CEBC IN THE NEWS

Urgent: Business Ethics

Published Wednesday, December 19, 2001 in the Pioneer Press.

By Dave Beal, Columnist

Enron, rapidly emerging as one of the world's largest companies as the year began, collapsed almost overnight. Scores of investigators are sifting through the rubble to fix the blame.

Credit Suisse First Boston agreed to pay $100 million to resolve a sweeping federal probe into alleged abuses in the distribution of shares in initial public offerings of stock.

Many companies, auditors, analysts and related parties have been facing more scrutiny for questionable practices.

It's enough, it would seem, for the public to expect more emphasis on ethical standards and values from the top leaders of corporate America -- including the deans of the country's most prominent business schools. The rookie among these deans is Lawrence Benveniste, who six days ago was named to the post at the University of Minnesota's Carlson School of Management.

School backers selected him from a pool of 60 candidates, moving quickly because he had become a finalist for the dean's post at the University of Wisconsin. He faces a huge list of challenges to strengthen the Carlson School and still keep its many constituencies happy.

Thus it might not come naturally for him to find the time or inclination to focus on ethical issues. Still, he's been learning fast.

The only board he serves on is the Center for Ethical Business Cultures, the Minnesota business-backed entity most consumed with matters of business ethics. So far, he's made every meeting.

He's also been playing a pivotal role in establishing a multiyear series of conferences on business ethics.

Norman Bowie, who holds the school's business ethics chair, says Benveniste's commitment to the topic runs counter to the situation at many other business schools.

""Here's a paradox,'' says Bowie. In a time when so many business leaders say they want to stress ethics, some business schools are cutting back on various ethics-related programs. Among them: Villanova University and Georgetown University.

Bowie says the situation helped lead the Academy of Management to launch a survey to define the scope of the cutbacks.

When the Carlson School and the university's College of Liberal Arts established Bowie's chair in 1989, only a handful of such positions existed. One of them was the ethics chair at the University of St. Thomas, held by Kenneth Goodpaster.

Even today, it wouldn't take much more than a large phone booth to host a convention of all of the full-time business ethics professors.

Some schools added ethics chairs in the early 1990s, but almost none in the last four years, Bowie says. All the while, business schools across the country poured hundreds of millions of dollars into glitzy new buildings and faculty buildups.

Many MBA students think ethics courses won't help them get jobs. Many business school professors walk down research paths where they seldom encounter questions about values.

Benveniste, who holds the U.S. Bancorp chair at the Carlson School, has gone far down those paths. Financial credit evaluations, pricing and predicting default risks in commercial mortgages and studies of initial public offerings -- IPOs -- have been his principal research areas.

Like many business school professors, the word ""ethics'' is nowhere on his resume.

His studies of IPOs uncovered a critical link between the initial price of a stock and how the shares of such offerings are allocated to investors.

He found that when potential investors hear pitches to buy promising stocks from companies going public, they face a fundamental conflict. They want to show interest in buying the stock, so they can get a larger allocation. Yet if they show too much interest, underwriters might boost the initial offering price they must pay for the stock.

This year, investors' disenchantments with the crashes of scores of IPOs from technology companies have led to much criticism of the investment banking firms. Critics concerned about ethical lapses or outright illegalities have called for new regulations or laws that could sharply curb the capacity of underwriters to allocate shares of IPOs.

Benveniste, a strong backer of free markets, worries that the rush to point fingers at wrongdoers could in some cases lead to damaging regulations. He argues that the U.S. system of initial public offerings, which provides great incentives for innovation, gives the country a tremendous competitive edge over the rest of the world.

But he is also warming to ethics issues.

Benveniste and liberal arts dean Steve Rosenstone helped to find more than $250,000 for Bowie and the ethics center to launch the ethics conferences. Bowie says the first, set for four days in 2003, will explore how executives can raise concerns within a company about ethical questions.

Later meetings could deal with accounting lapses, IPO irregularities and issues raised by the Enron implosion.

""Values and ethics are important, "' says Benveniste. In fact, he adds, ""They're critical.''

© Copyright 2001 Pioneer Press. All rights reserved.

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