Are Ethic Lapses Responsible For Bad Economy?

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LINDA WERTHEIMER, host:

Next, we turn to the issue of business ethics. In ways both large and small ethics have played a role in the current economic crisis. From executives taking bonuses with one hand and reaching for federal bail out money with the other to lenders persuading homebuyers to take on more debt that they can possibly pay back. To hear more about the role of ethics, or the lack of ethics, in all this, we're joined by Sandra Sucher. She teaches ethics to first year business school students at the Harvard Business School. Good morning, Ms. Sucher.

Ms. SANDRA SUCHER (Senior Lecturer of Business Administration, Harvard Business School): Good morning, Linda.

WERTHEIMER: Now, are we witnessing a complete breakdown of business ethics?

Ms. SUCHER: I don't think so. What we are witnessing is a very serious crisis. Larry Summers was on our campus in October of 2008.

WERTHEIMER: The president's economic advisor - former president of Harvard.

Ms. SUCHER: And his analysis, which I thought was very helpful, was in the past 20 year period, we've seen the 1987 stock market crash, commercial real estate collapse of the late '80s and early '90s, bursting of the NASDAQ bubble, and the Enron threat to corporate governance. And now we have this global economic crisis, which is more serious than any of that. So his conclusion was: 20 years, seven major crisis, I would suggest to you that this is not good enough. And as someone who teaches and was in business by self for 25 years, I agree with that assessment.

WERTHEIMER: Do you think this is systemic or do you think that there is something - is it just of bunch of reckless individuals, some of which graduated from Harvard Business School?

Ms. SUCHER: No, I don't think it's just a question of individuals. I think that what we have studied, is that the systemic kinds of problems have to do, on the one hand, with lots of players. As you as we've seen here: bad management of individual firms, banks and mortgage lenders, insufficient regulation, rating agencies, monetary policies, politicians, consumers - all have played a role in what we see going on inside the firm. I think we know that it makes a difference the way that different leaders have actually managed themselves and their companies through this crisis.

And so an example that I think we could think about, is Mr. Jamie Dimon. And he's the CEO of JP Morgan Chase, who was offered, as you know, the opportunity to buy Bear Stearns a year ago.

WERTHEIMER: And he struggled with that decision?

Ms. SUCHER: He struggled with that decision because economically, it was not in fact a very good deal for his firm. If you look at the details of the businesses that they were in and the kind of synergies that they look for, this is not necessarily a pairing that he would have sought out. And it's kind of a new challenge that we have for senior business leaders, which is, what is the obligation that he has to support the financial system that he's part of, versus his duties to his shareholders, to his customers and to the employees - none of whom I think would particularly benefit from this pairing that he was asked to take on.

WERTHEIMER: Sandra Sucher, I wonder if you could just tell me if you think that you're gonna produce of few classes in the aftermath of all of this, of serious straight arrows who are going to deal differently with the public and with their colleagues?

Ms. SUCHER: The climate that these students are growing up is dramatically different from what's been true of the last even ten or fifteen years. This will change how they think in the same way that our parent's views of how they behaved were shaped by the depression. I think this is their depression, and I'm confident that they are even now taking lessons out of it - of things they see that they don't like. Things that they don't want to do, as well as hopes that they have for what they could do better.

WERTHEIMER: Sandra Sucher, thank you for joining us.

Ms. SUCHER: And thank you very much for asking me.

WERTHEIMER: Sandra Sucher is a senior lecturer at the Harvard Business School. She is the author of "The Moral Leader: Challenges, Insights, And Tools."

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