The History of Corporate Scandals
With Paul Tiffany
Professor, The Wharton School of the University of Pennsylvania and The Haas School of Business at the University of California
Wednesday, July 31, 2002; 2 p.m. EDT

The recent onslaught of corporate scandals has rocked the financial markets and shaken investor confidence. The scandals have included Enron, Worldcom, Tyco, ImClone, Adelphia and Kmart. It’s raised questions about accounting practices and scrutiny of brokerage houses that tout Wall Street stocks. In the past few months, there have been corporate executives going before congressional panels to testify about their roles in questionable business practices and there have even been executives hauled away in handcuffs. In response to corporate misconduct, the Nasdaq this week toughened rules on companies listed on its exchange and President Bush signed into law a corporate reform bill that will increase penalties for accounting fraud and provide new grounds for prosecuting corporate corruption. Read the Post Business: Fall of Enron Special Report.

On Wednesday, July 31 at 2 p.m. EDT, join economic historian Paul Tiffany, adjunct professor of management at both The Wharton School of the University of Pennsylvania and The Haas School of Business at the University of California, discusses the history of corporate scandals.

Tiffany is an adjunct professor of management at both The Wharton School of the University of Pennsylvania since 1983 and The Haas School of Business at the University of California since 1994. He teaches courses in competitive strategy, business and public policy, and business and economic history, at the undergraduate, graduate, and executive education levels.

He has written numerous articles in a number of business and history journals, as well as "The Decline of American Steel" (Oxford University Press, 1988). He is also the author of "Business Plans for Dummies" (IDG Books, 1997), currently in its tenth edition and available in eight languages.

Below is the transcript.

Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.

Paul Tiffany: greetings-

i look forward to the next hour-- though in some ways i don't. why? it is unfortunate that once again america must be engaged in yet another debate regarding corporate ethics, corporate corner-cutting, and in general a discussion about the legitimacy of the corporate instituion within the context of american democracy. these issues have surfaced far too often in our past history-- and they will no doubt arise again once this current episode recedes in memory. however, that is the american way!

so, let's begin the session! welcome.

Harrisburg, Pa.: I recall taking financial history at Penn decades ago and learning about the "robber barrons" of the past. How would you compare business ethics today to that of the 19th century? Is it different crimes for different eras, or do you think that has been some national maturity in ethical behavior where lapses, though, still occur?

Paul Tiffany: Hello Harrisburg!

Your recollections of the so-called "robber barons" are no doubt being vividly refreshed these days. Indeed, the scale of the current round of corporate scandals, at least in terms of the dollars involved in some of them, compares favorably to those of the past. But how far can we extend the comparison?

Let's begin with a brief overview. It is always worth recollecting that America was-- and is, above all else-- a capitalist nation. As Carl Degler, the late Stanford historian, once noted, "capitalism came to America in the first ships that landed here from Europe." Unlike the nation states of Europe, the business interests-- the bourgeoise-- did not have to overthrow a landed aristocracy in order to assume power. There existed, essentially from the first European settlers onwards, a profound belief in the positive value of making money. And just as strongly these new immigrants also believed that the role of government was not to inhibit the individual accumulation of money, but rather it should be a force to assist it.

This notion of individual primacy over the collective is at the heart of the American experiment in democracy. Fearing, and in many cases fleeing directly from, a powerful state, the so-called "founding fathers" consciously created a new nation in which the government could not interfere in the individual wealth creating activities of its citizens (or at least not that much). This is, perhaps, the single most critical issue that differentiates us from our forebears in the "old country."

This ethic of individual wealth creation amidst a weak government is still with us. It continues to amuse me to hear those who complain about the power of government relative to business, as if they did just a bit of comparative analysis it should be obvious that America has done the least to constrain its businesspeople relative to other advanced nations.

So, that being said, we have given our business interests a large responsibility: that are to pursue their activities in a largely self-regulated manner. And the result? A long history of abuses by those who would not/could not place the public interest over their own desire for wealth outside the existing norms. The "robber barons" might have been among the first, but their legacy lives on today.

Washington, D.C.: States have the right to revoke the charters of corporations that act criminally, but they don't seem to exercise this option enough. One of the big problems, I think, is that historically they get away with proverbial murder.

Couldn't a majority of these problems come to a swift end by legislating that corporations are not people, that they are just pieces of paper? Why not make the people running mega-corporations responsible?

I run a small business and we're incorporated. If we mess up, we can't hide, or blame it on another division. We are responsible for what we do, therefore we act accordingly.

Paul Tiffany: This question goes in many ways to the heart of the current problem, at least as I see it. While I would be the last to state that much of the corporate sleaze factor is not a function of corporate executives who have no concern for the public interest, I think we are short-sighted if we do not also focus on the environment of public policy- established by politicians-- that allows for such unethical behavior to flourish.

There is no federal regulatory body that oversees incorporation. This is done by the 50 states, each of which has its own corporate code. And, as the laws have been interpreted over the years, the judiciary has allowed the corporation to be legally seen as an individual person, with the rights that attend to that (e.g., free speech). This was, in my view, an extremely poor interpretation of the 14th Amendment, but we are nevertheless stuck with it today.

If the corporation could be perceived legally as a distinct institution without these constitutional benefits, I think we could do much to reform governance and behavior by the corporations. (But I am not that optimistic that this will happen, unfortunately.)

But your point, again, is a good one and I agree with it in general.

Washington, D.C.: Isn't one of the problems that business schools teach young business people to maximize profits, no matter what? That the almighty dollar is the only reason for being in business?

I disagree, and think that customer satisfaction, high-quality work, and playing fair are the real ways to see if you are truly profitable. Cheating, cutting costs, and using sweatshops, for example, may make a CEO or board member rich but business is just one part of a civilization, right? We seem to be acting as if money and weapons are the only things that are important to us these days.

washingtonpost.com: Mr. Tiffany, What are some of the leading business schools in ethics? Do you see a change in curriculum or more weight on ethics classes in business schools as a result of recent corporate scandals?

Paul Tiffany: This is an interesting point. Yes, I do agree that the focus of business training over the past twenty or so years has shifted far more to bottom-line orientation rather than some other equally worthy topics. There is a history here, too lengthy to go into now, but in general it has to do with a perception, in the 1970s, that America was falling behind some of its foreign rivals and as such we had to get American business back on track and more competitive. Accordingly, we began to re-think much of how American business competed, and the goal that was pushed more than anything else was profitablity. This became the mantra-- even moreso than in the past, and the basic metric for profits became the share price of the publicly traded corporation. By the 1980s, share price was king: raise it!

So, rather than profit being the reward for producing and distributing quality products/services that were competitivelty priced, we put the cart before the horse: get the profit by any means.

I do overstate a bit here, but not that much. We have lost sight of the fundamental role of the corporation in our society, and the current round of scandals is only the most recent manifestation of that.

Vienna, Va.: Prof. Tiffany, why this huge and sudden shark-feeding frenzy on corporate CEO's? For months now, it has been open season on them. They are being blamed for multiple bankrupcies and accounting scandals when we don't know for a FACT that this is indeed the case, even being arrested, like last week. Congress and even President Bush is joining in this frenzy. Stop and think for a minute. Perhaps this rush to demonize hard-working CEO's is what is CAUSING some of these bankrupcies and lack of investor confidence.

Paul Tiffany: I don't think I agree with all of your thoughts here, but I do agree with an important part of your argument: is it only the CEOs who are to blame?

NO! Obviously, the focus on the name-brand CEOs makes for headlines, readership/viewership, etc., but as is often the case in situations like this, a more reasonable inspection leads to a focus on public policy and politicians who create the environment for such scandals to fester and spread. Why aren't we (the media included) devoting more time to the leniency of regulations and laws that have allowed for the environment of corporate abuse? What was the motivation, for example, of Congress-- and very specific politicians-- not to tighten the rules on stock options for executives in 1993-1994, when this issue was raised by the SEC?

Without changing the subject, in my view the fundamental problem we have in this entire mess is a problem of campaign finance reform. It is ABSOLUTELY necessary that this issue be advanced, as it is at the heart of the problem.

North Carolina: Good Afternoon!
Do you think that with the present corporate accounting scandals and general public opinion of big corporations, the politician-industry nexus will come increasingly under the lens and usher in campaign-finance reforms in greater strength or maybe result in the rise and growth of a 3rd political party? Cary

Paul Tiffany: I just responded to a prior question with some comments on this issue of campaign finance reform, Cary. In general, I agree with you! Yes, this is the bedrock of the problem we face. As with all matters like this, there is an interesting history behind it.

We have faced periodic bouts of corporate scandal in the past, and we invariably blame the corporate executive for the evil-doing, while holding the politicans (relatively) blameless. There is good history to validate this. But closer inspection shows that the room for nuance and ambiguity that can lead to abuses is room created by politicians responding to pressure (often in the form of monetary rewards, legal or otherwise) for relaxation of the rules. Business managers want advantages-- duh! That is how one "wins" in the market relative to competition. As such, managers will exercise the tools available to them, and pressure on the lawmakers for benefits is one of those tools.

With the escalation of campaign cost, which started in the 1960 presidential election when the power of television in a political campaign was first broached, it began to dawn on politicians that money-- large sums of it-- would be necessary to mount a challenge or to fend off a challenge in an election. We tried to control this following the scandals of Watergate, but the loopholes (as we well know now) were large enough to drive trucks through. The money flowed in, and the primary source of that money-- corporate contributions-- demanded benefits in return.

So, let's look to the source of the problem, not just the symptom!

Nice question!

Vienna, Va.: Paul, I think much of today's problems can be traced to the fact that the stock market, instead of being viewed as buying into a share of a company's ownership, had in recent years been turned into an instant speculative get-rich-quick gambling parlor like the casinos in Las Vegas. Stocks no longer meant a share in a company's buisness or part of the corporate structure... they became an institution unto themselves, with people and investors buying into the market just for sake of being IN the market, rather than in a company. Forecasting stock prices became a day-to-day and even minute-by-minute speculation, witness the rise of day-traders. People bought and sold by the minute just to make money by the minute, with no thought or concern of what they were actually buying INTO. Much of this, of course, was made possible by the growth of the Internet.
Now perhaps we are seeing that this was more than just minute-by-minute figures...this was real people and real companies, and the pressure to inflate "profits" is now paying its price.

Paul Tiffany: The role of the stock market and its "casino" like qualities actually goes back further in time than the present. Our legal concept of the corporation is rooted in its 17th-18th Century origins, in England; we adopted these same concepts in our American legal system in the 18th and 19th Centuries, and unfortunately still use them today.

The issue? When corporations were "invented" so to speak, they were essentially small. The corporation itself has a tremendous benefit for society: limited liability. As such, this legal form of business structure should and will remain in place. But when these corporations were small, the legal owners-- shareholders-- were also the people who worked in them. As the corporation grew in size at the end of the 19th century, they needed more capital than the in-house managers could raise, so outsiders-- you and me, the proverbial "little guy"-- began to buy into shareholding. In a famous 1932 study, it was found that over 90% of large firms in America were not controlled by the legal owners-- shareholders-- but rather were controlled by the managers who effectively had small stakes in ownership. The "legal owners" - the shareholders-- had bought in only in the hope of the share price rising, not to exercise ownwership responsibities.

This split between ownership and control is still a problem that haunts corporations in America. So, in general, I do agree with your point here.

Washington, D.C.: What's the relationship with government here? Can a remedy really be legislated? Seems to me, the market (in the form of plummeting stock prices) is doing more to correct the problems than anything.

Paul Tiffany: Good question. Yes, the market will be the ultimate arbiter. BUT-- by high-lighting the scandals via the media and other avenues, and by public protest forcing Congress to do something, I do believe that corporate executives will have to attend to more than market forces-- and attend to them faster-- than would otherwise be the case. Regulations, implemented with prudence, can help in my opinion. I do believe in the market, but I also am aware of its limitations.

Angry in Washington, D.C.: After reading through the articles, it appears that Enron was nothing more than a shell game to enrich executives. The directors did nothing to even provide a cursory review of management and simply received their money/fees. Anticipating tomorrow’s article on the political corruption, I’m sure that George Bush wouldn’t like to see his buddies in a real prison with real mobsters, but they should be. Considering that the executives and the board were engaged in a criminal enterprise, why haven’t the executives and board be charged under the RICO statute?

Paul Tiffany: I am not an attorney, so cannot answer the RICO aspect of your question. But, nonetheless, I am in agreement in wanting to see more than a wrist-slap to some of these individuals (which I am afraid will happen). The new law that the President signed the other day extends jail terms to three years for specific lawbreaking. Three years! This is a joke when compared to, say, the incredibly lengthy mandatory sentencing for relatively minor drug law infractions (especially in Bush's own Texas!).

Great Falls, Va.: Do you think that it is possible for a typical CEO to legitimately vouch that the financial statements have been prepared in accordance with GAAP if he/she does not have a finance/accounting background?

Paul Tiffany: NO, in fact most CFOs probably couldn't do this. And let's push it even further: the accounting firms can't either! Much-- repeat, much-- of the truth in an accounting audit is dependent on the truthfulness of the reporting by the firm itself. It is simply way too expensive to vet every aspect of the accounts themselves; the CEO, the other top officers, and the outside public auditors cannot totally replicate the data.

The point: we are dependent on good and honest people acting honestly in their work. If they choose to play illegally, it is difficult in most cases to catch them. Social responsibility by managers is the bedrock of our system; when it breaks down, the system breaks down.

Alexandria, Va.: I've found this week's Washington Post series of articles on the "Fall of Enron" to be fascinating. It appears that lots of (highly paid) executives and accounting people essentially stole assets from the company (and ultimately the individual stockholders).

As there has always been and always will be dishonesty, I'm confident this wasn't the first time this type of thing has happened. And it appears to me that relaxation of various rules and regulations, which started in the 1980's and continued through the present time, made it easier for these guys to do the bad deed and think they could get away with it.

Is this borne out by your research of similar situations in the past? What other factors in your opinion have caused this sort of scandal to occur?

Paul Tiffany: I have somewhat answered this in prior replies; but it is a good question that deserves a response. First, this is not the first coporate scandal in American history, nor will it be the last. Why? We are a nation that likes capitalism, that believes in the personal pursuit of wealth, and does not believe in lots of public constraints on that pursuit.

Result? We leave it to individual responsibility-- "corporate social responsibility" in the typical vernacular-- to police the system. This is self-regulation. But while this does have its benefits, it also has its downside, as the current round of scandals shows.

The answer? Way too tough to define in this limited space!

Laurel, Md.: Professor, I drive to work every day on the Washington beltway at about 72 mph. The speed limit is 55, but more cars pass me than the other way around. It wasn't always like this; people once drove no more than 60, until a few started going 65 and didn't get ticketed, so everyone went that fast and some started doing 70, etc.

Aren't today's sins largely that accounting standards and securities laws that used to be rigid became bent, until everyone bent them a little more, until they ceased to mean anything at all.

Is this a permanent part of business history that regulations mean less and less until the next scandal causes a crackdown, and then the next cycle begins again?

Paul Tiffany: You are "right on" in your surmise. First, the perception by managers that "others are getting away with it" is, I believe, part of the issue. More importantly, when those others not only get away with it (i.e., bending the rules), but also prosper by it-- and when their firms shows increases in profits by it, followed by higher share prices, then the pressure to do something comparable becomes strong.

It is a difficult decision by many to stick to the "old standards" under such pressure. Note Warren Buffett: he refused to engage in the dot com frenzy of the late '90s, saying he just didn't get the absure P/E rations of that sector, and he suffered huge relative losses compared to fund managers who jumped in. And history will be good to him: his reluctance to compromise his principles ultimately resulted in "victory" for the right way to evaluate a firm.

So, the scandals will be with us again, no doubt, and for the same reasons as this current round.

Menlo Park, Calif.: Why aren't we seeing more mass arrests of executives?

At this point, it's clear that arresting the top executives of Enron and WorldCom for fraud, as well as "operating an ongoing criminal enterprise" would be appropriate. Maybe it's not clear who knew what when, but that's what law enforcement deals with all the time. If the executives are interrogated separately, some of them will probably rat out the others. Guliani broke the New York Mafia that way.

Do you think the administration will do this?

Paul Tiffany: Yes and no. One, Bush would love a couple of so-called "public hangings" to illustrate that he is doing something. (Perhaps the Adelphia folks; maybe even Martha S.-- after all, she supports Democrats!). But he likelihood of mass prosecution is slim. For one, the laws are too murky to prove in a court that intention, etc. was there. Second, the time it takes to finish a successful prosecution is years, not days-- and we are an impatient people!

But I do think the public spotlight is good; it should send signals to all that behavior has to be legal let alone ethical, or consequences will occur!

Burke, Va.: How does the SEC decide which CEO's to go after. Why for instance is Enron not seeming to be investigated, while the others are going to jail?

Paul Tiffany: I am asking the same question. In fact, I wonder why the SEC is not re-investigating Harken Energy from the early '90s!

I wish I knew the answer to the Ken Lay, Jeff Skilling, Enron case. I am not a lawyer, so I will give the SEC the benefit of the doubt here-- the evidence is not yet justifiable for prosecution. However, I am also astute enough to know that these cases are often "politically" decided.

Time will tell on this one!

Washington, D.C.: Accounting is the language of business. Without an understanding of accounting, no one in business management can perform their work competently. When it comes to accounting for every dime, no CEO or CFO cannot be vouch for every cent. However, the scandals we're seeing today involve billions of dollars. There's no way a CEO or CFO with accountants who are even a little bit scared of going to jail could not have known of the harmful practices occurring.

Paul Tiffany: Agreed, to a degree. See my earlier response on this question (to another question).

Fairfax, Va.: As a college professor, you are looking at this whole issue from an academic classroom point of view, and it is easy under these circumstances to point fingers here, but put yourself in the shoes of one of these "evil" CEO's for a minute....the enormous responsibilities they have running a large corporation. They have payrolls to meet, products to produce, etc. I could go on and on. If the accountants can't (or won't) give them accurate figures to work with, is it THEIR fault? This is a very complex issue, and putting CEO's in handcuffs and introducing hastily passed legislation without considering the long-term consequences is going to solve nothing.

Paul Tiffany: Again, partially agree. Not all of them-- in fact, the overwhelming majority of corporate leaders-- are not "evil" and should not be branded as such.

But this should not be seen as an endorsement of "no problem here, so no changes are necessary." There is a BIG problem here, and it is corporate influence on the political process through campaign and other contributions. We are seeing the result of the expansion of corporate influence on American politics in the Enron, et al fiasco. While I agree with your basic premise, I still think that Congress has got a role to play: reform campaign finance!

Miami, Fla.: Paul,
Do you feel that officals at AOL may have broken State or federal criminal law in the way in which they booked revnue; as they were reported to have done, in the Washington Post?

washingtonpost.com: AOL Time Warner Confirms Justice Dept. Probe (Post, July 31)

Paul Tiffany: Can't answer this with any degree of specificity. Don't know the details. Your statment of "may have" does, however, leave the possibility that Yes, they may have. The pressure to meet First Call share price expectations was enormous over the past five years, and as we are seeing many a corporate executive became very creative in how they did that. Were these illegal, or judgment calls that in retrospect look bad?

We shall see!

Athens, Ga.: What is the cost to the public of the S&L debacle? What is likely to be the cost to shareholders of the current accounting scandals? Have we ever before seen two corporate scandals of this magnitude in such a short time period?

Also, I must say, it disturbs me that many of the people who spent the last two decades facilitating the S&L scandal, demonizing government oversight and regulation, and impeding efforts to reduce the influence of corporations on public policy are now scrambling to portray themselves as reformers. Can you put this revolting hypocrisy in some historical perspective?

Paul Tiffany: Big question, short answer. First, the S&L fiasco cost taxpayers about $400-$500 billion, not a trivial sum! The melt-down in share price valuations following the Enron et al news has lopped off more than a $trillion....

And I fully agree with you about those who yesterday saw no problem are those today calling for reform. Billy Tauzin, in a state near to you, is among the worst. But then again, these are politicians; did we think they would do anything else!

Newington, Conn.: Professor Tiffany:

What are the root causes of the corporate scandals? Is it exuberant CEO and executive greed? Is it the phenomenal CEO to employee ratio from 43 in 1973 to 500 in recent years? Is it a slow morphing of watchdogs into lapdogs? Is it a society which tries to operate at the boundaries of the law without crossing the line (as evidenced by the refrain of bankers's saying "...legal independence..." when asked about Mahonia, Inc) Is it a general laxity in moral values in our society?

Paul Tiffany: Let me go back to my basic critique: it is fundamentally a problem of political campaign finance and the role of corporate money in that endeavor. Far too much corporate money has loosened the rules way too much. Fix campaign financing, and we will go a long way to fixing these cyclical scandals of which Enron etc. is only the latest outbreak.

Harrisburg, Pa.: Here is a Beltway-type question, yet an important one: what do you believe Congress should do, if anything, regarding corporate responsibility? If you were advising Congress, what would you tell them to do?

Paul Tiffany: Do something which, unfortunately, they appear utterly incapable of doing: clean up political campaign financing. They have prostituted themselves to donors, who because of the nature of American society are primarily (but not only) corporations. As such, they give in way too much in order to source funds that they perceive necessary to stay in office (and which is more than perception, it is actual). But can they do this? So far, no. McCain-Feingold is the aberration, not the rule.

Vienna, Va.: What is the oldest corporate scandal in the U.S. Can you give us a timeline of ones that impacted our history and government?

Paul Tiffany: One of the earliest and most well-known is the Credit Mobilier scandal of the 1860s, in which private railroad interests induced Congress to supply public monies to the construction of a railroad when a large portion of those funds went directly into the pockets of the railroad executives (some of whom, by the way, were members of Congress! Familiar story, no?).

Others earlier no doubt existed, but this is one of the earliest "big" scandals, and figured in the development of the "robber baron" hypothesis that characterized the rise of big business in America in the late 19th century.

Washington, D.C.:
Paul,

I'm not going to bash President Clinton here, but it is worth bringing up that he constantly stretched the truth and lied and covered up as the Chief Executive of our country. Don't you think that culture allowed some of these practices to take place? I'm not trying to see this naively in purely politcal terms, however in the final analysis these were just simple men who decieved and lacked moral character. Anyone of these CEO could have had some character and said "no way guys we're not doing it this way!" but they didn't. Sound like someone we used to know in the White House?

Paul Tiffany: To a degree, I agree with you. Clinton policies and behavior are not beyond reproach here. But let's go back further: Ronal Reagan anesthetized America into believing that we did not need any public intervention into the markets, that government itself was the problem with the country, and that the less government was the best government. This attitude puts a huge responsibility on business executives to exercise moral and ethically sound behavior, as well as legal behavior. I tend to see Clinton in the light of the public sentiment that Reagan built in
the '80s for less public oversight.

Washington, D.C.: Hi Paul,

My reading of history is that a handful of rich families make the rules, and take the profits whether they are legal or illegal. They work hard to get members of the family and trusted allies into key roles - banks, politics, regulators - to insure their business activities won't have any problems. When a scandal surfaces, they know it won't really hurt them - it is simply a cost of doing business.

The Bush family, for example, has had bankers (Neil making off with millions from the failed Silverado S&L, and Prescott), politicians (George, George, and Jeb), and regulators (Harvey Pitt is a close personal friend and is preventing a Harken investigation).

Aren't the majority of the big corporate crimes committed by the rich and powerful? I don't see mom and pop stores starting offshore accounts, trying to set law and policy favorable to themselves, or ripping off large numbers of citizens.

Paul Tiffany: Actually, the majority of corporate chieftains come from the middle ranks of American society, some even lower. Take, for example, the Riggo (sp?) family that controlled Adelphia, one of the firms caught up in the current round of corporate scandal.

This is not to say that the well-to-do have never been involved in such illegal/unethical behavior. Rather, I am saying that this is not the exclusive province of the wealthy! Corporate crime, it appears, is an equal opportunity activity.

Annandale, Va.: Do you think the following proposal would have a beneficial effect on corproate governance -- all loans by public corporations to insiders must be demand loans and may not be discharged in bankruptcy?

Paul Tiffany: YES, absolutely a good idea. Let's hope something comes of it (but don't hold your breath)!

Washington, D.C.: Do you see the federal government getting bigger in light of the recent business scandals (more desire for regulation, government as a balance to big business) or do you think reducing government's role will continue?

Paul Tiffany: I would like to see an enlargement of some enforcement agencdies, say SEC, and indeed we will might. But remember this is an Administration that operates in the spirit of Ronald Reagan: the less government, the better! One would think that Bush might have learned some lessons in this round of corporate scandal, but I personally am not counting on it. I foresee him expanding national security/defense agencies, but attempting to limit/minimize nearly all else. Pity.

Annapolis, Md.: Could I get your thoughts on our business model in general? I spent some time in Quebec recently with a company that doens't have "bosses", they have "counselors".

If an employee is told to do something and the employee feels that there is a better way to do it or that it isn't in the best interest of the company as a whole, the employee is empowered to challenge it without fear of loosing his or her job.

In the Post Enron series, I read a part where an accountant said the entire team was intimidated by Ken's yelling and screaming to "get the numbers I want or else". If these accountants had been empowered to challlenge Ken, then maybe the company could have been saved.

washingtonpost.com: Read the Post Business: Fall of Enron Special Report.

Paul Tiffany: Wont' happen in the US, and certainly not in our lifetimes! Corporations are not participative democracies; they are autocratic fiefdoms, where the CEO is deity!

To change this requires fundamental changes to the laws and regulations that surround corporate governance. We have no federal laws in this respect; each state has its own. The last time there was a Congressional move to address this (in the 1970s, and led by Ralph Nader!), it went nowhere.

The reliance on "committee rule" and empowerment is something, in my view, that does not work well in the general "culture" of America. I am not saying this is good or bad, just that I don't think it fits with how we have evovled as a society, at least up to this point.

Reston, Va.: Why are former executives of Enron such as Skilling and Lay still free men? In my research on the downfall of Enron - I see them as the ringleaders. These men deliberatly lied to their employees and investors while leading/coercing others (Andersen) into illegal business practices that ultimately ruined the company.

Paul Tiffany: Good question; let's hope the SEC and other public prosecutors find enough evidence to legally take action against these guys, and that real justice is done! (Interesting: our President the Texan seems all to eager for the ultimate penalty for wrong-doers in his own state, but I have heard no comments from him that friend Ken Lay should go that way! Gee, wonder why not....)

Washington, D.C.: Mr. Tiffany-
In the wake of numerous accounting scandals and a wounded industry, executives have found it easier to pass the blame onto their external auditors. What long-term effects will these recent accounting scandals and newly-passed legislation have the public accounting industry?

Paul Tiffany: The issue is not the auditors per se, but rather the rules in which they operate. This is where the compromises have occurred. The SEC in the 1990s, under its chairman Leavit, fought the relaxation of standards, but he was out-gunned by Congress which, under the influence of corporate political campaign donations, demanded less stringent regulation.

I would hope that we could return to a tougher regulatory regime for the accounting profession-- and you know what? I would bet that by far most accountants would also want this!

College Station, Tex.: They ought to expense options as a part of law. When will this come to pass? Who is trying to block it?

Paul Tiffany: YES, absolutely I agree. Will it happen? The Congress we have does not have the political will to do this, even in the light of the current round of scandal! This, in itself, is the real scandal. Who killed off the attempt to force expensing of options when it was broached by the SEC in 1993? Sen. Joe Lieberman of CT-- a relative liberal who is not associated with the usual view that corporations should rule the world, as some of his more conservative colleagues would argue!

I would like to see your idea occur, but I don't see it happening soon.

Washington, D.C.: Does it help that our current administration wants to run the country like these failing mega-corporations? I get a queasy feeling that the tax cut last year uses some of the same accounting tricks, and America, Inc. may be heading for a bakruptcy after the "board" makes its cash and a clean getaway.

Am I too pessimistic?

Paul Tiffany: Too pessimistic? No, not pessimistic enough! We have arguably the most pro-corporate Administration in history, and the current scandals should be a lesson to all of us in terms of how the corporate model is not necessarily the best political model for running a country.

Richmond, Va.: Hi Professor Tiffany:

As a prospective MBA student, I'd like to re-ask an earlier question: which business schools have the best programs in ethics? In addition, are there any books on corporate ethics which you would recommend? Thanks

Paul Tiffany: The business schools today ALL have courses in ethics, and many have them as required courses. Interestingly, however, this requirement has been relaxed over the past ten to fifteen years as more and more students indicated they would rather have courses devoted to financial concepts, etc. rather than (ugh!) forced classroom teaching on ethics. The schools, in general, responded.

While I am hesitant to recommend any one or even group of B schools as being "best" at requiring/delivering ethics courses, I would note that those who have done it the longest are still among the best. Example: Georgetown, a Jesuit-affilited University (i.e., a Catholic school run by a religious order), that has an excellent business school with outstanding teaching on ethics.

(But note to the wise: Bill Clinton is a Georgetown graduate [though not from its business school]!).

I would urge you to communicate directly with your preferred schools and query them as to their commitment to the teaching of ethics in their curricula. And good luck in getting admitted-- the business world needs more like you!

Virginia: What was the worst European corporate scandal?

Paul Tiffany: Many would say it was the inability of European firms to earn returns like our American corporations! Interesting to consider in light of today's news, no!

Paul Tiffany: Thanks to all for your interesting questions, and sorry we had so little time to address such a critical issue. But keep up your inquiring thoughts... this is still a nation of the people!

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