the track of my entire life? I have had heartache, but the blessings I have experienced have been so overwhelming as to defy logic.

As I listened this weekend, I sensed that the same could not be said about Michael. He had surely had blessings, but his search for peace was ongoing. It turned out that success and happiness in this life are never guaranteed.

Before I left the cemetery, I made sure that I had said “I love you” to two people who should have heard it long ago. And I said an “I’m sorry” that was almost thirty years overdue.

But there was nothing left to say to Michael. I could not tell him that the only “sure things” are on the other side of death, of a hope both sure and secure. I could not tell him that trials come with a purpose, to draw us toward the only One who guarantees real success. I could not even tell him that I loved him.

As I walked away into a gray November afternoon, the only thing I could say was goodbye to a sure thing.

Categories: Friends

I have been reading a very interesting book by philosopher Daryl Koehn on thinking and acting ethically in a world of unintended consequences. She refers to unintended consequences as a “live dragon” based on J. R. R. Tolkien’s warning, “It does not do to leave a live dragon out of your calculations, if you live near him.”

And yet unintended consequences are left out of our moral calculations all the time. As an auditor, I find it humorous to watch the Congressional Budget Office trying to predict the impact of Congressional bills, most recently the health care bill. Since the CBO is constrained to use a certain set of assumptions, and since those assumptions are largely known to Congressional staff, key provisions of bills are structured so that they will pass muster under CBO provisions. But these estimates almost never represent reality, largely because they do not take into account the changes in behavior that will rationally take place once a law is implemented.

Koehn divides unintended consequences into those that are foreseeable and those that are unforeseeable. Many states that are going bankrupt are magically discovering that public employee pensions are having a huge impact on their deficits. It is not just that these pensions are generous, but that the provisions are set up so that the annuity received in retirement is based on the last few years’ average salary. Predictably, public servants are working almost impossibly high levels of overtime in their last few years, pumping their retirement payments sometimes above what their actual annual salaries were. This is a perfectly predictable unintended consequence of structuring pension plans this way.

Other consequences are not so easy to predict. Koehn gives the example of mosquito nets that were donated to Zambia to reduce the spread of malaria. Instead, villagers sowed the nets together to make large fishing nets, resulting in overfishing that will likely lead to longer-term hunger for Zambians.

When we make ethical decisions, it is tempting to think short-term, and to constrain our minds in terms of potential unintended consequences. There are several reasons for this. First, short-term consequences are the most available to us mentally; they are the easiest to picture. Second, we may actually be able to picture some short-term unintended consequences that we could include in our calculation; this is less likely to be true for long-term unintended consequences. Third, short-term calculations are the easiest to do, and they are the most likely part of the total calculation to be accurate.

I have experienced unintended consequences of my own decisions. I have sometimes made decisions for noble reasons and had a string of bad outcomes as a result. Of course, I can learn and benefit from these outcomes, but it does not necessarily follow that a well intended decision will result in good outcomes. And, in my life, that has led to disappointment.

Someone I know recently decided to leave his wife and change the course of his life dramatically. Besides the expected outcomes of a decision like that, that family’s life is raining unintended consequences, and likely will for many years to come.

I would be interested to know what you think on this issue. Have you experienced unintended consequences that have dramatically impacted your life? Is my friend responsible for all the unintended consequences resulting from his decision?

Categories: Politics, Society

A couple of weeks ago, optimistic Aggies were brimming with confidence about our basketball teams. And then it happened: the men lost 63-61 in overtime. Then the women lost 72-71. Bummer.

It was probably good for me to wait a week to write this column, because the emotions of disappointment tend to warp my perspective of what has happened in an entire process by focusing on the final outcome. I would be lying to say that I was angry after either loss; there was just a nagging sense of an opportunity missed, particularly by the women. I stepped off a plane from Nashville to see the Gonzaga score staring at me from the TV screen. It was late at night, and I still had close to two hours to drive home.

But perhaps the drive allowed me to begin processing what was going on inside. Disappointment arises because we have expectations, and we generally have expectations because we are experiencing success at some level. So disappointment is not just for the perennially downtrodden. It is a fact of life for those doing best among us. It occurs to me that there are three basic steps that I ought to take when I am disappointed.

The first is to listen. My tendency when I am disappointed is to ignore others’ explanations for what happened and to meditate on my grievances against those who disappointed me. I also have no desire to hear from those on the other side. But sometimes there is something to be learned. If you are going to read opposing fans’ blogs, you might want to skip the comments from “aggiehater” or some other aptly named participant. But as hard as it is, read the column recapping the game. Listen to at least a little critical analysis of why your candidate or cause lost an election. Ask your professor what might have gone wrong in your preparation, and then think about what you hear in response.

The second step for me is to be quiet. I sometimes listen to what people have to say, but I am quick to correct their mistaken assumptions about why I fell short of my goal. The tough thing to do is to sit still without squirming and to be willing not to respond. Being right and making clear why others are wrong seems like a fundamental right; just listen to talk radio. But if I am going to speak, it ought to be just to make sure that I understand what the other person is saying. There will be plenty of time to get things fixed if they are wrong.

Finally, I need to lower the temperature, and the best way I have found to do that is to laugh. It is so important for me to laugh on a regular basis, and the most critical time of all to do it is when the bottom is falling out. I have a friend or two with whom I can be almost completely honest. They know me well. They empathize, but they will not lie to me and tell me that I am better than I am. When I explain a disappointing situation to them, it almost always results in self-deprecating humor, with me being able to see my fallibility clearly enough to mock it. And the healing begins when I am able to laugh at myself.

So listen, be quiet, and lower the temperature. A week later you will feel perfectly comfortable saying, “Congratulations, men’s and women’s teams—we are really proud of you!”

Categories: Athletics, Texas A&M

I received a letter a while back from a not-for-profit that notified me that they were looking at borrowing against, or leveraging, the fundamental set of assets that allowed them to exist.  In other words, if they lost those assets because they could not make the payments, they would simply no longer be around.  They were doing so because of significant operating cash flow shortfalls that were systematic in nature.  In fact, they had invested in capital assets that they hoped would increase operating cash flows, and had since seen a dramatic downturn in their fortunes.

No matter what the plan given for rectifying this situation, donors are likely throwing their money down a rat hole.  From a business perspective, this not-for-profit is leveraging the assets they cannot afford to lose under any circumstances, a sign of desperation.  Of course, this happens frequently in business, because the large majority of business start-ups are bankrupt within a few years.  Sometimes it can actually save the business.  But there is the smell of death to it, and the vultures are usually circling within a short period of time.  This not-for-profit probably has few other assets to borrow against, so their behavior is understandable.  But when you have a choice, be careful what assets you leverage.

Though I largely try to avoid debt, there are some assets that it makes sense to leverage.  For example, as loyal Sienna owners, Toyota is willing to sell us a new Camry at 0% interest.  Since our cars have a combined 6,000,000 miles (approximately) on them, this is an attractive offer, especially if you are not bothered by the prospects of sudden acceleration.  Of course, this affects the price of the car, but assuming I can negotiate the price I want, it makes sense to leverage this asset.  If I can’t pay it back, they will come and take the car.  On the other hand, as my readers can readily attest, it would be financial suicide to take out a second mortgage on my house to syndicate this column.

The most important asset any of us have is reputation.  A reputation for truth-telling or dependability enables us to enjoy opportunities that would otherwise be unavailable to us.  There are times I leverage my reputation in order to recommend a student to an employer.  In most cases that is a low-risk decision, but there are a few students that require me to put some conditions in the recommendation so that I protect my reputation.  It is an asset I cannot afford to lose.

We read almost every day about people who have leveraged their reputation for short-term returns—in money, in romance, in success, or in fame.  They leverage their most precious asset, the asset that is their reason for existence, in order to acquire other assets that are not central to who they are, and that are likely to be fleeting.  And when they wake up on the due date for the debt, they have lost forever what allowed them to be who they are.

They are much like that not-for-profit who sent me the letter.  I wish only the best for that organization, and I am hopeful that they will be able to retain those core assets that define them.  But I have heard this song before, and they will not be getting a check from me.

Categories: Business

Yesterday we took our daughter on her final, final college visit, the one that cements the decision to attend the college that had your heart all along, and that seems the right fit for you. As I sat on the bench in the sunshine with my wife, waiting for Katie to emerge from a dormitory, I recognized what a crossroads these moments are. My daughter is making decisions that will affect her for the rest of her life. The stakes are higher than they used to be for her and, for the most part, the stakes will remain relatively high for the rest of her life.

Katie is a unique and wonderful girl, and I am confident that hers will be a life that greatly impacts people for good. We have been blessed to raise her for the past eighteen years, but being on campus with her reminded me how much she will need wisdom in the years ahead to make good choices. As a dad, my tendency is to protect my children and to minimize risk in their lives. As a business professor, looking around on that campus, I thought to myself, “Higher risk, higher return.”

But the truth is that every day we are making decisions that require significant wisdom and that will affect future decisions and opportunities. The decision to write this column has helped me more effectively wrestle with some of these issues rather than avoiding them. Teaching ethics helps as well. But there is nothing in life like raising children that makes me truly want to understand what it is to be wise. And it makes me want to help my daughter live wisely as well.

This search for wisdom will likely be a regular theme of this column in the months ahead. Though people disagree over what wisdom means, most people seem to recognize it when they see it. It involves, at a minimum, being teachable and listening to those with more insight than you have. It also involves developing a long-term perspective, rather than just looking at short-term pleasure or returns. In other words, there is not much wisdom in the business world nowadays.

We are susceptible to certain fallacies in thinking that short-circuit wisdom, and I will talk about some of these in the weeks ahead. One of the most common ones among college students is a sense of invulnerability that makes them believe that the crushing consequences of others’ decisions could never happen to them. Practically every day we read about middle-aged men like me or star athletes who have fallen prey to that same fallacy.

But today, as a dad, I sit here quietly praying for my daughter to be wise, and to choose well. A great adventure lies ahead of her. May she ignore the siren song that calls her to the rocks. May she have courage to live by the values she has learned and embraced. And may God’s grace blow full in the sails that call her to her destiny.

Categories: Family

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?

Categories: Business

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.

Categories: Business

“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.

Categories: Society

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