… UD was entering a blue line train at Foggy Bottom, and a woman with lots of luggage sat down next to her. The woman apologized for taking up so much room with the luggage, and UD commiserated. “No fun dragging lots of stuff from one car to another.”
The woman explained that she commuted twice a week to a lectureship at GW University’s school of business. “I teach a class in business ethics.”
Readers of the UD category Beware the B-School Boys know that UD has what to say about that.
In her shy, tongue-tied way, UD took advantage of the three minutes they had before they went their separate ways at Metro Center to tell this woman all about her area of specialization.
The woman was a good sport, and she came right back with a defense of the enterprise, and UD came back from the defense, etc., etc.
I swear it was all very amiable, with the woman (they exchanged names on the platform, but if you think UD remembers swiftly exchanged names on noisy platforms, you don’t know UD) insisting that “in the long run” unethical behavior destroys shareholder value, and UD insisting that short-term profit seems to suit a lot of people perfectly well, thank you, and that for instance insider trading – both unethical and illegal – seems absolutely rampant — you might say even structural to the economy — and even after the feds finally drag in Steven Cohen it will continue to be a practice many business people defend and engage in…
UD‘s hastily attempted point (swaying train, unsteady luggage, crush of commuters) was that business schools are hopelessly up against a humongous cognitive dissonance between moral scrupulousness and the nature of competitive financial markets. She was not saying, she yet more hastily hastened, that free marketeering was the work of the devil. She merely pointed out that mild to extreme cheating was endemic to the project, and the business school that fails to take this into serious account runs the risk of having its ethics component be a laughingstock.
You see, the rhetoric of university business ethics courses always looks like this. This Globe and Mail article begins, as most on the subject do, with the rampant reality:
Over the past decade, a succession of high-profile corporate crimes has spurred business schools, globally, to infuse business ethics and leadership into course content.
Not just the last decade, of course; corporate misbehavior and crime has been massive for decades. And business schools have been offering tons of ethics courses through all of those decades. But, you know, check out this category, Beware the B-School Boys. Just read the latest entry in it, about the dean of Columbia University’s business school.
Anyway, the Globe and Mail story goes on to announce that this new guy is really going to turn things around at Ryerson University…
Yet the language he offers his interviewer is dead jargon city. Leadership is a process, not a position… Let’s talk codes of conduct…
Faithful UD readers know what she proposes. Toss the courses. Initiate a lecture series featuring business cheats who got caught. These guys are often articulate, charismatic… Incentivize them by taking a bit of time off of their sentences for each speech.
… how to do business.
If you want to make big money – say $1200 an hour – you can’t be too scrupulous about how you do research, and you can’t be too scrupulous about your clients.
As Matt Taibbi points out, Hubbard took $1200 an hour from the now-notorious Countrywide Financial Corp. to be an expert witness on their behalf in an insurer’s lawsuit against them.
… Hubbard testified on behalf of Countrywide in the MBIA suit. He conducted an “analysis” that essentially concluded that Countrywide’s loans weren’t any worse than the loans produced by other mortgage originators, and that therefore the monstrous losses that investors in those loans suffered were due to other factors related to the economic crisis – and not caused by the serial misrepresentations and fraud in Countrywide’s underwriting.
In other words, the Dean of the Columbia University business school testified that the fact that Countrywide claimed to have conducted thorough due diligence when in fact it was pressuring underwriters to approve 60 to 70 mortgage applications a day and failing to verify any income levels or other key information (to say nothing of the outright falsification of such data, which also went on on a mass scale) – he testified that these issues were irrelevant.
For that amount of money, you’d expect scrupulous research techniques.
Not.
So how did Hubbard manage to analyze Countrywide and conclude that mass fraud in its underwriting procedures wasn’t problematic? Easy: He didn’t look at the underwriting! All Hubbard did was take a group of Countrywide loans and compare them to a group of other loans from the same time period.
When that comparison revealed that Countrywide’s loans failed at about the same rate as the non-Countrywide loans, he smartly concluded that fraud wasn’t the problem and that macroeconomic factors must have been the cause.
Except for one thing: He left out the fact that about half of the loans in the “non-Countrywide” pool he selected for his analysis were originated by companies that were also being sued for underwriting fraud and other irregularities. What Hubbard did is compare a bunch of bad loans to a bunch of bad loans.
Taibbi concludes:
[T]his awesome ability to non-absorb information makes him qualified to be one of America’s leading academics.
The Wharton School of Business. UD has lost count of how many graduates, just this year, have been indicted for incredibly high-level fraud.
[Craig] Toll … [is] charged with defrauding … investors out of $40 million, and scamming the federal government out of … $10 million [he was] given to help finance construction of a Haitian factory to build homes for hurricane victims.
Toll, 64, is a graduate of the University of Pennsylvania’s Wharton School of Business.
… [He is charged with] 23 counts of fraud and money laundering
Do you suppose anyone at Wharton notices how many of their graduates are criminals, or are under indictment? Or are, like Brown University’s highest-profile trustee, getting buzzed by the SEC an awful lot?
Hell, maybe Wharton’s proud of it. You have to figure there are tons more graduates out there successfully defrauding people.
See now here’s a whole article about how exceptionally morally reflective Mathew Martoma was in college and graduate school.
One of his friends calls him “very smart and ethical,” and wonders: “Did the situation and SAC push him over the edge?”
Brown University’s highest-profile trustee, Steven Cohen, does run a strikingly … aggressive hedge fund, but if you allow people to blame Martoma’s insider trading indictment (he’s accused of the most lucrative insider trading in history) on his environment, you’re allowing them to blame the bad behavior of everyone (and everyone here means everyone from a less wonderful, less gloriously privileged environment than Martoma’s, which is to say everyone) on their environment. If you blame Martoma’s downfall on the misfortune of his having been hired by the most powerful, prestigious hedge fund in the world, I mean boooohoooo. Fuggedaboutit.
This guy isn’t your average impressionable morally middling guy. He’s described by lots of people as keenly knowledgeable and sensitive in the moral realm. There’s Dr. Rieux over there risking his life every day to save Oran from the plague, presiding stoically at the bedside of a child dying in appalling agony; and here’s Martoma bringing to that novel acute insights on the capacity of human beings to empathize with and sacrifice for one another. How can a guy able to reason about morality at that level cheat and steal like a son of a bitch?
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Er, is this really a problem for you? Do you really think there’s a puzzle to work out here? Have you read Dr. Faustus, Notes from Underground, Hamlet, or almost any serious work of literature?
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We can go back and forth, and I’m happy to go back and forth, about the utility of ethics courses in business school. Say we appoint David Petraeus to lecture in such courses, along with other people we think of as moral paragons. If we’re lucky, the focus of his lectures will be the very complex vulnerabilities and blindnesses and compulsions that lie within all of us.
Not that understanding this, even on a very high level, will tend to make you, personally, more ethical. Ask Michael Martoma, and many other insider traders who share his excellent upbringing, his excellent education, and his exquisite moral reasoning, about that. If anything, the staggering good fortune these people have enjoyed all their lives, their easy entry into elite settings, their great wealth, even their great intellect, tends to make them feel removed from the common suffering humanity that Dr. Rieux found so compelling. These days, Americans are wealthy in ways unimaginable in the past. Steve Cohen’s personal fortune is close to ten billion dollars, and Michael Martoma moved very much in Steve Cohen’s world. The power, and the almost absolute removal from common human life, this sort of wealth — or a life lusting after this sort of wealth — yields, has — obviously — for many people — disastrous moral consequences. No business school is going to talk honestly about this, because no business school wants to be in the business of saying Come to study here, and we’ll teach you all about limits.
But you won’t believe us that ethics courses in business school are a total waste of time and money. As Orwin says:
By the time a student arrives at university, and a fortiori several years later when he ambles on to his MBA, his ethical character is already firmly set. Whether virtue can ever be taught was already a thorny question for Plato. Whether it can be taught to adults, in a classroom, shouldn’t be a thorny question for anyone.
Yet even with the latest amazing, high-profile evidence for our position, people continue to resist the idea:
A former student at Harvard Law School, [Mathew Martoma] co-wrote papers on medical ethics before seeking a business degree at Stanford University and joining a little-known Boston hedge fund. … [Martoma is] at the center of what U.S. prosecutors describe as the most-lucrative insider-trading scheme they’ve ever uncovered… [At Harvard Law School he] wrote two medical-ethics papers, one of which identifies him as a member of Harvard Law’s class of 2000 and as the former deputy director of the National Human Genome Research Institute’s Office of Genome Ethics.
Martoma’s partner in crime, University of Michigan professor Sid Gilman, spent decades on safety and ethics and compliance committees.
A trustee of the University of Colorado Business School has been indicted for insider trading. Guilty or innocent, he seems already to have been scrubbed from the school’s pages.
When you’re a student reporter at the University of Pennsylvania, and when the subject is the Wharton School’s scads of insider traders, you have to do a lot of digging. There’s a history here, and it’s pretty impressive.
Another reporter goes farther back:
[L]ast week’s conviction of a prominent Wharton MBA alum [was] the biggest insider trading case since the 1989 conviction of junk bond king Michael Miliken, another Wharton grad.
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UD thanks JND.
… because he has stamina and guts and epitomizes this blog category: BEWARE THE B-SCHOOL BOYS. And I’ll always be able to follow his lawsuits because I don’t think they’ll ever end. Always another effort to appeal an NYU decision to deny him his MBA because while he was a student there he was found guilty of insider trading.
UD enjoys the special human interest part of Rosenthal’s story: It’s a family affair.
AWKward.
A former student of [University of Chicago Business School professor Gary] Becker’s told me that he found many of his classmates to be remarkably amoral… They perceived any failure to commit a high-benefit crime with a low expected cost as a failure to act rationally, almost a proof of stupidity. The student’s experience is consistent with the experimental findings I mentioned above [See this post’s headline.].
AWKward.
Yes, UD‘s back in one of her most-used categories: Beware the B-School Boys. Click on it at the bottom of this post for years of stories about guys who went directly from America’s very best business schools (Wharton does our financial criminals proudest, but Harvard’s in there trying) to a life of global money mayhem. The swath of destruction they leave suggests that remarkable amorality is only Part One. There’s also a brilliant nihilistic malice in play.
Since the deeper they get into their business school curriculum, the more some students seek to reduce the earth to cinders, one might ask, as Luigi Zingales does in the pages of Bloomberg’s (whose founder makes anyone who doesn’t flaunt his rule-breaking, anti-social, privileges look stupid), whether, as he puts it, business schools “incubate” criminals.
UD wouldn’t use the word incubate. B-schools refine criminals; they take naive inchoate rapacious instincts and educate them. They also – as the Rajaratnam case confirms – bring criminals together. They provide the critical mass without which conspiracies cannot flourish.
Commencement speaker, recipient of an honorary Doctor of Laws degree — Dimon’s the Joe Paterno of Syracuse. Let’s catch up with his latest accomplishment.
JPMorgan Chase & Co. (JPM) had already lost more than $700 million on synthetic credit bets and Chief Executive Officer Jamie Dimon was told that number could climb to almost $1 billion when he dismissed press reports about the positions in April as a “tempest in a teapot.”
While JPMorgan booked a $718 million loss on the positions held by its chief investment office in the first quarter, it didn’t publicly specify the loss when releasing the results April 13. When an analyst asked Dimon that day about media coverage of the trades, he dismissed them as a minor issue.
A top partner at the firm is also representing one of the suspected leakers, James V. Mazzo, who was the chief executive officer of Advanced Medical at the time of the takeover.
What could be duller than insider trading? It’s so de rigueur even Martha Stewart does it. But universities don’t yet regard it as mainstream enough to want insider traders on their boards of trustees.
UD has said for years that with the takeover of BOTs by way high-flying business people (see the recent Unpleasantness at the Board of Visitors Club) we’re going to see more and more trustees dumped because of suspicions of or accusations of or convictions on insider trading charges.
Now three universities – UC Irvine, University of San Diego, and Chapman – need to start a Google News search on Mazzo, a trustee.
A University of Maryland economist applauds the overthrow of U Va’s fearful, incrementalist president and looks forward to the initiation of the school’s faculty into the rigors of market life.
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After all, consider what hideous shape the place is in, market-wise:
A $5 billion endowment makes it the wealthiest public university, per capita, in the United States. Over 28,000 students applied for admission last year, a record high.
You only get results like these when faculty retreat behind ivy walls and trembletrembletremble at the rigors of the marketplace…
Not only that, but its impeccably kept campus has been named a UNESCO World Heritage site!
If no one steps in to stop this process, the University of Virginia will begin to look like a smelly pirate hooker before the week is out. With new market rigors and massive onlining, however, U Va will finally be able to compete with Everest College.
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Here’s a slightly different take on the marketplace at U Va:
A university governed entirely by wealthy businesspeople steeped in a culture of corporate strategy memos will reflect the peculiar perspectives of the modern rich. The financialized American economy has made vast fortunes for gamblers with poor impulse control who mistake a lucky roll of the dice for intelligence and virtue. It’s not surprising that the same kind of fast-twitch thinking would lead a group of homogenous financial patrons talking among themselves to lose patience with a career higher education administrator who was insufficiently galvanized by the latest columns from Thomas Friedman and David Brooks.
U Va’s trustees were afraid “That the university would be forced to get by with $5 billion in the bank.” And indeed that is a sickeningly paltry sum. Harvard is on its way to forty billion. What the hell is U Va thinking? If Harvard needs an endowment larger than the GNP of most countries, so does U Va.
Quick. Online. Largely bogus course content. Incredibly high tuition paid for by someone else.
The always pretentiously named but often cheesy executive MBA degree has always been a major candidate for fraud, and I’m sure Baruch College isn’t the first to run its program fraudulently, but it’s the first to get caught changing student grades so all the money keeps coming in.
The dean in charge when the forgery was going on has flown the coop and landed in a nice job at the University of Connecticut, which must be thrilled to have hired such a great manager.
… and again and again because it happens all the time: Beware the B-School Boys. That’s a whole category of its own on this blog. And why? Because business school professors constantly run afoul of the law.
The latest finance-professor-gone-wrong is this guy, at Bocconi University. Says on his university page that he’s been “voluntarily suspended (‘How can you be voluntarily suspended?’ asked Mr UD) since November 16, 2012.” (‘Isn’t that in the future?’ asked Mr UD). He’s been way busy lying about the value of his hedge fund, destroying investors, and dealing with the Financial Services Authority.