South Carolina Govenor Mark Sanford ethics probe; was state asleep at the wheel?

One of the more curious things about the Mark Sanford case is how long it took for him to get caught. Here was a guy using taxpayer money to pay for high-priced airline tickets to see his mistress down in Argentina — a total of 18 times. (The law requires state officials to use the lowest-cost airline tickets; we assume that extends to trips to see the mistress.) The question is, how was the governor able to pull off  so many trips without getting caught? Was there no one at the state level to say, “Hey, Gov, you’re supposed to be flying coach, you put in a bill here for business class …”

In my experience, I’ve found three things have to be in place for any fraud to occur: Need, Opportunity, and Rationalization. Sanford’s Need was clear: He wanted to see the chick in Argentina. The Rationalization bit, we’ll leave that to Sanford to answer. As for the Opportunity: Somewhere a flaw existed in the system. Somewhere, at the state level, a loophole allowed a sitting governor to flagrantly violate what now amount to 37 ethics violations.

And what was that loophole? Power and popularity. Mark Sanford was a rising star of the GOP. Clearly, that status helped override ethics. When all is said and done, the current ethics probe of Sanford will amount to further waste of taxpayers’ money if it doesn’t answer one central question: Who else aided and abetted a sitting governor to get away with such egregious abuses of power?

Eliot Spitzer’s Harvard ethics lecture: Too soon for him to speak?

F. Scott Fitzgerald once said there were no second acts in America. He hadn’t met Eliot Spitzer. Recently, the former New York governor was invited to deliver a lecture on ethics at Harvard University’s Edmond J. Safra Foundation Center for Ethics.

Before I get to the ethics of this matter, let me just say: I have no interest in attacking Spitzer. Nor do I hold any personal judgment against the man for the events that forced him from office in March 2008. But I do think if you’re going to speak about ethics, you had better be willing to take a long, hard look at your own actions. Instead, Spitzer stuck to a script: “From Ayn Rand to Ken Feinberg — How Quickly the Paradigm Shifts.”

Yes, I’m sure Spitzer had lots of interesting things to say about policing Wall Street. But can you imagine how much more valuable an ethics talk would have been if he’d answered the question: “How does someone — in this case a savvy prosecutor — fall into the trap of things he once railed against?”

Maybe Spitzer is still trying to figure that out. I can sympathize. Soon after my release from federal prison in the mid-90s, I spoke about ethics before a few rotary clubs. Regardless of what I had to say, my audience had a preset skepticism about whether I had a valid message to offer.

Ten years later, it’s a different story. When I speak at universities, people now understand that enough time has passed for me not to have replicated the poor choices of year’s past. I don’t sweep that past under the rug, either. I am open about the choices I made that led to incarceration. That candor provides the greatest opportunity for learning. Because you can talk about theory all day long. What matters most are lessons you can share on how others can avoid the same mistakes.

So, here’s a question worth asking: What is the appropriate lag time before someone can step out again into the public sphere and talk about ethics? Is it too soon for Spitzer? Does he need to spend a little time in anonymity — five years, ten years? — before he can speak? You tell me.

Pay Czar Kenneth Feinberg to slash executive compensation; is action ethical — or constitutional?

Recently, “Pay Czar” Kenneth Feinberg slashed compensation for executives at seven large financial firms (all TARP recipients) by an average of 50 percent — and he’s not backing down. That move has set off heated argument over economic theory. Lost in the shuffle is a more basic question: Is Feinberg’s action constitutional?

Because he is not a properly appointed officer of the United States, Feinberg’s executive compensation decisions were unconstitutional, argues Michael McConnell, director of Stanford University Law School’s Constitutional Law Center. “The power to set compensation at large American businesses is especially subject to potential abuse, favoritism, arbitrariness, or political manipulation,” he adds.

Is it constitutional or ethical for a government pay czar to control the amount of compensation for TARP recipients without — here’s the key — having been confirmed by the Senate? Does the government have the right to set compensation standards for banks in general?

Prospective employers checking you out on Facebook not ethical? Get over it.

Is it ethical for a company to use what you freely post on a social networking site as part of their decision making process?

I posed that question the other day to a group of students at Queen’s Business School in Kingston, Ontario.  The answers I got were interesting; they generally saw sites like Facebook as just that: a social networking tool. And they didn’t generally connect that a prospective employer has an ethical right to base their hiring decision on what a candidate posts online in their off hours.

But here’s the thing: Regardless of the ethical questions at play, what you post online will likely be found, in one form or another, by prospective employers. A recent study found that 45 percent of employers surveyed use social networks to screen job candidates.

So, here’s a question for all business students: At a time when unemployment is at a 26-year high, and competition for jobs is fiercer than ever, what are you currently doing with Facebook, LinkedIn, and Twitter to expand, find, or grow your career? Are you taking advantage of what’s free in a way that allows you to take those steps?

Queen’s School of Business’ corporate social responsibility weekends lay groundwork for future business leaders

The other week, I asked whether business schools were effectively teaching ethics. That question was answered, at least in part, the other day when I spoke at Queen’s School of Business in Kingston, Ontario. In talking with many of the 200-plus students gathered for the event, I discovered something encouraging: All is not lost on the ethics front.

For the past several years, the university has been holding annual corporate social responsibility weekends. The impetus for these events was the realization, on the part of business faculty leaders, that their department’s educational experience had to go beyond traditional disciplines — accounting, finance, marketing, and management — to encompass a larger concept: Business isn’t just about the production of profit or the satisfaction of shareholders. It’s about contributing to a greater good, which could take a variety of forms: sustainability, environmental protection, and the preservation of human capital, among others.

This year I happened to be the keynote speaker. The faculty wanted students to get a “real life” taste of what can lead a well-educated, intelligent person to make uneducated, unethical choices. And, well, who would know better than someone who landed in federal prison for effecting a Ponzi scheme?

The students were engaging, and open with their questions. They certainly didn’t hold back. Many of them reflected a depth of wanting to understand the ethical implications of business choices. Not just the implications but the triggers that would cause someone to make what, in retrospect, might be considered unethical choices.

All in all, a day well spent. Kudos to Queen’s Business School for bringing the role of corporate social responsibility to the conversation — and keeping that conversation going year after year.

Richard Monroe Harkless, operator of MX Factors, gets 100 years in prison; how did so many people fall into the PIT?

When it comes to Ponzi schemes, it always amazes me how seemingly intelligent and well-educated people can fall prey to them. (At least, you’d assume that anyone who’s made a sizable chunk of money has a basic level of intelligence when it comes to how it is invested.) It’s a question I’ve thought enough about through the years that I’ve come up with a three-pronged answer: Promise. Illusion. Trust.

Or, what I like to call “the PIT.”

The PIT formula pretty much explains nearly every Ponzi scheme that hits the headlines. The recent case of Richard Monroe Harkless, a 65-year-old man from Riverside, Ca., who caused more than $39 million in losses among hundreds of investors, is no different. Let’s break it down.

Promise: Backed by the claim that he had guaranteed, government-backed contracts, Harkless promised investors returns of up to 14 percent every two to three months. Reality check: No one — absolutely no one — makes that kind of money. So, how could so many people believe that kind of promise? That brings us to: Illusion.

Illusion: At this point, the criminal creates the illusion that investors will, in fact, get what they were promised. In Harkless’s case, he created promotional literature. (Again, amazing how people can fall for something that may have been printed at a local Kinko’s.)

Trust: Ask yourself. If you got returns of 14 to 16 percent every two to three months, would you walk away?  Probably not. Neither did Harkless’s investors. In fact, as the money kept rolling in, many signed up friends and family, widening the web of trust.

An open letter to Harkless’s victims: Help us paint the picture!

Recently, Harkless was sentenced to 100 years in prison for causing, what United States District Judge Virginia A. Phillips called, “every kind of grief and loss imaginable.”

But the story isn’t over. Not for the victims. And not for future victims like them.

To help offset future stories like this, I’m making an open appeal to Harkless’s victims: Help us paint the picture. Help us understand Harkless’s motivations. What should have been the red flags in your mind? What would you tell other potential victims to watch out for?

Share your comments here.

NECB to offer business ethics degree; do you need a business ethics degree to be ethical?

Since I began speaking about business ethics, I’ve started to see some encouraging signs. Business schools from Harvard to Stanford have begun adding classes that examine the role that social responsibility can play in business. Some schools are now even offering a degree in it. Case in point is the New England College of Business and Finance (NECB). It now offers an online master’s degree in business ethics and compliance, which it calls a “first-of-its-kind in the nation.”

Personally, I’m all for courses that teach ethics, but a full-fledged degree? In the big scheme of things, I think business ethics should be taught as part of marketing, accounting, and economics, for example; ethics should be the strand that runs through all those disciplines. To segregate business ethics is to say it is a separate discipline. On the other hand, I applaud NECB for looking at the environment we’re currently in and determining there’s value in creating a degree like this.

What do you think of creating a degree in business ethics? Will it make today’s business recruits more marketable — and ethical? Drop me a comment here.

Kansas City Internal Medicine doctors turn away Medicare enrollees, sparking ethics debate

Here’s a question for you: If you had a service to provide — and someone asked you to provide it for free, or at a radically reduced price — would you do it?

No, right?

Now try this on for size: If you were a doctor, and someone asked you to provide a service at a rate that didn’t reimburse you for the total cost of care, would you do it?

In nearly every line of business, one maxim holds true: “If you can’t pay, we don’t play.” So, why should doctors be viewed any different?

That’s the question doctors at Kansas City Internal Medicine, the largest private group practice in Kansas City, Mo., have been asking. For now, most of these doctors, who count 65 percent of their 70,000 active patients age 65 or older, have decided to stop accepting walk-in Medicare enrollees.

Dr. David Wilt, an internist at the group, tells CNN: Medicare doesn’t reimburse physicians enough to cover the cost of care. Matters will only get worse, he adds, if a 21 percent cut in Medicare payments to physicians takes place in 2010.

Should physicians be allowed to turn away patients because their funding source is being reduced? On the flip side, does the government have the right in a free-market economy to dictate payment terms to physicians for the performance of services?

Share your comments here.

Are business schools effectively teaching ethics?

Are business schools effectively teaching ethics? That’s a good question to ask, especially now. The other day, North Dakota State University’s longtime president, Joseph Chapman (right) resigned amid growing criticism over his expensive new presidential residence. Presidential is the operative word. Cost overruns exceeded $2 million, compared with the original $900,000 that had been budgeted for the project. But the good news doesn’t stop there. The Forum, a Fargo newspaper, reports that the donation-funded NDSU Development Foundation paid $22,000 on a charter flight and hotel bills for Chapman and his family to attend President Obama’s inauguration. (By comparison: University of North Dakota reportedly spent $2,176 to send its president, Robert Kelley, to the inauguration.) No surprise, Chapman resigned the other day. “It just isn’t fun,” he told the Associated Press.

Now consider this: It takes a while for a construction project to balloon over $1 million past its target budget. But it’s only now the board says it will probably — probably — ask for an audit on spending for the president’s house. All of which demonstrates this much: Even well-educated people — because we can assume the board members are — can make choices that in retrospect lacked clear direction or ethics. If this can take place in a university setting, what does this say about the education we provide business students?

Over the next several weeks, I’ll be asking educators from around the country this simple question: Are business schools effectively teaching ethics? Stay tuned.

Attention CFPs, ethics training doesn’t have to be boring

It’s no secret, at least among certified financial planners: Most ethics courses are as boring as can be. They don’t have to be. In conjunction with my consulting group, Barclay’s has created a webinar on ethics for CFPs to get their continuing education hours. So, if you go to Barclays, and register as a CFP, you’ll have access to this webinar. Non-boring. For a change. Check it out!