May 18, 2008 5:21 pm

The consequences of crime

It is a Thursday afternoon at the Richard Ivey School of Business at the University of Western Ontario, Canada, and the lecture hall is packed with students listening to the story of Nick Leeson, the rogue trader credited with the collapse of Britain’s oldest merchant bank, Barings Bank – one of the largest financial scandals of the 20th century.

His speech was the final lecture that the students would hear before taking part in the school’s Ring Tradition Ceremony, a ritual during which students pledge to act ethically and honestly throughout their careers.

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Lecture circuit: Nic Leeson, right, chats to Ivey professor Claus Rerup

Mr Leeson (pictured, talking with Ivey professor Claus Rerup, left) was found guilty by a Singapore court and sentenced to six years imprisonment in 1995. He served four-and-a-half years. But on his release, Mr Leeson found a new calling: speaking to business school students about his descent into the world of white collar crime.

In the same way that some banks hire bank robbers to help protect the institution against “their kind”, business schools are turning to convicted white collar criminals to educate the next generation of business people and show them what happens when people are convicted of these crimes. Some may say this is a gimmick to attract attention to the various business schools. But those who invite Mr Leeson, and others like him, to speak to business students believe that it brings a unique perspective and valuable insight into the mind of the white collar criminal.

Gerard Seijts initiated Mr Leeson’s talk at Ivey. He feels there is only so much you can teach the students in the classroom, but having someone who has suffered the consequences of such crimes standing before them is a more powerful message.

“You cannot preach ethics – we might as well bring in a priest,” Prof Seijts says. “We wanted to bring in someone who has been in the centre of the storm.”

Walter Pavlo was one of those caught red-handed and ending up in the thick of scandal. In March 1996, Mr Pavlo, a former billing manager at the telecoms group MCI, along with a member of his staff and a business associate outside the company, initiated a fraud with a few of MCI’s customers.

Ultimately seven customers of MCI were defrauded over a six-month period, resulting in $6m in payments to accounts in the Cayman Islands. And, in January 2001, Mr Pavlo pleaded guilty to charges of money laundering and wire fraud and served two years in a federal prison.

Slippery slope

Like Mr Leeson, Mr Pavlo travels North America speaking at business schools about his ordeal. He says he is not trying to “teach” the students anything, he is just telling his story so that they can learn from his mistakes. “I really don’t teach them anything about ethics or ethical behaviour.”

The journey down the slippery slope is not as hard as some people may think and Mr Pavlo says shaking these preconceived notions of evil people sitting about hatching diabolical plans is part of the education. “I look like a nice guy and it’s disturbing to kids,”says Mr Pavlo, adding that such crimes rarely start off as sinister strategies, but rather as a series of small, but poor choices.

“I want to get them thinking about what that situation might look like for them,” he says.

It is about making the students aware of their responsibility, Mr Pavlo says, and taking the mystery out of white collar crime because “they are closer to the edge than they think”.

One of the main arguments against people such as Mr Pavlo engaging in speaking tours is the appearance fee. Mr Pavlo is paid approximately $100,000 (£51,000) a year in speaking fees.

“Companies are not saying: ‘We need to hire more felons this quarter’.” For him, this [retelling of his story] is both a punishment and a way to make a living.

The money is not the main reason Mr Pavlo speaks to students; it is about the message. Open, honest and sometimes very personal, these lectures are designed to be a warning to future business people. And not everybody can do it, the former businessman says. “If you can’t tell them your life is a train wreck than you lose your message,” he says.

It is not only about educating the students and giving them the tools to spot these types of crimes, it is also about exposing students to the consequences should they choose to make unethical business choices. The business schools themselves have a lot to lose if one of their students subsequently makes headlines through unethical business practices. The solution is to educate the students about the problems and consequences of the embarrassment before it can begin.

Scepticism

This type of education is catching on in various academic institutions. At Queens University, Canada, Jim Ridler, professor of business ethics, takes his students on a field trip to the local prison where white collar criminals serve their sentences. The point is to take the abstract concept of white collar crimes, such as money laundering and fraud, and attach real life consequences to these scenarios.

However, there are those that feel this type of education is not an ethical choice. Richard Powers, assistant dean and executive director, MBA Programs, at the University of Toronto’s Rotman School, was initially one of those people.

His scepticism began when John Coffin, the first person to be charged in connection with Canada’s federal sponsorship scandal in 2005, was ordered to speak at various business schools as part of his sentence. Prof Powers says that he was not in favour of the decision and adds that “at the time, I questioned if that was appropriate”.

When the professor had the opportunity to hear Walter Pavlo speak he was sceptical of its positive effects. “I went in with a certain mind-set and I considered leaving,” Prof Powers says.

But after a few minutes, Prof Powers was more convinced that this type of speaker would be beneficial to business students as it is “interesting to watch the transition of his decision making”.

Having a convicted white collar criminal speak to students creates discussion about the grey areas of decision making and about the consequences of certain choices. Prof Powers says “that’s where the benefit is”.

Prof Seijts says that he and his school do not condone the decisions that Mr Leeson made, but that his mistakes are beneficial to his students.

“When you organise such things you just never know . . . sleepless nights,” Prof Seijts says. “But I thought the tone was right and I thought Nick Leeson was honest.”

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