The Business
(A London Sunday Newspaper)
November 30, 2003

By Joe Lauria
in New York

Last week, the chief financial officer at Boeing was sacked because of corruption, 47 currency traders were arrested in a police raid on Wall Street and Citigroup joined the list of fund managers accused of defrauding millions of American investors.

After two years of corporate scandals and Wall Street fraud every day still seems to bring new revelations. Yet it appears America has grown weary of the meltdown of business ethics. The early anger has dissipated under an avalanche of bad news.

After the spectacular cases of corporate fraud began with the Enron scandal in October 2001, President Bush responded to the mounting outrage of ordinary Americans.
In a major address in March 2002, he told the nation: “Corporate America has got to understand there's a higher calling than trying to fudge the numbers, trying to slip a billion here or a billion there and hope nobody notices.”
More than 50m Americans own stocks, mostly in retirement accounts and managed funds. During the dot.com boom, many became set for life. It may have seemed too good to be true, but few were questioning how it was being done.

When the bubble burst, millions of people were ruined or their retirements were thrown into question. It was time to find someone to blame.

Some of it was simple and the general media seized on the story, stoking the fury. Corporate chieftains like Bernie Ebbers of WorldCom, John Rigas of Adelphia and Dennis Kozlowski of Tyco had raided the coffers of their public companies to finance lavish lifestyles. Martha Stewart, one of the most famous women in America, became embroiled in insider trading allegations. Though few professed to understand the machinations of Enron’s highly complex, and illegal, partnerships, the ruin of Enron employees and shareholders resonated through the media to an enraged public.

Then the war in Iraq pushed the scandals off the front pages and into the business sections. The lack of good pictures darkened the story on American television screens.

But the scandals kept coming. First Wall Street analysts were found to have falsified their reports to encourage purchases of worthless stocks. Then investment banks doled out hot initial public offerings to favoured clients to secure future business. New York Stock Exchange chairman Richard Grasso was sacked over his outrageous compensation package.

But the general news media had returned to tabloid stories of lurid murders and alleged pedophile pop stars instead of the persistent and pervasive scandals.

“It seems as if the public simply can't take much more news of corporate scandals,” Diane Swanson, a management and ethics professor at Kansas State University, told The Business. “Perhaps people are numb or in denial.”
There have been no more speeches by Bush and his democratic challenges for the White House have barely mentioned the issue.

The economic recovery and market rebound may also be blunting America’s fury. “Any upward movement in the markets will sooth people into thinking everything is OK. But everything is not OK,” said Swanson. “For instance, I have not seen the anger over executive salaries and perks that a healthy society would display.”
The latest scam in mutual funds, which has affected more Americans than any other, has not resonated the way Enron did, though it affected far fewer Americans. Dozens of big mutual funds companies have allowed choice clients to buy funds after trading hours are over, defrauding millions of investors.

“There is a huge factor of trust that has been undermined by these scandals,” said George Brenkert, a professor at the Business Ethics Institute at Georgetown University. “If there is no one to trust and if you don’t think putting your money under your pillow is the best place, what do you do with it? There is a sense of powerlessness.”

Since its Calvinist-inspired origins, America has been a land where accumulating property and wealth is almost a religious duty. The drive for profit has led to a cycle of business corruption followed by reform followed by more corruption. The Depression of 1893 was followed by the Progressive Era and the Great Depression of 1929 by the New Deal. Today reforms by Congress and the Securities and Exchange Commission in the accounting and analysts’ profession, on shareholders’ rights and at the NYSE have provided another chance to end the abuses.

“We are going to get through these scandals, we will see some progress, but in the long run we will have more scandals,” said O.C. Ferrell, professor at Colorado State University.

One reason is the next generation of American corporate and financial leaders at business schools across the country is not being properly trained to avoid ethical errors, according to business ethics professors.

“I have not heard business school deans speak out en masse on the need for better ethics education,” said Swanson. “Indeed, several business schools have downsized ethics coursework even in the wake of the corporate scandals.”
The agency that accredits business schools has refused to require students to take at least one ethics class. “We will pay for this denial as many business schools are continuing to inculcate students with bad habits of greed, selfishness and neglect of community,” Swanson said. “The next generation of corporate crooks is in the making.”