Kellogg Denies Guilt as B-Schools Evade Alumni Lapses

( New York )

By Liz Willen
March 8 (Bloomberg) -- Five months before he resigned as
chief executive officer of Enron Corp., Jeffrey Skilling was
tapped by the business school at his alma mater, Southern
Methodist University , to deliver an address in Dallas .
Skilling was in elite company. Previous speakers in the
``Management Briefing'' series included Federal Reserve Chairman
Alan Greenspan and former Chrysler Corp. Chairman Lee Iacocca. A
vice chairman at Ernst & Young LLP, David Alexander, introduced
Skilling as ``an esteemed alumni.''

Six weeks later, SMU trustees named Skilling, a 1975
graduate, to its board. He resigned without attending a meeting,
said Robert Bobo, an SMU spokesman. Skilling, 50, was indicted
last month on fraud, conspiracy and insider-trading charges
stemming from the accounting scandal that drove Enron into
bankruptcy.

The fall of Skilling, who also has a Master's in Business
Administration from Harvard Business School , and last week's
conviction of Martha Stewart on obstruction of justice charges,
come as universities face accusations that they share some of the
blame. Now that once-prominent graduates such as Enron's Andrew
Fastow and WorldCom Inc.'s Bernard Ebbers are hiring criminal
defense attorneys, the corporate scandals also have renewed a
debate on how to teach ethics in response to assertions that
schools are culpable.

``At worst, we are guilty of being active accomplices and co-
conspirators in their shoddy and criminal behavior,'' Ian
Mitroff, a professor at the University of Southern California's
Marshall School of Business, wrote in a letter he says he's
sending to U.S. business school deans and faculty.

`It's a Desert'

``It really outrages me when these schools distance
themselves,'' Mitroff said in an interview. He suggested that
deans apologize for their graduates in a joint letter to the Wall
Street Journal or a full-page ad in the New York Times.
Mitroff's anger is shared by Amitai Etzioni, the director of
the Institute for Communitarian Policy Studies at George
Washington University in Washington, who wants top administrators
to testify before Congress to describe ``what they aren't
doing.''

``Society is in need, and college presidents are one of the
few major voices we have that are nonpartisan,'' Etzioni said in
an interview. ``I haven't heard any voices. It's a desert.''
Ebbers, 62, the former WorldCom chief executive, who was
indicted last week on charges of conspiracy to commit securities
fraud, was named Alumnus of the Year at Mississippi College in
1992. He also was given an honorary doctor of laws degree from
the Baptist school in Clinton , Mississippi and once served on its
board of trustees.

`Not Guilty' Plea

Ebbers gave the college more than $45 million, allowing it
to issue bonds for unspecified capital improvements, David
Kaufman, a Mississippi-based attorney for Ebbers, said in an
interview. WorldCom deposited about $36.5 million to provide
collateral for a letter of credit Ebbers used to support the
college, according to WorldCom bankruptcy court filings.
Ebbers, who pleaded not guilty, played basketball at
Mississippi College , where he graduated in 1967 with a degree in
physical education.

Alice Smith, a college spokeswoman, said the school had no
comment.

Corporate scandals surfacing since the collapse of the
energy trader Enron led Congress to pass the Sarbanes-Oxley Act
overhauling corporate governance laws in 2002 and prompted
President George W. Bush's administration to create a white-
collar crime task force. The Justice Department said it has won
at least 250 guilty pleas or convictions in corporate fraud cases
since July 2002.

Hippocratic Oath

The Business Roundtable, representing chief executives of
U.S. corporations with a combined workforce of 10 million, in
January announced in response the creation of an institute at the
University of Virginia 's Darden Graduate School of Business
Administration that will train students and executives on ethics
and develop new teaching materials.

More ideas to improve ethics education -- ranging from a
business version of medicine's Hippocratic oath to student visits
to white-collar prisons -- are emerging from U.S. business
schools two years after scandals drove Enron and WorldCom into
bankruptcy.

Critics including Diane Swanson, an ethics professor at
Kansas State University , say schools are not going far enough.
``Business schools are complicit in the corporate scandals,
one for not educating managers in their legal and ethical
responsibilities and two, for not condemning the unethical and
illegal practices that are devastating society now,'' she said in
an interview.

Kellogg Denial

According to the Association to Advance Collegiate Schools
of Business, the dominant accreditation group, about one-third of
U.S. business schools offer a separate course on ethics.
At the Kellogg School of Management at Northwestern
University , Rich Honack, an assistant dean and the school's chief
marketing officer, said Kellogg isn't culpable for the actions of
Fastow, the former Enron chief financial officer, who got his
M.B.A. there in 1986. Fastow, 42, pleaded guilty in January to
conspiring to commit wire and securities fraud.

``Why would you blame the business schools?'' Honack said.
``We don't condemn the law schools for corrupt politicians, and
we don't blame medical schools for bad doctors.''

The school, rated the No. 1 M.B.A. program in the U.S. by
Business Week magazine four times since 1988, didn't comment on
the actions of Fastow and his wife, Lea, the former Enron
assistant treasurer, who also graduated from Kellogg in 1986 and
pleaded guilty in January to filing a false tax return.

Harvard Ethics

``It happened, we move on, most of the people who were here
then are gone,'' Honack said. ``They were in our part-time
program, downtown, while working.''

At Harvard Business School in Cambridge , Massachusetts ,
alumni upset by scandals involving fellow graduates, including
Skilling, urged Dean Kim Clark to speak out on ethics. Clark said
one result is a compulsory, graded ethics course being taught for
the first time this semester.

Harvard Professor Lynn Paine says 10 sections of 90 students
each are discussing managers' economic, ethical and legal
responsibilities to investors, employees, suppliers and the
community. They'll discuss Enron, the AIDS crisis in Africa and
safety problems.

``We hope they will become better leaders, but a lot depends
on the job they go to and the company they join,'' she said. ``No
one is so naive as to believe that taking one course will
inoculate anyone.''

Clark , in a prepared statement, said teachers feel ``sadness
and anger along with a sense of failure when one of our own goes
astray.''

`Aspire for Perfection'

``No diploma comes with a guarantee that every lesson
learned in class will be followed to the letter,'' he added,
``but in the area of integrity above all others, it is our
responsibility to aspire for perfection.'' Not all schools feel
responsible for the behavior of their graduates.

In 2001, Barnard College in New York City celebrated
Stewart, honoring the alumna and founder of Martha Stewart Living
Omnimedia Inc. at the Waldorf-Astoria Hotel.
Stewart received a standing ovation as she took the stage to
accept an award from Barnard President Judith Shapiro during a
dinner that raised $1.3 million for college financial aid
programs, according to a Barnard press release.

No Barnard Comment

Stewart, 62, was convicted Friday of lying to investigators
about her sale of ImClone Systems Inc. stock a day before federal
regulators rejected an ImClone cancer drug. Shapiro had no
comment about Stewart, according to Barnard spokeswoman Suzanne
Trimel.

At Stanford University 's School of Business , Frank
Quattrone, the former Credit Suisse First Boston technology
banker, remains on the school's Advisory Council, said Helen
Chang, a school spokeswoman.

Quattrone, 48, is to be retried next month on charges that
he obstructed federal investigations into initial public
offerings handled by his bank. His first trial ended in a hung
jury. In January, he was fined $30,000 and barred from the
securities business for a year by the National Association of
Securities Dealers for failing to cooperate with an NASD inquiry
into whether he had encouraged co-workers to destroy documents.

Beyond occasional mentions of corporate scandals in
speeches, few academic leaders are expressing outrage or offering
specific suggestions on ethics teaching, said Stuart Gilman,
president of the Ethics Resource Center , a nonpartisan group in
Washington .

`Moral Actors'

``I think universities have been silent about this because
they worry about souring the development funds from alumni by
criticizing them,'' Gilman said. ``There is a crisis now, and
where are their voices? Let's start with: `This is wrong, we need
to correct this, and this is how.'''

Douglas Bennett, the president of Earlham College , a Quaker
school in Indiana , said promoting an ethical life is a central
mission of the college, although he doesn't believe universities
bear the responsibility when a graduate goes astray. ``Each of us
are moral actors in our own right,'' he said.

Bentley College President Joseph G. Morone, who recalls the
``anger and hurt'' of Bentley alumni who lost their jobs when
Arthur Andersen LLP shut its auditing practice as the Enron
scandal unfolded, had an idea he thought would help. He asked
U.S. News & World Report, the magazine that ranks colleges, to
publicly rank business-school ethics programs.

`Ethics Coverage'

``It is our job to shine a spotlight and hold it there,''
says Morone, whose business university in Waltham, Massachusetts,
sent 302 graduates to work at Andersen over the years. U.S. News
rankings editor Brian Kelly rejected the idea as unrealistic and
said in an interview that ethics, while important, ``is not
quantifiable.''

Until last year, Kansas State 's Swanson chaired a national
campaign to mandate ethics instruction in all business schools.
The campaign failed to win approval from the accreditation
group, because deans expressed concern that a separate, required
course would create ``an ethics ghetto, where it is only handled
in one course and then done away with,'' said Carolyn Y. Woo,
head of the group and dean of the Mendoza College of Business at
the University of Notre Dame.

``We do require all schools to have ethics coverage,'' Woo
said in an interview, ``but we did not specify how it should be
taught.''

New Major

In 2002, the Aspen Institute, a nonprofit leadership
organization, surveyed 1,700 students seeking an M.B.A. Only 22
percent said their schools were doing ``a lot'' to prepare them
to manage values conflicts. About 19 percent felt they weren't
being prepared at all and 49 percent said the priorities
communicated to them at business school had contributed to recent
corporate scandals.

``There is a lot more work that needs to be done,'' said
Nancy McGaw, deputy director of Aspen 's Business and Society
Program. ``We are at the beginning of an opportunity for business
schools to change what is being taught.''

At Kellogg, a semester-long ethics course is offered. It
isn't mandatory, Honack said. The topic is addressed in all
courses and focused on for a week during orientation. He said the
school recently created a new major called BASE, an acronym for
business and its social environment, which looks at socially
responsible strategies.

Because he sees fund raising as a key element of a
university's relationship with alumni, Gilman, of the Ethics
Resource Center , wants development officers to question the
source of gifts and return or refuse to accept those from donors
who have been indicted or convicted. Drexel University in
Philadelphia has such a policy.

Kozlowski's Name

``If a major donor goes to prison, it's embarrassing, which
is why in our agreements we have a paragraph saying we'll remove
their name if a circumstance brings embarrassment to the
school,'' said Drexel President Constantine Papadakis.
Trustees of Seton Hall, a Catholic university in South
Orange , New Jersey , voted last year to remove Robert E. Brennan's
name from a campus recreation center after the former owner of
First Jersey Securities Inc. was convicted of money laundering.
Brennan's donations weren't returned.

The school still has a campus center named after former Tyco
International Ltd. CEO L. Dennis Kozlowski, who is accused of
misappropriating Tyco funds. Seton Hall also has a library named
for former Tyco board member Frank E. Walsh Jr., who resigned as
chairman of the school's board of regents after pleading guilty
to a felony charge of securities fraud in December 2002.

Swanson said that while most business schools accept major
donations from corporations, those same companies want schools to
teach ethics.

Academic Integrity

``Leaders are concerned that students get a robust education
in ethics to preserve the health of our financial system,'' she
said. ``A well-informed dean will be able to align donor
interests with sound academic goals, including the need for
ethics education.''

Bentley's Morone says the aftermath of the Enron scandal, in
which the company is accused of creating fraudulent off-the-books
partnerships, hit home, and as a result he is trying to convey to
students ``that ethics is about the choices you make every day,
not just about these high-profile cases about celebrity CEOs.''

He has banned the downloading and sharing of pirated music
files on campus. Bentley, with 1,300 graduate students, also is
conducting a campus survey about academic integrity and how to
deal with cheating.

`Ethical Dilemma'

Tom Campbell, the dean of the Haas School of Business at the
University of California at Berkeley, invites white-collar felons
to lecture. At Stanford University 's School of Business , the
faculty created three different case studies on Enron, and a new
course taught by the school's chapel dean centers on faith-based
approaches to ethical values.

Taking M.B.A. students to speak with imprisoned white-collar
criminals is a potent deterrent, said Stephen Loeb, a professor
at Maryland 's Robert H. Smith School of Business.
``When they are in an ethical dilemma, they'll make the
right choice,'' Loeb said. ``It stays with them down the line.''
Leigh Hafrey, who teaches ethics at Massachusetts Institute
of Technology, is pushing for a mandatory Hippocratic oath for
business graduates, an idea Shenkiat Lim, a 26-year-old M.B.A.
candidate, endorses.

``I think there is value in people publicly committing to a
set of principles, but it has to be voluntary,'' Lim said.

Laura Hartman, a professor of business ethics at DePaul
University in Chicago , said fear of seeing their graduates in the
headlines should move business schools to teach ethics. She says
she worries that whatever lessons she teaches won't go far
enough.

``I strive to touch every student who sits in front of me
and spend most of my life depressed because I can't,'' Hartman
said.

--Editors: Rosen, Horvitz, Swardson, Kraus, Rosen.

Story illustration: For the Bentley College Web site, click
http://www.bentley.edu.

To contact the reporter on this story:
Liz Willen in New York (1) (212) 318-2658 or
ewillen@bloomberg.net.

To contact the editor of this story:
Richard Rosen in New York (1) (212) 318-2034 or
rrosen1@bloomberg.net.