May 3rd, 2012 by hlucas under Business and the Economy, Ethics. 2 Comments.
Most people think that Apple’s headquarters is in Cupertino California, but for tax purposes the company has established a number of offices in places like Reno Nevada, Ireland, the Netherlands, Luxembourg and the British Virgin Islands (New York Times, 4/28/2012). California’s corporate tax rate is 8.84% while Nevada’s is 0. Analysts expect Apple to earn as much as $45.6 billion this fiscal year-a record for any American Business. Last year Apple paid 9.8% of its profits in taxes, $3.3 billion taxes on profits of $34.2 billion.
There is nothing illegal about Apple’s efforts to minimize its tax bills. It seems that the U.S. tax code for business harkens back to an earlier day when a U.S. company manufactured a product and sold it mostly in the U.S. In the digital age with products being downloaded and in an age of outsourcing with products built by contractors in foreign countries, it is hard for the tax code to keep up. Apple’s accountants managed to allocate about 70% of its profits overseas.
When profits overseas are repatriated to the U.S. there is a tax bill. But Apple has joined a coalition including Google, Microsoft and Pfizer to lobby for a “repatriation holiday” that would permit business to bring money home without incurring a huge tax bill; a Congressional report estimates this holiday would cost the federal government $79 billion over the next decade.
California, which really looks a lot like Apple’s home base, is struggling with more than a $9 billion deficit. De Anza Community College a mile and a half from Apple’s headquarters has cut more than a thousand courses and 8% of its faculty since 2008. It is estimated that Apple has over $100 billion in cash.
Apple is not alone. In 2010 GE reported global profits of $14.2 billion of which $5.1 came from U.S. operations. It paid no U.S. income taxes and claimed a tax benefit of $3.2 billion (New York Times 3/14/2011).
Now for the second organization, Brown University, which announced that it would increase its payments in lieu of taxes to Providence R.I. An agreement from Colonial days says that the University is “freed and exempted from all taxes” (New York Times, 5/2/2012). The School will voluntarily pay $31.5 million to Providence over 11 years. This commitment is in addition to the current $2.5 million in voluntary payments and $1.6 million in taxes on commercial property the University owns. Brown, with a $2.5 billion endowment, owns over $1 billion of property which would generate taxes of $38 million a year. Providence is at serious risk of bankruptcy.
What’s the moral of this story? All of us enjoy the benefits that are provided by local, state and federal governments. It is very easy to start a company like Apple in the U.S. We have venture capital, orderly financial markets, a highly efficient transportation system, and are relatively free of corruption. There is a robust patent and legal system to try and assure fair competition among companies. Why are companies like Apple so reluctant to help finance these benefits? Is the goal of profits or shareholder value driving their behavior? Is it executive compensation? Maybe managers at these firms that go to such great lengths to avoid paying taxes in the U.S. could learn something from Brown University that they did not learn during their college days.
April 10th, 2012 by hlucas under Education, The University Today. No Comments.
The latest book to take a critical look at American Universities is Academically Adrift: Limited Learning on College Campuses by Richard Arum and Josipa Roksa, University of Chicago Press, 2011. In addition to reading the book, I attended a lecture when the Smith School invited Professor Roksa to present her findings to our faculty.
The authors looked at a large group of college students, following them over time. Much of their data came from the administration of the College Learning Assessment (CLA) which attempts to measure critical thinking skills rather than factual knowledge. This assessment is very much in tune with the teaching in business schools where we encourage students to think about issues and engage in problem solving. We also make extensive use of case studies, and the CLA test presents a problem to the student in the form of a short story with a problem to be solved like the longer cases in our classes.
I won’t summarize the book here, but the general tone is that there is less learning going on in colleges since the 1960s. Professor Roksa mentioned one finding that highlights this decline; a number of “B” students reported that they needed to study only an hour a night. Of course, there was wide variance, the students in selective colleges are studying more. And college is about more than learning facts or performing well on a single test. But I think a lot of us feel that the study has provided evidence that the rigor of college education in general has been declining in the U.S. (with the exception of some of our top universities?)
There are undoubtedly many reasons for this decline, and everyone has their favorites ranging from the quality of K-12 education to television and the Internet distracting students starting at an early age.
Thinking about my own career I can contribute two causes to the list of reasons for the findings in Academically Adrift. When I was an undergraduate, I was never asked to evaluate a class or a professor or to complete a survey about teaching. When I went to graduate school the story was the same. I asked our sons who graduate from college in the 90s and by that time things had changed; at the same undergraduate school I attended they completed course evaluations for their classes.
Because it is easy, we tend to choose one or two numbers from course evaluations, often the average of several items, and use them as indicators of faculty teaching quality. This simple measure and its importance motivates a lot of behavior which may not be the best for educational outcomes. For example, an instructor has to be careful not to demand too much work because if the workload is too far above average students will be critical on the evaluations. A faculty member has to worry about how entertaining she is as well as the material being presented. And grading too harshly will also elicit a poor response from students on the course evaluation survey. I suspect that the demands and rigor of our courses for many of us who have taught for several decades have declined over time.
The other trend that might impact academic drift is the pressure from research universities to publish research in “A” journals. This process has become more and more difficult as the journals have become more demanding. In my own field of Information Systems, the peer reviewers spend most of their time looking for reasons to reject a paper rather than figuring out how to help the author improve it. Time devoted to research has to come from someplace; if that is from committee work, no problem. But if the time comes from teaching, then students and education will suffer.
Is there a solution that mitigates these two problems? One would be to change the course evaluation process to try and measure learning rather than the entertainment value of the instructor. Deans could have faculty members known for the rigor of their courses evaluate course syllabi and faculty innovation.
Solving the research problem is more difficult because research universities obviously have to emphasize research. One strategy would be to allow a faculty member post tenure to change the weights given to research and teaching in her annual evaluation. Many universities have teaching only faculty who are not on the tenure track. A school could increase the status of these positions and their remuneration so that a teaching position was seen as being as valuable as a faculty position that involves research. Some schools have research associates who work only on research and have no teaching responsibilities. Adding these positions to the mix would provide more flexibility for faculty who want to emphasize their teaching.
When you are adrift on a sailboat, the captain can raise the sails or start the engine and set a direction. We need the captains of academia to choose a new heading and get U.S. universities back on course.
October 31st, 2011 by hlucas under The University in the Future, The University Today. No Comments.
A popular Stanford Professor, Sebastian Thrun, is offering an online course, Introduction to Artificial Intelligence, free of charge to about 130,000 students around the world. If students complete the exams, they receive a certificate of accomplishment, not college credit. Thun thinks that the virtual University is the way of the future because the cost of the current University model is so high. The idea is that in a setting with a smaller number of students, teaching assistants could meet virtually with students in smaller groups for discussions of lecture material (New York Times, 10/3/2011).
The idea of star faculty teaching across the country or the world online has been possible since the dawn of the Internet, but except in limited instances it has not happened yet. Maybe no one can agree on who the best instructor for introductory economics would be. Possibly faculty are afraid of becoming unnecessary if a few hundred of the country’s best lecturers teach all the intro courses in the University. What tenured faculty member wants to be relegated to leading discussion sections for a star from another University’s online lectures?
The article mentions some problems with online teaching, for example, it would be easy for an online student to cheat or to have someone else take the course for him. Will students sit at their computers, but tune out during the lectures? If there are hundreds of students, where will the teaching assistants come from? (Thune’s course would need 5200 TAs to have 25 person sections for discussion.) If the virtual model takes hold, we will need fewer faculty and that means fewer graduate students preparing to be faculty members. Would there be enough graduate students to staff discussion sections? Would faculty members be willing to do so just to have a job?
The economics of virtual are orders of magnitude more favorable than the bricks and mortar university. In other domains it appears that consumers have already decided that virtual is better than physical, for example, think of recorded music, newspapers, photography, video distribution, online commerce and book publishing. What does the physical university have to offer? The president of Stanford, John Hennessy, is supporting Thune, but he also argues that there are huge benefits, especially for undergraduate education, from having students together physically to be immersed in a culture of exploration, discovery and hopefully, critical thinking. The author of the Times article describes our University system as “a wonder of the world.” But how long can we afford this wonder?
Is there a way to preserve tradition and at the same time reverse the constantly increasing costs of college? The four-year college of the future has to change if it is to remain economically viable. In an earlier blog I presented ideas on how to restructure the University into four parts, an undergraduate college, a graduate school (for a university), a research division and a franchised athletic operation. Here I want to concentrate on the teaching side that affects the first two units.
Consider a University offering undergraduate and graduate education. It will draw on some national courses, probably of two types, to be offered online with local faculty and graduate students running discussion sections. The first type of course will be the very large lecture that might have hundreds of students; this course like intro Economics, Psychology, Political Science, etc. will feature lectures from the leading teachers in the country. These teachers will earn modest revenues for their university. Local faculty will organize the classes and supplement the online lectures with their own material. In a sense, they will co-teach the course with the remote, star faculty member from another institution.
The second type of course will be specialized like Thune’s lectures on AI; he is the designer of Google’s self-driving car which means he can offer a course that few others could. Having specialized faculty and courses like this will enrich the offerings of any college and expand choice for students.
In an earlier blog I suggest that the nature of the college experience will change. Some, probably a relatively few, will spend four years on a campus getting an undergraduate education. A much larger number will spend various periods of time on the campus, taking the rest of their courses virtually. The technology exists to have much of this online teaching done with synchronous video and audio interaction over the Internet; we are not talking about the University of Phoenix asynchronous online courses. Instead the faculty member and students see all of the others in the class on their screens so that the interactivity of a physical class is captured online.
The technology is just about ready for this kind of model; unfortunately universities in general are not. At some point in the not-too-distant future, cost pressures and student demand will force us to move in this direction. It might make sense to start that movement now to be ready for an environment in which the competition among colleges for students will exceed the competition between their athletic teams.
October 11th, 2011 by hlucas under Business and the Economy, The American Aristocracy. No Comments.
To Tax or Not to Tax
While people have probably complained about taxes since someone levied the first tax, the debate seems to be getting more strident every day. I wonder if when Moses came down from the mountain there was an 11th Commandment, lost over time, that said “The Maximum Tax Rate shall be 10%.” When are taxes too high? What is the benchmark?
In the 1950s the U.S. had marginal income tax rates over 90%, though they did not apply to very many people. Today the maximum bracket is 35% and there are substantial numbers of citizens and Congressmen who say that this rate should never be increased.
On the corporate side, companies complain about how a 35% tax burden is higher than competitors face in other countries. Yet in the mid-1950s corporate taxes made up 30% of federal revenues while the number was 6.6% in 2009 (New York Times, 3/14/2011). How does this happen? G.E. is a great example. This same article says that in 2011 G.E. made $14.2 billion in profits of which $5.1 billion came from the United States. And what was its U.S. tax bill? Zero, none, and the company claimed a tax benefit of $3.2 billion.
GE reports a U.S. tax burden of 7.4%, about a third of that reported by the average multinational. GE has a large, very successful tax department and lobbies aggressively for tax breaks. It also keeps a lot of profits offshore and does not pay taxes on them until they come back home. (Companies are now lobbying for a reduced tax to repatriate their profits saying they will create jobs; the last time they received tax relief for foreign profits the money was used primarily for stock buybacks.)
If one has traveled extensively or lived abroad, the fact that in general the United States “works” is very obvious. It is still the easiest place in the world to start a new business; there is both venture capital and a well-developed infrastructure. This infrastructure includes the obvious like transportation, roads, railroads, air and shipping companies. But it also includes a banking and financial system that makes it easy to accept and make payments. And until the financial crisis of 2008, credit was easily available to small businesses and startups. Broadband access to the Internet is not as fast as in some other countries, but it is widely available. We have a strong legal system that provides patent and trade secret protection.
Yes there are regulations that companies must follow, many of which are designed to protect consumers. We want to buy food that we know is safe to eat; we want an air traffic control system that operates without flaws. We want companies to minimize the pollution they create and not poison the environment.
How do we pay for all of these services? While there are some fees such as those on air tickets, I believe that it is mostly through taxes, especially the income tax. Is it not a little disingenuous for companies to arrange to pay no taxes in the U.S.? They benefit greatly from the supportive business climate in this country.
If taxes are so distasteful to corporations, we should follow the lead of the airlines and introduce fees. Maybe what we need is a “participation fee” for being a part of our economy, a percentage of a company’s gross sales in the U.S. with no deductions or exemptions and no way for a firm to get out of paying that fee even if it is losing money. It becomes a cost of participating in and enjoying the benefits that the U.S. provides to business. No one likes taxes and fees, but it is important for the U.S. to keep on working, and that is not going to happen if companies feel they have no obligation to help finance the system that lets them succeed.
August 11th, 2011 by hlucas under The University Today. No Comments.
Recent events at Ohio State provide further evidence that big college sports endanger what Universities should stand for. The Buckeyes football team played for the national championship in 2002, 2006 and 2007, winning the 2002 national championship for the first time in 34 years. In 2011, its coach, Jim Tressel was forced to resign for failing to tell University officials that players were trading memorabilia for cash and tattoos, breaking NCAA rules. Ohio State vacated last season’s 12-1 record and its share of the Big 10 title and will be on probation for the next two years. Was Tressler alone in this coverup? One has to wonder what University officials new and when they knew it.
During his ten years at Ohio State Tressel made $21.7 million, earning more than $3.5 million in 2010 according to the New York Times (8/10/2011). The article further states that $4.6 million of Tressel’s earnings came from an arrangement between Ohio State and apparel-maker Nike. Evidently the $4.6 million went to Tressel instead of the University for its exclusive arrangements with Nike. Does this sound a little like money laundering?
In the beginning of college sports, students up made the teams. Now at the big football and basketball schools semi-professional athletes constitute the teams and a staff of tutors and academic coaches tries to maintain the illusion that they are students, too.
The last four years may have been a new low in business and government ethics; our hope is for Universities to instill ethical behavior in students. It is hard to play this role with the huge sums of money at stake in athletic programs; it is unlikely that Ohio State is the only school where there are payoffs to players and money is laundered to pay the coach.
What does President Gordon Gee of Ohio State have to say? His salary last year was $818,167 with a $300,000 bonus. (During his career at Ohio Tressel had a $200,000 signing bonus and $835,000 in game bonuses.) At the end of the 2010 season Gee said that the football coach’s salary reflected his value to the university. “You think about coaches and you think about surgeons and you think about English faculty. These are investments and we need to pay them so they are worthy of that investment (New York Times, 8/10/2011).” These words may come back to haunt the President.
If we assume that the English professor is paid about $100,000 a year, a generous assumption, then by Gee’s reasoning the football coach in 2010 was 35 times as valuable. The English professor exposes students to our cultural heritage and encourages them to learn to think critically. The football coach presides over a large entertainment subunit of the University. If President Gee ever faces a life-threatening illness, I wonder if he will call on his highly valuable football coach, or go to see the less valuable surgeon from his example.
June 27th, 2011 by hlucas under The University Today. No Comments.
In 2011 Jim Tressel, Ohio State’s winning football coach was forced to resign because of an infraction of NCAA rules, his failure to report the violations, and for lying about his knowledge in a signed report to the NCAA according to Yahoo News and the AP (5/30/2011). The infractions involve players who purportedly received cash and discounted tattoos from a local parlor.
The NCAA suspended the players including a star quarterback for the beginning of the 2011 season, but evidently to teach everyone a lesson, it let them play in the Sugar Bowl which Ohio State won. The president of the University appointed a committee to investigate and reported his decision to the trustees.
One has to wonder why a university with the mission of education and research has to be distracted by the behavior of the players and coaches. Is it because they don’t really belong in a university? Are they really a professional sports corporation that happens to be located on the campus? If so, then we are close to my favored solution for these problems, that we franchise the name of the University to a corporation that hires players and coaches. The University can rent facilities including a stadium to the corporation. There will be no need for the NCAA and if local merchants want to give gifts to professional athletes who are not students, they will be free to do so. We can still have a college football team, but it will not corrupt the rest of the institution.
June 27th, 2011 by hlucas under The American Aristocracy. No Comments.
It would appear that government tax policies and boards of directors are trying hard to create an American aristocracy like that of England and France in past centuries. A 2010 column by Nicholas Kristof estimates that the top 1% of American earners take home almost 24% of income, up from 9 percent in 1976. CEOs of our largest companies earned an average of 42 times the average worker in 1980, but 531 times as much in 2001. From 1980 to 2005, over four-fifths of the total increase in American incomes went to the richest one percent (New York Times, 11/6/2010).
How is the government contributing to building an aristocracy? The Bush tax cuts were not related to income so that a high wage earner had the same percentage reduction as a middle income worker. Given the high income of the top 1%, they benefited much more in dollar terms than anyone else. In addition this bill reduced the tax on capital gains and stock dividends, a policy much more valuable to the wealthy than middle income or poor Americans.
Unfortunately, these tax cuts did very little to stimulate the economy. Some argue that it is important to keep the tax burden low so that people will start companies and create jobs. Let’s think about that. Did Bill Gates say “I don’t want to start a new company to make software for PCs because if it is tremendously successful, I will have to pay more taxes?”
Many of the highest earners are in the financial industry that created the 2007 financial crisis. What kind of jobs do they create? Does a hedge fund manager start new businesses? Yet tax policy greatly favors the earnings of hedge fund managers; they pay a much lower percentage of their income in taxes than the rest of us. About the only financiers that do help create jobs are Venture Capitalists (who, by the way, appear to bear no blame for the recent economic meltdown).
How do boards contribute to creating an aristocracy? Through their compensation committees the boards set executive pay.
The New York Times retained Equilar, an executive compensation data firm, to analyze the pay of the 200 most highly paid CEOs with companies having at least $10.78 billion in revenue in 2010. The highest ad of these CEOs was Phillipe Daumanof Viacom who received $84.5 million after signing a long term contract with stock grants. Next came Leslie Moonves of CBS who had 32% raise to $56.9 million. Michael White of DirecTV got $32.9 million and Brian Roberts of Comcast and Robert Iger of Walt Disney each took home $28 million. The average pay for the 200 CEOs in 2010 was $10.8 million, a 23% increase over 2009. Very few workers received 20% + raises in 2010. Is a manager really worth $80 million in a year, or over several years? It does not take many years of earning $10 million or more to build up the kind of wealth that entitles one to be a part of the new American Aristocracy.
Boards of directors present a huge dilemma for public policy. Most board members are acquaintances or friends of the CEO. They are very friendly toward current management and most seem willing to lavish riches on at least the CEO if not other company executives. They also approve bonus plans which played a major part in providing incentives for financial executives throughout the industry to take risks that led to 2007’s economic crisis.
CEOs argue that a board made up of strangers elected by the shareholders in a real election would be adversarial and could not fulfill its role in formulating corporate strategy. This may be a valid argument, but I think the excesses of the current process far outweigh its value. You can always hire consultants to help with strategy.
Boards in the financial industry were unaware or unappreciative of the risks the firms were taking on. Maybe the companies did not reveal what they were doing, or maybe the boards did not understand risk. Did AIG ever report to its board on what might happen if mortgage backed securities it insured with credit default swaps suddenly began to lose value?
These boards approved compensation packages and severance payments that were sometimes in excess of $100 million to executives who helped destroy much of the value of their companies. It boggles the mind.
Do we want a country in the next few years and for future generations in which a small number of people have all the wealth? Our political system has been very stable due in part to a middle class that has been able to live comfortably. Will that continue as a growing part of the country’s annual income goes to the top 1%? What happens when the 24% they earn now becomes 30, 40 or 50%?
What is the solution? One is a sensible tax policy; the wealthy have gained tremendously by living and working in the U.S. They have a responsibility to support the government and the country. Remember that fifty years ago marginal tax rates exceeded 90%. Today we are arguing about numbers that are less than 40%.
We do need to reform boards. Let the CEO have a few friends and colleagues, but also include someone who understands risks and asks questions about it. Include a board member who represents the employees of the firm (not a highly-paid executive).
I was on the board of an electronics manufacturing company for three years. When there were no profits, there were no management bonuses. None. In the financial industry, people earned bonuses when their firms not only lost money, but when they failed as in the case of Bank of America buying Merrill Lynch to keep the firm from collapsing. The industry says it has to pay bonuses even if there are no profits to keep valuable employees. If this is true we need a law that prohibits bonus payments if the firm as a whole loses money.
And it would be nice if an influential business group or the government adopted a pay standard for CEOs that required their compensation to be a more reasonable multiple of the lowest paid worker in the organization. We need some data to figure that number out, but it is bound to be less than 500%.
If the top 1% continues to earn an increasing share of the country’s income, America risks losing its middle class which has been the foundation of the country and democracy. Do we want tax policy and boards of directors that lead to a wealthy aristocracy concerned with their own well-being, or do we want wealth that is invested in creating new businesses and jobs? If the latter is our choice, it is time to start serious reform of tax policy and corporate governance.
April 10th, 2011 by hlucas under Education. 1 Comment.
I am saddened to see the extent to which education is a target for officials trying to cut budgets. At least once a week there is an article about teacher layoffs, increasing class sizes and further reductions in the support for education. The governor of Pennsylvania has proposed a budget with a 47% cut in state support for higher education.
Education is clearly an investment for the future. In the U.S. a person is generally 18 years old when graduating from high school. About 30% of those students will graduate from college at age 21 or 22. For those pursuing a profession, graduate school will add two to six years or longer. We spend about the first third of our lives preparing for the rest of our life and a career.
Why spend so much time in school? One reason is the huge amount of knowledge that mankind has accumulated. Most business schools offer a two-year MBA which covers a large number of topics about business, and a student may specialize by taking five or six elective courses in one topic. I do not think that makes the student an expert, but it at least prepares her for an entry job. Our economy is tremendously complex and those who work have to be able to take advantage of new opportunities. If one looks just at technology, twenty years ago there were no cell phones and the Internet was a research network that could not be used for commercial purposes. Kodak and Blockbuster were doing great.
Portugal is the latest country to find itself in serious financial distress and request a bailout from the European Union. One background story I read argued that part of Portugal’s problems stemmed from a mediocre educational system. Without a highly educated and skilled workforce, one is not likely to find a lot of business investment or high-paying jobs.
For the U.S. to be competitive in a world economy that is getting more complex all the time, we need a well-educated population. I am surprised that business does not get more involved in supporting and promoting education. Companies need an educated and skilled workforce and they need customers. High school dropouts do not have a lot of purchasing power. Worse yet, what if that dropout ends up in prison or on welfare? Taxpayers have to fund these individuals in either case.
How can we convince public officials and the general population that education is too important to sustain huge cuts in funding? If anything we need to invest more in education; the U.S. used to have the largest number of people in college of any nation, but not any longer. I am afraid that our politicians see education as an expense and not an investment. Or they and the general population are unwilling to sacrifice current consumption for future generations.
We need to find more creative ways of financing education that will be less subject to disruptions in the economy. No one wants to pay more taxes, but it is hard to imagine how we can provide a more rigorous education to a growing number of students on a steadily decreasing budget.
CEO salaries are soaring once again, large bonuses are back on Wall Street for the crew that helped launch the financial crisis, the Pentagon budget is up, and our investment in education is declining. Is this really how we want to allocate our resources?
December 31st, 2010 by hlucas under The University in the Future, The University Today. No Comments.
This week brought a huge win for Maryland’s football team in the Military Bowl in a game that turns out to be the last one for football coach Ralph Friedgen. The Maryland Athletic Director, Kevin Anderson, evidently made the decision to buy out Friedgen’s last year of his contract. According to the Web site www.ncaafootball.fanhouse.com Friedgen was asked to leave after the coach-in-waiting, James Franklin, accepted the head coaching job at Vanderbilt.
The site reports that 1) Friedgen was earning about $2 million a year as head coach and 2) in 2009 Franklin was promised a $1 million payment if he stayed at Maryland and for some reason did not become head coach in 2012.
For faculty members who are responsible for achieving the two major purposes of a University, educating students and conducting research that contributes to society, these numbers are staggering. The best-paid faculty do not come close to the coach’s salary. If the numbers are correct, Friedgen made about four times the salary of Maryland’s outgoing President, Dan Mote.
For the last three years the faculty has had furlough days and no raises. For some of us the unpaid furlough days have added up to 25 over three years. Spending $2 million to buy out a coach’s contract is in extremely poor taste under any circumstances, and much worse in today’s economic climate.
Yes, I know that the state does not pay the coaches’ high salaries, but those millions could be put to use for education. To do so would require that alums and other donors value the educational mission of the University over varsity athletics. Fortunately there are a few of these people, like the late Robert H. Smith who generously endowed the Business School and whose wife contributed heavily to the performing arts at Maryland.
In an earlier posting I described what a university of the future might look like. One component was to franchise the University’s name to private sports organizations that would be financially independent of the University. These organizations would field varsity football and basketball teams for the University. The events of recent days have convinced me that such a mechanism is a necessary first step in fixing American higher education. Let a private sports company operating like a baseball farm club be responsible for recruiting players, paying coaches and selling tickets. Athletes could apply to attend the University, but would not have to be students to play. The University could then dismantle its elaborate recruiting and tutoring systems for athletes. We can stop pretending that someone playing two or three basketball games a week is actually able to get a college education at the same time. The University should negotiate a high fee for this Club calling itself the official team of the University of Maryland and using the Terps trademark.
It is time for universities, their students, alums and administrators, to remember why we exist and that athletics should only be a small part of what we do.
December 8th, 2010 by hlucas under Business and the Economy, Ethics. No Comments.
Some academics criticize business education as being too vocational and argue that a student majoring in business does not receive a liberal education. Most undergraduate business programs include a healthy dose of general university requirements; students are not able to take four years of nothing but business courses. One of the purposes of a college education is to teach students the art of critical thinking, and there is much analysis and thinking required in our business courses. Business and the economy are key to determining the quality of life for individuals and for the political power and influence of nations. So I have always been comfortable with my choice to teach business.
What I find discouraging, however, are the distressingly frequent lapses in business ethics. The financial crisis of the last few years provides a large number of examples of questionable ethics. One widespread destructive practice was mortgage brokers moving people from loans they could afford into completely unaffordable mortgages. A Stanford MBA at Goldman Sachs constructed a security which he designed to lose money for one client so that a favored client could “bet against” that security. It is not that ethical problems are new, we have had them since the beginning of business, even predating the patent medicine salesman. But in a complex economy with many different incentives and pressures, the opportunities to behave unethically are abundant.
Business schools have long struggled with their role in teaching ethics. I remarked to some friends that the financial meltdown shows that we were not successful in teaching ethical behavior to our students 25 or 30 years ago as it is those students who were responsible for much of what happened. Ethics courses are hard to design and teach, and they often get low student ratings. Maybe it is because the students don’t perceive them as immediately useful in their careers.
I believe that a simple approach to ethics might help. I have some questions taken from different sources that a manager should ask when confronted with an ethical dilemma:
1. How would you feel as a customer if the company takes a certain course of action (think exploding gas tanks, sudden acceleration, adulterated medicine, tainted food).
2. How would your actions look if reported in the newspaper or posted on a web site?
3. And the acid test: what would your mother say if you discussed the issue with her?
In the technology field one of the major ethical questions revolves around intellectual property (IP). The Internet has made a lot of content free, but there is clearly content that originators think should be protected. Will individuals provide content if there is no way to be compensated? In a knowledge economy IP is the product, and people cannot survive without some way of obtaining revenue for their labor. We continue to struggle with what IP should be protected and with the ethical considerations of sharing content.
The challenge for business schools is to find a way to weave ethical considerations into the curriculum and to make the experience have a lasting impact. As our graduates rise in the ranks they will encounter more situations in where they need to be guided by ethical standards. I understand the tremendous pressure managers are under to produce results, show strong quarterly earnings and keep their stock price up. But ethical lapses have destroyed companies (think E.F. Hutton for one) and caused incredible harm to individuals (Bernie Madoff comes to mind). The three ethics questions stated earlier are a start and it might be good to post them in every CEO’s office.