Author(s): Robert Weisman, Globe Staff Date: December 30, 2003 Page: C1 Section: Business

As students grapple with the wave of misconduct that has swept through the corporate world, Harvard Business School is introducing the most comprehensive revamping of its ethics instruction in the school's 95-year history.

First-year MBA students at Harvard, a school known for grooming many of the nation's captains of commerce, will be required to take a new ethics course in their second term, starting in January.

The interdisciplinary course called Leadership and Corporate Accountability, taught by 10 faculty members to nearly 900 students, will include case studies on Enron Corp. and WorldCom Inc., along with a videotape of financier Warren E. Buffett lecturing Salomon Brothers employees in 1991 after the US government charged that the firm made illegal bids in a Treasury bill auction. "We're trying to prepare students for the responsibilities of business leadership," said Lynn Sharp Paine, a Harvard business professor who co-led the team that designed the new ethics course. "What we're trying to do is not propose a set of right answers, but give people a framework for working through the issues."

Harvard Business School began rethinking its ethics curricula in the late 1990s, even before the revelations of financial abuse that have implicated some prominent graduates, including former Enron president Jeffrey K. Skilling. Other business school graduates, such as former Enron CFO Andrew Fastow (Northwestern) and Rite Aid's former CEO, Martin Grass (Cornell), have sullied the MBA degree. But while the initial planning wasn't a response to the rash of misconduct cases, Harvard's decision to go forward with a new semester long course - replacing a three-week ethics module - was made after those cases had come to light.

Much of the content in the new course is colored by those cases. In the Enron study, for example, students will mull over how the company's innovations were corrupted and how factors such as its compensation system and its earnings management practices contributed to its initial success and then its fall from grace. Other case studies and discussions will look at the fiduciary responsibility of CEOs and boards in hostile takeovers, the pricing of AIDS drugs in developing countries, and how healthcare executives handle research they sponsor that reveals their products pose a health risk.

"Certainly the scandals really heightened the awareness, and they gave us an impetus to carry the work forward," said Kim B. Clark, the business school's dean, who also said colleagues at other business schools have asked to see Harvard's new ethics syllabus. "This is the most far-reaching course we've ever introduced on this subject."

Other business schools, similarly reassessing how they teach ethics in the post-Enron era, are taking different approaches. MIT's Sloan School of Management, for instance, has added a module on ethics and leadership to its orientation and has woven lessons in ethics throughout a curriculum it introduced in September.

"Students are very alert to these questions, absolutely," said Leigh G. Hafrey, a Sloan senior lecturer on ethics, who has been part of an effort at business schools around the world to draft an MBA equivalent of the Hippocratic Oath for doctors. "They recognize that the image of business going forward is going to affect their possibilities."

Recent additions to the curriculum at Dartmouth's Tuck School of Business include three or four days of ethics lectures by visiting business leaders. At Tuck, part of the inspiration for expanding the ethics offerings came from students. "We had some students who came to the dean last spring and said, `With all the scandals, we want to learn a little more about ethics,' " recalled Tuck spokeswoman Kim Keating.

To be successful, the new ethics programs must address squarely the issue of executive compensation, which can skew incentives within companies, suggested Robert A.G. Monks, a corporate governance reformer in Portland, Maine. Monks said he was skeptical about the efforts at Harvard and other schools.

"God bless them for trying, it's terribly important," said Monks, a Harvard Law School alumnus. "But you have to look at an ethics program within the context of the Harvard Business School culture, which is a very pro-management culture. The single most ethically challenging question in business for the last 10 years is the issue of CEO pay. What is Harvard going to teach its students about CEO pay?"

Harvard Business School does, in fact, plan to study how compensation and other incentives influence a corporation's culture and its ethics. Such lessons had been taught in the past, but now "we've got a whole new passel of examples," Paine said.

In recent years, as Paine and her committee worked on the school's new ethics course, many of its ideas and concepts were tested in electives, dubbed "beta sites," she said. The idea was to tackle ethics in the context of such trends as globalization, privatization, and the technology boom. The course examines ethical issues through the lenses of law, economics, psychology, and organizational behavior.

Paine said the new course will be divided into three parts: the legal, ethical, and economic responsibility of leadership; corporate accountability; and personal values and responsible leadership.

While some discussions will focus on personal choices, Harvard will also encourage debate and research on how to reform corporate structures, incentives, and governance regulations to avoid situations where, for example, research analysts feel pressured to trumpet stocks to drum up business for their firms' investment bankers.

"We definitely have a problem with bad apples," Clark said. "Too many people crossed too many lines. But if you dig into it, we also have a problem with the barrel. We have systemic problems where good people are put into a position where their values are compromised."

Robert Weisman can be reached at weisman@globe.com.