Knowledge@Wharton -- Business Ethics

Why Insider Trading Is Hard to Define, Prove and Prevent

Wed, 11 Nov 2009 16:18:47 EST

On October 16, federal prosecutors charged Raj Rajaratnam and his hedge fund, Galleon Group, with insider trading. On November 5, 14 additional people were charged with the same crime, and prosecutors predict even more arrests in coming weeks. The Galleon case raises questions about what exactly constitutes insider trading at a time when so many market participants, such as hedge funds and other opaque investment pools, live or die on their ability to gather information competitors don't have. Wharton faculty offer their opinions.

Lippo Group CEO James Riady: 'Money and Power Are a Blessing and a Curse'

Wed, 28 Oct 2009 17:19:29 EST

James Riady is the CEO of Lippo Group, one of Indonesia's largest conglomerates with annual revenues of some $3 billion. The Group, among the most active property developers in Southeast Asia, has expanded into China and Hong Kong and plans to invest $10 billion over the next five years in the Asia Pacific region. It also has interests in media, telecommunications, retail and health care. Fifteen years ago, Riady was responsible for the establishment of Universitas Pelita Harapan in Indonesia, and he has a strong interest in the social impact of business. During an interview with Knowledge@Wharton, Riady explained the lessons he has learned over the years from successes and failures in business and politics.

The Bernard Madoff Case: Trust Takes Another Blow

Wed, 07 Jan 2009 16:53:55 EST

Successful marketplaces -- indeed, all social systems -- require a level of ethical behavior among their participants. In an interview with Knowledge@Wharton, professors Maurice E. Schweitzer and G. Richard Shell, who have conducted extensive research on the role of trust in markets, explain why even the most sophisticated investors put their faith in Bernard Madoff, the New York City financier recently accused of running a $50 billion Ponzi scheme. That breach of trust has damaged the broader markets, Schweitzer and Shell say.

Hedging Their Bets: How Hedge Funds Can Curb Critics and Avoid Regulation

Wed, 12 Nov 2008 15:45:28 EST

Hedge fund managers oversee $1.9 trillion in assets, but no one knows what they invest in or even what those assets are actually worth. That's because hedge funds are not regulated and consequently aren't required to make the same detailed financial disclosures that are required of publicly traded companies. The combination of potentially huge financial rewards and lack of transparency may foster ethical lapses, Wharton professor Thomas Donaldson noted during a recent talk on hedge fund ethics. His solution? An approach he calls a "microsocial contract."

Bad Business: Why Companies Shouldn't Trade with Abusive Regimes

Wed, 30 Apr 2008 17:36:16 EST

Is selling police equipment to a notoriously brutal government tantamount to assisting in torture? William Schulz believes that it can be, and that these types of sales are one of the principal ways in which businesses find themselves tangled up with torturers. During a presentation sponsored by Wharton's Zicklin Center for Business Ethics Research, Schulz, former executive director of Amnesty International and now a senior fellow at the Center for American Progress, spoke about the challenges that companies face doing business with repressive governments.

In the Game of Business, Playing Fair Can Actually Lead to Greater Profits

Thu, 13 Mar 2008 14:43:58 EST

Tune into "The Apprentice," and you get an all-too-common view of business. Every week, the contestants try to impress Donald Trump by preening, cajoling and conniving. In this world, toughness is the measure of every CEO, and the boss glories in firing people and squeezing every penny out of suppliers. Yet according to John Zhang and Jagmohan Raju, both Wharton marketing professors, and Tony Haitao Cui from the University of Minnesota, many people aren't purely mercenary in their business dealings. They care about fairness -- and they should, the researchers say, because doing so can maximize their profits.

Are Overconfident Executives More Inclined to Commit Fraud?

Wed, 05 Mar 2008 15:48:59 EST

No one makes it to the top ranks of corporate management without a healthy amount of self-assurance. Confidence underlies decisive, strong leadership, but does overconfidence lead managers to cross the line and commit fraud? New research by Wharton accounting professor Catherine M. Schrand and doctoral student Sarah L. C. Zechman examines patterns in frauds to determine if some frauds evolve, not out of pure self-interest, but because executives are overly optimistic that they can turn their firms around before fraudulent behavior catches up with them. Their paper is titled, "Executive Overconfidence and the Slippery Slope to Fraud."

Baseball, Steroids and Business Ethics: How Breaches of Trust Can Change the Game

Wed, 20 Feb 2008 15:18:03 EST

When former Senator George Mitchell finally released his report on performance-enhancing drugs in Major League Baseball last December, many of its conclusions came as no surprise to baseball fans, most of whom had heard the allegations of steroid use for years. With fans aware of such egregious behavior, why has attendance at games continued to climb? Are baseball's "consumers" impervious to ethical lapses? No, say Wharton professors, but the case demonstrates how bias, competition and a lack of oversight can work together to create an ethically toxic atmosphere -- in any field.

What Hewlett-Packard's Spying Scandal Tells Us about the Limitations of Corporate Boards

Wed, 18 Oct 2006 16:54:18 EST

The crisis at Hewlett-Packard over allegations that its chairwoman, Patricia Dunn, authorized illegal surveillance of HP board members in order to find out who leaked sensitive company information to the press, is dragging on, perhaps longer than most people first expected. And it has raised a number of important issues about corporate governance, privacy protection and surveillance of employees. Tom Donaldson, professor of legal studies and business ethics at Wharton, joins Knowledge@Wharton to talk about HP's woes as they relate to business practices both in the U.S. and abroad. Donaldson's research areas include business ethics, leadership, risk management and corporate compliance. He has consulted with companies ranging from Goldman Sachs and Wachovia to Exelon and KPMG, and is currently working on articles about corporate risk management programs and cash management practices at non-profit organizations.

The Billion-Dollar Body Parts Industry: Medical Research alongside Greed and Corruption

Wed, 09 Aug 2006 16:13:52 EST

Body parts are big business in the United States. Tissue, organs, tendons, bones, joints, limbs, hands, feet, torsos, and heads culled from the dead are the cornerstones of the lucrative and important business of advancing scientific knowledge and improving medical technique. Few people, however, think to ask where the material that sustains this enormous industry comes from. Journalist Annie Cheney is a timely exception. In Body Brokers: Inside America's Underground Trade in Human Remains (Broadway), Cheney chronicles her quest to find out how human remains are procured, processed, marketed, and used. It's a complicated, detailed and disturbing tale.

Podcast: Thomas Dunfee on the Enron Verdict

Wed, 31 May 2006 14:58:33 EST

On May 25, a federal jury convicted former Enron CEO Kenneth Lay and former Enron president Jeffrey Skilling on conspiracy and fraud charges, with sentencing to be decided on September 11. As has been repeatedly noted in press coverage of this trial, Enron is the incredible story of a once powerful company done in by a group of top executives whose greed and fraud was breathtaking even by post dot-com standards. But it is by no means the only high-profile criminal trial in recent days, nor is it likely to be the last case brought by the government against CEOs who abuse their positions, their stockholders, their employees and the public trust. Thomas Dunfee, chairman of Wharton's legal studies and business ethics department, and an expert on social contracts and the social responsibility of business, talked to Knowledge@Wharton's Mukul Pandya and Robbie Shell about the Enron verdict.

Linking Strong Moral Principles to Business Success

Mon, 21 Nov 2005 14:58:29 EST

In Moral Intelligence: Enhancing Business Performance & Leadership Success, Doug Lennick and Fred Kiel look at the connection between strong moral principles and business success. Using original research, the authors show how the best performing companies have leaders who are able to promote moral intelligence throughout their organizations, despite the fact that the business world all too often rewards bad behavior, at least in the short run. Included in their book is what the authors call their Moral Competency Inventory, a metric that can help leaders assess where they and their organization currently stand.

Winners Never Cheat: Lessons for Today's Business Leaders

Wed, 01 Jun 2005 17:22:46 EST

In 1970, Jon M. Huntsman started a small entrepreneurial firm with his brother. By 2000, Huntsman Corp. had grown to become the largest privately held petrochemical and plastics business in the world. Today, Huntsman is a billionaire philanthropist who recently donated $225 million to establish the Huntsman Cancer Institute at the University of Utah. He has also contributed millions to help rebuild the country of Armenia, and supported organizations that feed the poor, house the homeless and protect victims of domestic violence. In his new book, Winners Never Cheat: Everyday Values We Learned as Children (But May Have Forgotten) (Wharton School Publishing), Huntsman offers a "moral compass" for business leaders and others to live by that is based on his own experiences.

Corporate Fraud on Trial: What Have We Learned?

Wed, 30 Mar 2005 10:18:01 EST

The high-profile corporate scandals involving former WorldCom CEO Bernie Ebbers and former Tyco CEO Dennis Kozlowski are back in the news, refocusing attention on corporate fraud and inviting such questions as: What has changed since these allegations emerged a few years back? And will the criminal trials of these two men, under way this week, serve as a deterrent to other high-profile executives who might be tempted to forget the rules of fair play in corporate America?

Tiffany & Co: A Case Study in Diamonds and Social Responsibility

Wed, 17 Nov 2004 17:06:54 EST

"Minerals should - and can - be extracted, processed and used in ways that are environmentally responsible." Those words, coming from Michael J. Kowalski, chairman and CEO of Tiffany & Co., set the stage for a discussion last week of the luxury jeweler and specialty retailer's recent efforts to bring about industry reform. Kowalski spoke to a Wharton marketing class that looked at such issues as how Tiffany should proceed in its campaign to promote responsible mining, what the campaign might do to its brand equity, and how the public commitment to reform could affect consumers and shareholders.

How Serious Was the Fraud at Computer Associates?

Wed, 20 Oct 2004 15:58:19 EST

The $3.3 billion securities fraud case against Computer Associates has been called the last of the big Enron-era cases, involving alleged practices termed "the 35-day month," "the three-day window" and the "flash period." But the cases of the Houston energy-trading firm and the Islandia, N.Y., software giant are also different. Computer Associates executives are not accused of reporting nonexistent deals or hiding major flaws in the business. The contracts that were backdated by a few days were real. So was this really a crime or should it fall under the heading of no-harm, no-foul?

Death of a Drug: The Aftermath of Merck's Recall

Wed, 20 Oct 2004 15:40:04 EST

Wharton management professor Michael Useem, director of the school's Center for Leadership and Change Management, notes that one of the key mantras in corporate crisis management is: "Hide nothing, tell all." Less than a week after Merck & Co.'s voluntary withdrawal of its blockbuster arthritis pain medication Vioxx, following an extended clinical trial that linked the drug to heart attacks and strokes, the jury is still out on whether the pharmaceutical giant followed this cardinal rule. Wharton professors debate Merck's response to the crisis and the impact of the recall.

Going Once, Going Twice ... Glamour, Greed and Fraud at Sotheby's and Christie's

Wed, 08 Sep 2004 14:39:32 EST

Christopher Mason, author of The Art of the Steal: Inside the Sotheby's�Christie's Auction House Scandal, thinks billionaire Albert Taubman got a raw deal when he was sent to jail for price-fixing two years ago. But the book is more than a defense of the famed shopping center developer who became owner and chairman of Sotheby's in 1982. It is a detailed, gossipy account of the inner workings of the two firms known for auctioning the multi-million dollar paintings, diamonds, emeralds and other possessions of the rich and famous. While the art world this week buzzes about the August 22 theft of Edvard Munch's "The Scream" from Oslo's Munch Museum, The Art of the Steal talks about a different kind of theft, focusing on the background behind the auction houses' price-fixing conspiracy, who was involved and how it came to light.

Enron's Ken Lay: Captain of a Modern-day Titanic?

Wed, 28 Jul 2004 13:34:07 EST

On July 8, federal prosecutors in Houston made public an indictment against former Enron CEO Kenneth Lay, charging him and another Enron executive with conspiring to deceive shareholders, regulators and the public. Lay’s arrest surprised no one, but opinions differ as to why it took the government so long to make its case, what the odds are that Lay will get off, and whether it was smart for him to hold a news conference and appear on Larry King Live days after being led away in handcuffs.

Shell Games at Royal Dutch/Shell: Will They Affect Corporate Governance in Europe?

Wed, 07 Apr 2004 14:56:28 EST

Inflated oil reserves have put Royal Dutch/Shell in the headlines. The international financial press was quick to label it "Europe's Enron", much as it did when accounting scandals surfaced at Parmalat, the Italian conglomerate. As the media hubbub over alleged corporate wrongdoing grows louder, is it likely that Europe might see its own version of corporate governance reform, comparable to the Sarbanes-Oxley legislation in the U.S.? Two Wharton experts -- Christian Leuz and Robert E. Mittelstaedt Jr. -- have different perspectives on the situation.