By Mark Johnson


MILWAUKEE - The lessons in Room 450 depart from the numbers and formulas, the hard truths about money that Tom Kruse and the other finance majors have been learning at Marquette University.

With the room lights low, 30 students watch a movie screen as the trader Nick Leeson, portrayed sympathetically by Ewan McGregor, hides a colleague's mistake and starts down the steep ethical slope that will lead to the loss of $1.3 billion and the collapse of his employer, Barings Bank.

"What do you think of his motives and his ethics as opposed to, say, the Enron guys?" asks Sarah Peck, the 48-year-old associate professor teaching Marquette's investment ethics class. Can there be degrees of ethical conduct? In this room, answers aren't scribbled on a blackboard.

"This isn't the normal finance class," Kruse says, "where you either have the right number or you don't, you're making money or you're losing money."

In ethics, there's room for discussion and even gray areas.

Faced with a question - not a formula - the students debate. Was Leeson protecting his colleague or himself? Did his actions hurt as many people as those of the Enron executives?

"Regardless of the scale, you're fraudulent," says Charlie Weber, a 22-year-old studying economics and finance. "You're doing something, knowing you're hiding the truth in order to make yourself look better. ... It might be a different scale, but that doesn't mean it's worse or better."

Marquette introduced the investment ethics class last year, an offering rare for undergraduates but one that reflects both the rapid pace of change in the finance industry and the scandals of recent years.

As Peck says, "When you get new products and markets for things, there are always opportunities for people to behave badly."

Pinning it down

What's ethical becomes a moving target.

The decision to offer the new course coincided with Marquette's selection as a program partner by the non-profit Chartered Financial Analyst Institute. The partnership, one of just six involving universities worldwide, links courses taught at Marquette to the CFA professional standards and examinations. Passing the exams is a highly regarded credential for financial analysts.

Peck was encouraged that Marquette students who took the CFA exams last May, after the investment ethics course was introduced, scored about 20 percent above the national average on the ethics section. Still, the idea of offering such a course to undergraduates isn't universally embraced.

"Ethics in finance is a trifle specialized, especially at the undergraduate level," says John Boatright, a professor of business ethics at Loyola University in Chicago and author of the text "Ethics in Finance." "At the undergraduate level, students are much more likely to encounter ethics in finance as part of a broad course in business ethics."

Such broad courses are common, he says, because students need to get a clear understanding of business practices to appreciate what makes some actions unethical.

"If someone gets mugged on the street, you know that's wrong," he says, "but if someone engages in insider trading, people may not be able to understand exactly what is wrong with that practice. ... One's eye has to be trained to see where there are ethical problems."

Beth Young, a senior research associate at the Corporate Library, a Maine-based research firm, says that ethics courses, while useful in preparing students for situations that might confront them in business, "only get you half the way. The really important part of ethical behavior is deep inside a person. ... When it comes down to something like moving a sale into an earlier quarter, a very common form of accounting fraud, what is it about a person that leads them to say no'?"

Peck has found that students enter her course "naive but with an appropriate level of naivete for their age. They do think there are easy solutions out there."

This might simply reflect the difference in perspective between a 20-year-old college student, single and living at home, and a 35-year-old professional, with a spouse, children and a mortgage.

She began the course by talking with students about academic cheating. They discussed how misconduct can spring from larger cultural factors - for example, the pressure to get good grades to land good jobs.

In a similar way, ethical problems at businesses often have roots in a corporate culture, a phenomenon that Boatright refers to as "bad barrels" rather than "bad apples." Examples would be companies that lack clear policies, a code of ethics, and monitoring and reporting procedures for misconduct.

Recenlty, Peck showed her students movies such as "Rogue Trader," about the Leeson case, and "The Insider," about tobacco company whistle-blower Jeff Wigand. The idea is to give students a sense of how real people behave in the throes of ethical dilemmas.

"I think ethics is ultimately about people," Peck says.

Toward the end of the semester, she plans to return to earnings models and spreadsheets, but to do so with an eye toward the people who create the documents and their motives. Are there incentives to manipulate earnings? She hopes to show her budding financial analysts how they might evaluate the behavior of people and use that knowledge to help them pick stocks.

So far, student Kruse says the course has taught him that unethical acts have consequences, not only for the perpetrators but also for shareholders and employees, right down to the janitor who is out of a job if his company collapses. It's a lesson that he says will follow him to his new job in summer at the Bank of America's investment bank in New York:

"Think beyond yourself."

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