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March 6, 2011 11:59 pm
They were not quite the circumstances under which Jeffrey Greenstein imagined he’d return to lecture at the University of Washington’s Foster Business School. But teaching students at his Seattle alma mater about business and legal ethics was a condition of Mr Greenstein’s sentence for an elaborate tax shelter fraud.
The former chief executive of hedge fund Quellos Group – whose clients included Bill and Hillary Clinton and New York Jets owner Robert Wood Johnson – Mr Greenstein served on Foster’s investment committee until the day before he was indicted by federal prosecutors. He is now serving four years and two months in prison.
Bill Resler, co-director of Foster’s master of professional accounting programme, was happy with the opportunity to put Mr Greenstein in front of his 46 students.
“If we don’t teach and preach ethics, any human can be tempted,” he says. “I try to bring in ‘street’ subjects as often as I can because I think it is more memorable than listening to me ramble on. Bringing in a Greenstein or others in this situation brings the subject to life.
“Greed has become a major source of analysis in these financial times, so we must be more vigilant in endorsing the ‘right thing’. None of us is immune to following the money. We must constantly think about ethics.”
There was no such required teaching on ethics when Mr Greenstein enrolled at the business school, says associate dean Dan Turner.
“We teach our students to recognise their ethical responsibilities and give them tools to act upon them, so as to minimise the likelihood of a poor decision,” he says.
“But so long as we are dealing with smart, imaginative and ultimately imperfect people, such risks cannot be eliminated.”
Foster is not unique in providing teaching opportunities to white-collar criminals. Tuck School of Business at Dartmouth College regularly invites convicted fraudsters who have served or are serving sentences to explain their actions and motives to students.
“We have developed a relationship with a former federal prosecutor who has sent several people to prison,” explains Rick Shreve, adjunct professor of business ethics at Tuck.
“Some of them want to do what they can to dissuade others from making the mistakes they made and they are willing to tell their stories to students. The prosecutor and the criminal each talk about the case from their own perspective. The experience of hearing the stories can be powerful, especially when the students can identify with the criminal because of similar age or background.”
According to Prof Shreve, law enforcement officials say there are generally three elements present in the majority of cases of white-collar crime: a need, an opportunity and a rationale – the reason the criminal tells him or herself that it’s OK to do the crime.
“Often, it is interesting to see how reluctant the visiting speakers are to let go of the rationale,” comments Prof Shreve. “We don’t spend a lot of time trying to convince our students not to commit fraud. They are as disturbed as you and I are when they read in the press about corporate malfeasance and they would be offended if I were to lecture them about not committing fraud.
“Nevertheless, they are likely to encounter in their careers very difficult situations where the right course of action is not clear.
“Exposing students to white-collar criminals reinforces the erroneous perception that people in business are crooks. I prefer a more positive approach and we spend far more time exposing students to inspirational business leaders who set high ethical standards in managing their businesses.
“Nevertheless, the visit by a white-collar criminal is always a popular event and it’s another way of keeping the subject of business ethics as part of the conversation on campus,” adds Prof Shreve.
Organisations worldwide lose 5 per cent of their annual revenues to fraud, claims a recent study by the Association of Certified Fraud Examiners. Frauds committed by owners and executives are more than three times as costly as those committed by managers and more than nine times as costly as employee frauds. Executive-level frauds also take much longer to detect.
At Edhec Business School in Lille, France, MBA students are given advice on detecting such fraud in an annual seminar by Leon Jankowski, DHL Logistics’ vice-president for global regulatory affairs and compliance. Mr Jankowski believes that the risk of corporate fraud can never be eliminated, only managed and he alerts students to the warning signs.
“MBA students must be made aware of that fact so that they will be better prepared to build anti-fraud policies and to fight against this crime.
“Many managers believe fraud cannot exist in their organisations because sophisticated processes are in place,” he adds. “But they need to understand that the more complex the organisations and processes, the more comfortable the situation for fraudsters.”
The anti-fraud seminar includes tips and tools of fraud detection, investigating conflicts of interest and steps to setting up an anti-corruption programme. Mr Jankowski says that the seminar next month will include a quiz that tests students on their own fraud IQ.
Edhec is also home to the Institute for Criminal Risk Management, which as well as fraud, looks at the difficulties that multinational companies can face, from extortion, to failed states and piracy.
“Ethics is taught in many business schools, but very few teach anti-fraud measures,” says Betrand Monnet, the institute’s scientific director.
“It’s essential for MBA students because it is quite certain that they are going to work in large organisations in which fraud is present.
“It’s also very important for our overseas students, many of whom don’t have a full understanding of what fraud is – even if they have witnessed it before.”
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