The Catholic University of America

Stephen Goldman, distinguished lecturer, law, participated in a Q-and-A article about workplace ethics for the Forbes Web site on July 4. He is the author of a new book titled Temptations in the Office: Ethical Choices and Legal Obligations. See his comments in the article below.



Corporate Governance
Triumph Over Temptation

From: Forbes.com
Date: July 4, 2008
Author: Matthew Kirdahy

By looking at the business headlines that splash newspaper pages and Web sites, it would seem that corporate America's moral compass is either pointed in the wrong direction or just plain broken.

Author and law professor Stephen M. Goldman isn't promising to rid the nation, or your office, of crooked business leaders, but he might be able to fix their compass with his book, Temptations in the Office: Ethical Choices and Legal Obligations.

Goldman, a professor at the Catholic University of America School of Law, explores the sinful behavior of the modern manager and outlines what must be done to dilute the power-hungry and greedy executives from the workplace. The ethically challenged aren't specific to one industry, and Goldman shows how they have made their mark in history.

Enron is the "poster child," he told Forbes.com, also citing examples such as the recently resolved options backdating scandal at UnitedHealth. "I think that there's a problem in any organization [in which] people at the top somehow think that they're immune from the rules," said Goldman, a corporate litigator and Oxford University-trained philosopher.

The author also illustrates principles and guidelines for battling even the most common workplace quandaries such as sexual harassment, discrimination and questionable accounting practices. The latter is the impetus for the Sarbanes-Oxley Act of 2002, which Goldman said will never be tough enough. Policing in the corporate arena should start with the board. If done right, directors will be in the CEOs' pocket no more.

Goldman spoke with Forbes.com about the incentives for the modern businessperson to be dishonest and the evolution of temptation in the office--how it seems the scale has tipped more toward greed and power than sex.

Forbes.com: In recent history, what was the most expensive ethical decision by a manager or leader that cost either monetary or human capital?

Stephen M. Goldman: If I name just one thing, I'd have to say Enron. But I'd really like to say out-of-control manipulation of conflicts of interest by people at the top of organizations ? I just saw that UnitedHealth has settled a class action for about $900 million [which I discuss in the book]. Executives manipulated reporting so that the stock price would be favorable when their stock options vested. It's contrary to why 20 years ago stock options became such a great idea.

When you talk about developing top-down communications, it always seems that it's the guys at the top getting in trouble. How do you work around that and fix it?

I think that there's a problem in any organization in which people at the top somehow think that they're immune from the rules. Lord [Baron] Atkin, the great British historian from a century ago, said, 'Power corrupts, and absolute power corrupts absolutely.' Some people at the top just think that they're [invincible].

The other problem is that boards of directors have been way too compliant in allowing CEOs to get away with stuff. I often wondered how Bernie Ebbers [co-founder and former CEO of WorldCom] managed to talk the board of WorldCom into those loans. The figures vary, but it's either $200 million or $400 million. How did he talk them into it? He was obviously a heck of a salesman.

Boards of directors sometimes function not as the ultimate government of the corporation, which they're supposed to [be], but as the hand tools of the CEOs.

What do you think about the separation or adjoining of CEO/chairman roles? Is it a problem if it's a shared role?

I don't know if I can make a general statement because so much depends on personal interactions and personal power relationships. You can separate roles on an organizational chart, but if the guy who is the CEO has the chairman in his or her pocket, it doesn't make a difference.

Is this a more ethically responsible America than ever before? What's different?

With respect to which things have changed most dramatically in a favorable direction, I'd say sexual harassment and racial disparagement.

Despite laws on the books since 1963, the average pay of women is 80% the average pay of men. How can that be? But still, I think [things] have improved dramatically. You can't deny a job to somebody simply because he's African-American. You do see women CEOs and [in high positions] at companies, which you never did before. That's really a positive change.

In the area of financial abuses, [which are always going to happen], I think that tends to go in cycles. I didn't call the book "temptations" for no good reason. We had [a pro business-dominated ideology] in the late 19th century, and we've got it now. People say free enterprise drives up national wealth and promotes freedom. Then, when there's a pro-business environment and regulation tends to soften, the people without the moral compass take advantage of the situation, and there's a reaction against it.

Of course, the reaction in the gilded age was what Teddy Roosevelt and Woodrow Wilson did. Then there was the 1920s. The roar was the roar of cash registers, as I say in the book. There was a depression involved, but there was a really strong anti-business aspect of the Roosevelt administrations, including some reforms that nobody even on the far right wants to change now.

Was the Sarbanes-Oxley Act of 2002 tough enough?

Sarbanes-Oxley was a very weak reaction to the Enron scandal. Sarbanes-Oxley is not anywhere near as important a reaction to Enron as, say, the Securities Act of 1933 and the Securities Exchange Act of 1934 from the securities manipulations of the 1920s.

Sarbanes-Oxley didn't make fundamental changes in the way business was conducted. It said that certain things that the bad guys at Enron and WorldCom had done, you couldn't do again. So you couldn't get loans from the board of directors, and the CEO has to certify financial statements, etc. I don't think that Sarbanes Oxley made a major change in the regulation of American business.

I think if we're going to have real effective control of corporate malfeasance, it's going to have to come within the private sector.

You mention the incentives to lie, such as stock options and bonuses. These are otherwise positive things. Are you suggesting we eliminate them?

No. You couldn't eliminate incentive compensation. Management needs to say to the staff, 'Here's where we want to go with the company.' I totally agree with Jack Welch saying, 'If you want people to do something, show them the money if they get there.' The problem is that if the corporate culture isn't really charged positively in an ethical way, there will be the incentive to try to get away with things.

We know some of the companies that didn't get away with it. They're the ones who are on the evening news. But we don't know about the companies that did get away with it, obviously.

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