Sam Jacobsen: Let’s start with the Arthur Andersen Company [Enron’s accounting firm]. They were known worldwide as the most ethical firm in the accounting practice. I had personal experience with them; they wouldn’t allow anything that wasn’t above reproach. But look what happened to them; suddenly some bad apples got in there and things collapsed. So we shouldn’t kid ourselves that things can’t collapse in the system we have. Enron and Arthur Andersen are two great examples of how things can fall apart.
What I’m interested in is: Where do the values come from? What’s the seed of a guy like Kenneth Lay, and where do the values fall off somehow? Something’s missing.
Denis Collins: Well, in terms of values, we’re all born a blank slate… and then we inhale things from our environment, first from our mother and father, then our friends, our teachers. Then you’re on your own, and so you figure out for yourself what you think is right and wrong. Hopefully you still have a lot of pressure from society—a system that will say, “You can have all the freedom you want to figure out what’s right and wrong, but if you cross this line, you’re going to jail.”
The thing with a lot of these business folks is that they just saw life as a game. They didn’t think it over that seriously. Take Dennis Kozlowski, the head of Tyco. From Kozlowski’s viewpoint, he was working 90 hours a week and had given his life to Tyco for decades; it was all him, he was the company and the company was him, so he could do anything that he wanted to—despite what the law might have said.
Capitalism is this grand experiment that says, “We’re going to give you freedom—and by giving you that freedom we’re saying that we trust you. We trust you; you have to keep your promises, you’ve got to be honest with each other. As long as you do that, you can have all the freedom you want. But the minute you violate that, you’re going to get stuck with government regulations.”
For the system to work, it has to be based on truth and honesty.
Sam Jacobsen: What motivated you to be interested in business ethics?
Denis Collins: When I was a kid, I always wanted to build a better world. I'd read a lot of newspapers, and you read these bad things in newspapers... I'm a spiritual person, and life is short. Therefore during our lifetime we should do whatever we can to make the world a better place.
Later I worked for corporate headquarters with Grand Union [a now-defunct East Coast supermarket chain—ed.]. And when I was in corporate headquarters, I was just shocked. I knew we were running a bunch of little scams at our stores—we were ripping off the customers here and there and ripping off headquarters here and there. And then I got to headquarters and I was in charge of 40 stores, and I saw the same little games going on in each of the stores.
Any time a store gave me their financial numbers, I didn't know if they were true or not, because as a former store manager I knew that we were changing the numbers a little bit that we gave to headquarters. We were giving headquarters what they wanted, giving them these numbers to make us look good. And now at headquarters I realized—I was getting reports from all these stores, and I didn’t know if I could trust any of the numbers.
How many people actually go home and take their bananas and put them on a scale? We knew nobody weighed their bananas. Not only did we know that they didn’t weigh their bananas, we also knew when the government regulator was going to come to inspect the store. So we would fix the scales to our benefit, until within a few days when the regulator showed up. And then we would correct the scales.
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Peter Felknor: During the Enron scandal, Arthur Andersen was certainly in a position to do something. Why didn’t they?
Denis Collins: Arthur Andersen was well aware of what was going on. There was a small group of folks that were involved; Enron’s chief financial officer was a former Arthur Andersen partner. So he’s now Enron’s CFO and the Arthur Andersen person is auditing his former boss.
Where Arthur Andersen went south was when they started doing a lot of consulting work. During the 1970s, many accounting firms started to do consulting work as well. They realized that they could make more money by doing consulting work and taking it easy on the auditors in exchange for getting a lot of this work. So in doing consulting, it was hard to nail your client for being a bad player on the audit.
The auditor has the inside information about what’s going on in the company, he knows what’s going right and what’s going wrong, and he can provide a lot of advice—but sometimes you need a strong ethical stand to say it. Even if you’re getting all this consulting revenue, if a company’s greatest responsibility is to the stockholders, it’s asking for trouble if the auditor is getting paid by the company.
Peter Felknor: So let’s say you’re successful, making a great deal of money, and now there are all these temptations to be less than ethical. Do you think that most businesspeople fall into that?
Denis Collins: I think most people are very good and very sincere. And that’s how you get business; the more people that trust you, the more business you can do. I know that the less bureaucracy you need, and the less government oversight you need—the data is out there that by being ethical you can make more money, not less.
But still there’s these individuals—individuals including me and you—who wonder, should I be totally honest or just halfway honest? Should I tell the whole truth? There’s pressures, deadline pressures, that might encourage me to cheat a little bit. I’m not going to do that. I know who I am, because who I am matters—in the short term, as well as the long term.
Sam Jacobsen: You’re an educator. Are these lessons being reinforced to business majors?
Denis Collins: Not to the extent that they should be.
Everybody knows that business students need to have ethics reminders. You can introduce ethics in two ways: A mandatory class that everybody has to take, or you can integrate it into the entire curriculum, with your business ethics prof networking with all the other professors. Ideally you want to do both, which is what we do here at Edgewood.
But schools get around it. At UW-Madison [where Collins used to teach—ed.] it used to be required, now it’s just an elective class. And that’s not what you want. The people I want in my class are the ones that don’t want to take the class.
Peter Felknor: Speaking of which: What if someone is going to business school simply because they want to make a million bucks, even if it means they have to stab somebody in the back to do it? Can somebody like that be changed by having an encounter with ethics in school?
Denis Collins: Oh, absolutely. Absolutely. If you can allow that person to listen to somebody like Sam give a talk about why ethics are so important, and how well he’s done by having high integrity, that makes a difference.
One thing I do in class, since most of my students work part-time, is to have them write about the ethical dilemmas they face at work—they all see things that they have questions about. And then they present these to the class.
Initially a lot of people will be like: “Oh, that’s my friend and I would never turn in my friend.” I just have to find one or two students who will say, “Of course I would turn in my friend. I told them not to do that.” And then the students all hear somebody else speaking with this strong moral tone.
People watch TV a lot, they see a lot of movies or they read novels. And a lot of times they see the bad guy getting away with it. And they have to be told over and over again: “That’s a movie. That’s a novel. That’s a TV show.” But in real life, you’re risking your whole life. And is it worth risking your life to steal $10 from a PDQ?
Sam Jacobsen: Here's [New York State attorney general] Eliot Spitzer, the "Sheriff of Wall Street", and if you follow his career you'll see the results of what he's done. He's recovered billions of dollars of irregular stock and embarrassed the Securities and Exchange Commission. And still, very few of the officers wind up in jail. The companies pay millions—one insurance company just recently paid out six hundred million—so no one will go to jail. But the officers should have gone to jail. There should be more of that in my opinion.
Denis Collins: Absolutely.
Sam Jacobsen: You shouldn't be able to buy out your guilt for huge amounts of money. That might be good for a politician, but it's not good for bringing up our level of ethical conduct. Let what happened to Arthur Andersen and some other big companies be a lesson of what can happen in our system when people lose faith.
Denis Collins: But because of Enron, there are now a lot of lawsuits against [corporate] board members; in class-action lawsuits, they're now suing the board members directly. In the WorldCom case, the lawsuit went such that the money came out of the board members' pockets. That goes back to waking everybody up.
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Peter Felknor: A lot of the recent scandals have involved CEOs and other principal officers. Wouldn't be fair to say that these CEOs have let down their organizations, as well as the shareholders?
Denis Collins: The primary role of the CEO is to communicate values, to say "These are the company's values and we have to live these values. So let's hire the right people, and as the CEO I want to make sure that these values are applied all over the company." And you end up spending a lot of time interviewing your executives... but that's the best use of your time, because if you have top-level executives you can trust then you can make sure that all the right people come through the door.
Peter Felknor: So a CEO's real function is to instill the corporate values from the top down, and insist that they be adhered to? Is this the way to fix the mess?
Denis Collins: In the long term. In the short term, often all you need to do is change the performance evaluation, to announce: "Ethics are going to be part of our evaluation from now on—how you treat the other employees, how honest you are, how trustworthy you are." And most people will respond according to what they are asked to do: "Just tell me what the goal is. If you're going to measure me according to how trustworthy and honest I am, then I am going to be trustworthy and honest. If all you're going to measure me on is based upon how much revenue I've brought in this past month, I'm going to do whatever I can to bring in as much revenue as I can." So you just change the way you're evaluating and promoting people.
I look around me and I see a lot of imperfect people. How sincere are you about overcoming your imperfections? Capitalism allows you to do that; it allows you the freedom, whereas under a socialist system or under a communist system a corrupt government is telling you what they want you to do.
If you're poor, where would you rather live right now—under a socialist system or a capitalist system? If I was going to be poor, I'd rather be in the U.S. than in, say, Brazil or Russia. Socialism always promises more, but it never fulfills those promises because they can't figure out how to generate wealth. Capitalism does a great job of generating wealth, even if sometimes the distribution of wealth might be called into question.
I'd rather have an imperfect capitalism than an imperfect socialism.
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A Journey Toward Ethics
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The Oil
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A
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Photo of Kenneth Lay: Associated Press
that two-million-dollar party got her in trouble.
Business professor Denis
Collins, author of Behaving Badly: Ethical Lessons from Enron,
discusses the implications of the unethical behavior that has
wreaked havoc on American business.
A Conversation with Sam Jacobsen and Peter Felknor