Yves Smith: On the Continuing Oxymoron of Ethics at Harvard

Corruption Porn / March 5, 2012

By Yves Smith

This article is cross-posted from Naked Capitalism…

There is so much crookedeness among our elites that it’s hard to know, absent more systematic study, whether Harvard is playing a leading role in this decline.

However, the glaring gap between Harvard president Drew Faust’s talk on ethics and her recent actions has stuck with me and I’ve concluded it merits discussion.

One of the basic rules of corporate behavior is that who you pay, promote, and appoint to plum jobs sends strong messages about what sort of behavior the organization really values, as opposed to the ones it professes to value. One common way in which companies signal that the official policies don’t matter all that much is via the Big Producer Syndrome. That occurs when individuals or units not only reap high compensation and other rewards, but are also subject to lower oversight. Most Wall Street firms, in the days when they were partnerships, recognized the need to strike a balance between giving employees the latitude to grasp fleeting opportunities and making sure they didn’t wind up doing harm to the franchise in the long term. The firms that didn’t manage that tension well over time were less successful than the ones that did. But that concern has long gone out the window in a world where financial services companies play with other people’s money and the notion of ethical standards is a quaint relic.

Nevertheless, when the ethics of executives generally and some of its graduates in particular come under harsh scrutiny, Harvard Business School tries to do a bit of image burnishing. After HBS grad Paul Bilzerian was sentenced for securities fraud in 1989, which was also when savings and loans and leveraged buyout companies were collapsing, the school went through a bit of soul searching. I was told by someone deeply involved in fundraising that it had concluded, based on some study, that ethics could not be taught, so it needed to rethink how it selected incoming students. I doubt anything came of that, since there hasn’t been any evidence of meaningful changes in Harvard’s or other school’s screening policies. Sociopaths could easily game any questions aimed at getting at ethical stances and real due diligence on that front would take more time and effort than an admissions department could undertake.

Fast forward twenty plus years. We’ve seen widespread bad behavior among the political and corporate elites, with Harvard at least holding its own. Former Harvard president Larry Summers was singled out by Inside Job as an example of corruption among academic economists. That isn’t surprising, since Summers protected fellow Harvard economics professor Andrei Shliefer when he and one Jonathan Hay were charged with conspiracy to defraud the US government, and Harvard was sued for breach of contract over an advisors program Shliefer and Hays ran in Russia in the 1990s. Some have claimed the real reason the faculty eventually revolted against Summers wasn’t his famed foot in mouth incident about women in math, but simmering anger about the failure to take action against Shliefer given that Harvard paid at least $31 million to settle the litigation.

Summers’ successor, Drew Faust, has tried to signal that Harvard has changed direction under her leadership, but her gestures range from unconvincing to all too revealing. For instance, she talked a good deal about how Harvard Business School had lost its ethical direction (that of course assumes it ever had one) and made a great deal of fuss about the selection of a new new dean who would help remedy this problem. From the Boston Globe:

A professor who has a strong interest in business ethics will become the new dean of Harvard Business School, at a time when the corporate world’s image has been pummeled by fallout from the 2008 collapse of financial markets and ongoing allegations of corruption and greed….
In his more than two decades on the school’s faculty, Nohria has been particularly active in business ethics, frequently writing and speaking on the need for changes in business and leadership training. A 2008 article written by Nohria and fellow faculty member Rakesh Khurana for the Harvard Business Review said “managers have lost legitimacy over the past decade in the face of a widespread institutional breakdown of trust and self-policing in business.’’ The two called for a “rigorous code of ethics’’ for business leaders, similar to the medical profession’s Hippocratic Oath.

If you believe crossing your heart and swearing you will behave in an upstanding manner will make an iota of difference in corporate conduct, I have a bridge I’d like to sell you.

Indeed, Faust seems to be a fan of the sort of ethics posturing that is regularly lampooned by Lucy Kellaway of the Financial Times. Last April, she pointedly refused to take up a call by professor and former Harvard college dean Harry Lewis to criticize (mind you, merely criticize) professor Michael Porter for his role in producing a well paid report that depicted Libya as a shining example of democracy. Per the Harvard Crimson:

In February 2006, Porter presented a 200-page document to officials in Tripoli as a consultant to Monitor, a firm formed by several Harvard professors that was under several million-dollar contracts with the country.
In the report, Porter argued that Libya “has the only functioning example of direct democracy on a national level,” and that Libyans were able to directly contribute to the decision-making process, which drew heavy fire from Lewis in yesterday’s Faculty meeting.
“To put it simply, a tyrant wanted a crimson-tinged report that he was running a democracy,” Lewis said, bringing up the question of whether the University should acknowledge the “shame” when a faculty member disgraces the University in such a way…
In response to Lewis’ criticism, Faust said that it was not the president’s responsibility to serve as “public scolder-in-chief.”
She said that Harvard recently conducted a review of the University’s policies on conflict of interest. But she said it should also be the University’s priority to support all faculty members to pursue academic inquiry.

I’m sure you recognize the Newspeak. Being paid lots of money to gain access to a valued brand is depicted by Faust as “academic inquiry.”

In January, Faust again showed what the real game is at Harvard by naming Krishna Palepu, a professor at HBS, as her senior advisor for global strategy. An article in Harvard Gazette makes clear that he’s not simply providing input to Faust and other University leaders but also playing an important ambassadorial role:

As senior adviser, Palepu will work closely with the president, provost, and colleagues to help guide the University’s international strategy, refine and test some operational proposals of the International Strategy Working Group, and develop a more effective and coordinated approach to international fundraising and to engaging Harvard alumni living abroad. Palepu will consult widely with colleagues within the University and in the broader Harvard community as he undertakes this role.

In case you missed it, “engaging Harvard alumni living abroad” translates as “traveling to fundraise from rich alumni living overseas.”

Why is this a cause for concern? Palepu is accounting professor turned governance guru who took huge consulting fees by Indian standards while serving as a director of what turns out to be the largest corporate fraud in the history of the country, Satyam Computer Services. An op-ed by Premchand Palety in Mint, one of the biggest daily business newspapers in India, depicts Palepu as a bad role model in the ethics department:

Now the big question arises about the role of independent directors who are supposed to protect the interests of investors…Krishna G. Palepu, who belongs to Harvard Business School, has been too closely associated with Raju to qualify him for an independent director’s post. He has been [founder Ramalinga] Raju’s adviser for over a decade and was also actively associated with the Satyam Learning Centre in Hyderabad.
Palepu should have recused himself from taking the responsibility on grounds of conflict of interest…Palepu and Rao [another business school professor on the board] should have shown their leadership skills in influencing Raju to follow a better governance model . If Raju thought otherwise, as a last resort, they should have resigned from the board. Unfortunately they did nothing of the sort and have lowered their image and also the image of the institutions they represent…
The following is an excerpt from Palepu’s bio data on the Harvard Business School website:…
“Professor Palepu’s current research and teaching activities focus on strategy and governance…
In the area of corporate governance, Professor Palepu’s work focuses on how to make corporate boards more effective, and on improving corporate disclosure. Professor Palepu teaches these topics in several HBS executive education programmes aimed at members of corporate boards: Making Corporate Boards More Effective, Audit Committees in a New Era of Governance. He also co-led Harvard Business School’s Corporate Governance, Leadership, and Values initiative, launched in response to the recent wave of corporate scandals and governance failures.”
Is it so difficult to practice what you preach, Professor Palepu?
The past few months have witnessed many scams in the corporate world; most of them have been a result of bad governance and unethical practices…
The best way to inculcate ethics among students is to have a culture of ethics in the institutions, with faculty members as role models. Rao and Palepu have set a bad example by their conduct in the Satyam-Maytas case. They need to own up responsibility.

Note that this pointed piece ran on December 28, 2008. On January 7, 2009, Raju admitted that Satyam’s accounts were bogus (among other things, Raju had been withdrawing funds monthly to pay for 13,000 fictive employees). Per Wikipedia:

On 10 January 2009, the Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors. “The current board has failed to do what they are supposed to do. The credibility of the IT industry should not be allowed to suffer.” said Corporate Affairs Minister Prem Chand Gupta.

So the apparent message from Drew Faust is that being directly involved in an Enron-level scandal doesn’t count if it took place in a third world country. She is happy to have what amounts to a corporate governance fraud as a face to the international business community.

Faust can talk all she wants to about ethics. Her actions repeatedly indicate she isn’t willing to take any action that might get in way of the University’s fundraising or “entrepreneurship” by individual professors. I quit giving money to Harvard long ago, and her stance confirms my decision.

This article is cross-posted from Naked Capitalism…

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33 Comments

Add your own

1. Southern Brave | March 5th, 2012 at 9:51 pm
Why I’ve never seen such an insulting….demonic website…
Well, the big liberal government that we have under Barrack NObamalooksUPtheSKIRTofMyDixieLANDwhiteMAMA—and that makes me MAdd—is the reason corporations aren’t behaving. DemocRATS like Harry Reid are driving away competition with higher taxes on people who would use that money to create high quality jobs. The managers have to be a bit more stern. But what do you know, you probably went to UC LA to spew out this reactionary drivel.
You’re projecting the blame on innocent people. There’s more too it than you’re letting on! It’s not about left vs right,you communist. It’s about virtuous victory over socialism! It is good vs evil!
My mormon dad has sex with young girls, what do you know? You can’t think logically.
You should be shut down by the government.
2. Paul Yarbles | March 6th, 2012 at 4:09 am
Great article about the New England whorehouse called Harvard.
But please no more pictures of Larry Summers. I’m hung over and it would be easier on my stomach to show a pool of vomit covered shit than that neoliberal hack Larry Summers.
There are probably less than 100 people that are more responsible for messing up our economy than Summers the Hutt. How can this hideous excuse for a human being fuck up one thing after another so bad and still be ‘on top’. This alone shows how far we’ve declined as a nation and the sad doom that awaits us.
3. Southern Brave | March 6th, 2012 at 4:30 am
HAHAHA DISREGARD THAT, I SUCK COCKS.
4. Lavrentij "Anarchy99" Lemko, Edmund Dorkey, and Gustavo Millebrand | March 6th, 2012 at 5:22 am
Dear eXholes,
One thing: Yves forgot to mention how “””””brilliant””””” Larry is. I hereby bring up that obligatory sentence here. Larry, just so nobody forgets, is “””””brilliant”””””, after all. How else would we have been able to build such a fine Republic without philanthropy and limited government? Yes, verily, fellow eXholes, Citizen Larry built this country on Rock and Roll.
Cheers,
Lavrentij “Anarchy99” Lemko, Edmund Dorkey, and Gustavo Millebrand
Turks & Caicos Islands
5. SK | March 6th, 2012 at 7:34 am
I have to stop reading the comment section at work. I almost lost it at “My mormon dad has sex with young girls, what do you know?”
Glad to see more Yves posts here. I have a lot of respect for his opinion. Harvard certainly isn’t the only university with that kind of duplicity. The mining department at Colorado School of Mines would drone for hours on the importance of integrity and how terrible the Bre-X scam was. Ironically, our department head Ozdemir had to “resign” my first year there for embezzling department funds. All the professors in the mining department were typically senior engineers or, more often, upper level management for majors. I usually skipped the lectures on business ethics.
6. Trevor | March 6th, 2012 at 7:54 am
Maybe Harvard could adopt the Voight-Kampff test…
7. Southern Brave | March 6th, 2012 at 8:42 am
See? Harvard is one of the most liberal schools in this police state that we’ve morphed into under Obama. This doesn’t suprise someone as smart as me.
Bush protected Americans with The Patriot Act.
OBUMMER wants to detain Americans under the SUSPICION of terrorism with the NDAA, not without a trail like Bush or Gingrich would do.
Mark Ames, you can’t win an argument with me, so you resort to petty flattery. My father died of testicular cancer, I do not suck cocks. I gobble them.
You need to grow up. You can go to World Net Daily, or Hot Air to find measured, unbiased, TACTFUL reporting instead of the terroristic acts you seem to support (IRAN).
8. Southern Brave | March 6th, 2012 at 9:37 am
You’re just jealous of Andrew Breitbart and his gracious honesty. It shows in your bitter shamelessness.
Why do you hate honest, honorable people who suffer under the duress of suppression? Because we never get out voices heard through the cacophony of liberal bias. It’s okay, because even though we are confined to the dark corners on the Internet, one day will destroy monstrosity that confines our irate dissent!
I’ve read more of your website, and I’ve noticed that you hate producers
When the going gets tough, the tough don’t cry “worker rights!”. Right now, I am working 3 jobs. When I’m rich, I don’t want leeches like you taking what I earn. Goldman Sachs EARNED their money. If they weren’t trustworthy, like those “minorities” that took out more than they could afford, than no one would go to them! The Freemarket would shut them DOWN. Am I going to fast, becuase I noticed that none of you radical leftists are good with logic!
Why do you hate the VICTIM instead of the criminal!?
See, people don’t want t work. They just want money. You see those screwballs at Occupy WallStreet? You wonder why they don’t have jobs? All of those earrings, pierced lips. I went to NEw York to visit relatives, and EVERY SINGLE one of them had something unemployable.
You grow up in a world where everyone gets a damn trophy. Everyone is a winner, well guess what? In life…YOU LOSE.
You’re just for big government. The only good government we have left is the armed forces spreading democracy to countries like Syria that don’t have it. Oh, they “have it” but Assad isn’t the real power holder here. There are people BEHIND the scenes that hold the real power. Unlike here, were we the people can `vote the bums out`.
You know you can’t refute my facts, so you just persist in your immaturity! DON’T TREAD ON MY SPIRIT!
I hope the government shuts you down. Probably will when they discover that you aid terrorism, and threaten America and her people. A noble nation like Israel confronts State terrorism, and you attack it?
SHAME ON YOU!~
THE A.E.C. RESPONDS:
…Wait, what’d you just say? Sorry, I was busy treading on Breitbart’s spirit while you were blathering, missed it. Thing about Breitbart’s spirit is that it’s so loaded with cocktails of drugs that you can catch a serious buzz just from huffing his corpse.
9. Jim Choad | March 6th, 2012 at 9:45 am
T-SHIRTS!
10. adam | March 6th, 2012 at 11:27 am
LULZ! AEC claims another scalp!
11. Jim Choad | March 6th, 2012 at 12:07 pm
AEC IM SORRY ITS A COMPULSION BUT IVE JUST GOTTA FUCKING POINT OUT THAT US *BOTTOM* TROLLS WOULD LET u CLAIM A LOT MORE THAN OUR SCALPS RAAAAAWR
12. Ilona | March 6th, 2012 at 1:02 pm
@ Southern Brave
Do you think it’s good for you to have three jobs? “It’s a must.” Ok. Do you ever think you’ve been exploited? “Nooooo. Why? I’m getting rich.” Ok. How come you have enough time to loiter around this demonic website? “I dunno.” Ok. Do you feel you need 1-3 more jobs? “H’m… Am I getting richer?”
“See, people don’t want t work. They just want money.” Finally! One sentence which made some sense! Now, answer your own question: Wouldn’t you?
13. Neil Baker | March 6th, 2012 at 4:29 pm
I doubt there’s any such thing as ethics at any university. There certainly isn’t any ethics at the University of California. I sadly know from first-hand experience. It was the worst decision of my life going to whore for UCSB, although at the time, I thought it was the best career move.
I didn’t realize that UCSB was an unaccountable criminal mafia organization. It has an unaccountable criminal propaganda machine at its disposal including a libelous daily school newspaper despite it not having a School of Journalism. It also controls almost every mafia satellite media outlet in all of Goleta and Santa Barbara.
They also control an armed and unaccountable criminal mafia police force that answers to nobody elected. UC is mafia. It’s regents have zero defacto oversight despite their being 26 of them each appointed for 12 year terms so that the few elected post-officio regents are outnumbered and outtenured due to term limit laws.
When I blew the whistle about UCSB’s knowingly and actively discriminating against American Citizens for staff and student intern positions, illegal background checks and illegal interviews, I got bullied, threatened, assaulted, mobbed, smeared, sabotaged, arrested, jailed or 10 days, committed for 12 days, harrassed and surveiled 24/7 for nearly 18 months for an estimated cost of $2million. (The charges were trumped up, dismissed 10 months later and the three shrinks that evaluated me concluded no mental illness, no personality disorders and no required meds—I seriously doubt most at UCSB could pass the test)
I think you’ll admit it’s mighty rare to hear stories of misappropriated dollars or other illegal faculty or admin behavior at universities. But with $billions funneled through the system, do you think they possess outstanding ethics and honesty? Hell no! They’re the biggest bunch of scumbags I’ve ever met. They’re just immune from the law.
SK mentioned Zionist Jew Levent Ozdemir who embezzled Colorado School of Mines. He made a soft landing back in Turkey and has a respectable job working as a consultant with an engineering firm.
I, on the other hand, caught the criminal UCSB Mafia breaking the law and because I don’t have some other country to flee to, I’ve been rendered permanently unemployable by UCSB Mafia criminals. God knows I hate them!
Forget Harvard. No University in the history of the world has betrayed the human species and TRUTH more than UCSB.
UCSB is utterly contemptible and my suggestion to its faculty, staff and students is to quit, resign or disenroll.
14. Soj | March 6th, 2012 at 9:04 pm
Man, 13k fake workers, I love it.
15. Mason C | March 7th, 2012 at 1:56 am
A professor I once had later worked at Harvard and described a meeting with a senior colleague and Larry Summers, who let forth with angry bluster and misinformed accusations. The prof thought a rather routine matter might cost him his job. Leaving the room with his co-worker, he said “That could have gone better…” and the cheerful reply was “Actually, that went pretty well.” Summers is a lunatic and so is the entire ruling class. Meth labs in Cabot House by New Year’s 2013.
AEC: Paddle faster. I hear banjos.
16. charliebucket | March 7th, 2012 at 7:20 am
Southern Brave is close to the ultimate cliché of the white trash bagger dupe.
He says on the one hand how eXiled is so in favor of “big government” and then ends his post with “I hope the government shuts you down,” apparently not a fan of free press or speech with his oh-so-small government ways.
He talks about people “stealing” his money to pay for government programs and then praises the bloated expensive military, which by his definition “steals” peoples’ money to exist at all.
His contrast of Syria and the US, where there’s nobody behind our government figureheads and we can just “vote em out” is so far entrenched in wonderland that I hope he wasn’t late for his date with the Mad Hatter in writing it.
He apparently doesn’t know a damned thing about G&S, and also can’t wrap his head around the fact that lots of people who got hosed in mortgages could afford them fine when they took them – until their jobs got ported over to slave labor factories in big gov’t China by the incredibly fair “free market,” which of course could never be tyrannical or exploitative at all.
And his statement about how overwhelmingly liberal the media message is and how silenced the baggers and their heroes are is an astonishing display of denial. I actually thought conservatives abandoned this line years ago, considering how laughably full of shit it is.
17. Andie Freud | March 7th, 2012 at 10:13 am
Although I still miss the [Sic:] moderation technique of stomping on everyone’s prepuce, I am warming to the AEC. You alone are worth more than the entire Huffingpaint site.
AEC: PFIHB – har!
18. HamsterFist | March 7th, 2012 at 10:17 am
I laughed til I pissed my pants at Southern Brave. HAS to be a troll. Right? I mean someone can’t be so dumb to advocate the evils of government and then one paragraph later want the big bad government to save them from such “demonic websites”, as this one.
Wait…. what’s that? A third of Americans are at least this crazy? Shit. We are so fucked.
19. dzlk | March 7th, 2012 at 11:44 am
@5 Yves is indeed awesome, but she’s a she. Minor correction.
@8 “the duress of suppression?” Your assonance is showing. By the way, what the hell does that even mean?
20. Southern Brave | March 7th, 2012 at 12:40 pm
@ Hamsterfist and others
Typical liberal reactionary… I am against —WASTEFUL— government.
Our Brave fighting men and women nobility and heroically dying for our rights, democracy, and the prevention of an aggressive that wants to blow up my home is NOT WASTEFUL GOVERNMENT.
Islam wants to convert us all into screaming jihadists that worship a pervert!
Haven’t you ever read 1984, PELOSIlooksSOfoxy? You are blinded by hatred for a culture that you have NO understanding of. You sheepishly hate what you are told to hate!
All you can do is regurgitate terminalogiy from demogogery like this HEINOUS, hearltess, BASTARD like me… A pedophile like MY HAMMED-FISTED SECOND-COUSIN/UNCLE-IN-LAW . Hmm, coincidence?
I think he should be interrogated. Given his sympathetic attitude towards State Terrorism from Islam. Like that queer Manning. There is no mercy for traitors!
Aren’t you familiar with dictatorships? Tyrants propagate fear for innocuous targets, while the TRUE enemy lay above them.
You’re simply to STUPID to not see through the hateful leftist propaganda on innocent, bloodless states like Israel, or institutions like our humble businesses.
Israel, through a determined dedication to NATIONAL RECTAL security, has preventing those racist, psychotic, and pugnacious Arabs from destroying a land they’ve been on for hundreds of years!
And preventing evil like you from having a voice is NOT WASTEFUL GOVERNMENT SPENDING!
Without Fox News, we’d have descended into socialism 4 years ago. We’ll continue to carry the banner of truth to fight through the malaise of obfuscation by CNNBCBS, The big liberal Internet, and Phil Donahue! Your influence is vast, but we shall eradicate your poisoning voice from public discourse. With our fearless and noble country SECURITY forces working against terrorists like all of you, it won’t take long!
Keep projecting your own prejudices and bias. Just know that me and my town of 25000 aint got ONE person that will vote for Barrack NOBUMMERquitHITTINGonMYdixiELANDWHITETRASHMOMMA!!!!
21. Breitbart Kaput! | March 7th, 2012 at 1:21 pm
Does having young girls give you testicular cancer?
22. DocAmazing | March 7th, 2012 at 4:17 pm
Do you really expect someone named Faust not to make deals with the devil?
23. Heywood Jablowme | March 7th, 2012 at 7:45 pm
Southern Brave is clearly a clever troll; nobody is THAT retarded.
I remember when asked about the lack of ROTC on Harvard’s campus, Faust claimed that they couldn’t allow an organization that didn’t accept gays like any other campus group. Now that Don’t Ask, Don’t Tell is gone, Harvard will re-allow ROTC…
…as if banning ROTC was all about respect for Teh Ghey and not a protest against murdering three million people in Southeast Asia.
It’s long been said of Harvard, “from the people who brought you the Vietnam War.” Considering the H. Business School contribution to our parisitocracy, we can add, “from the people who brought you Third-World America!”
24. doodoo brown | March 8th, 2012 at 12:30 am
well “young” is a relative term
16? 17? just saying.
25. Epsilon | March 8th, 2012 at 1:00 pm
Harvard shat out Dubya and the O-Messiah, so it can burn to the ground for what I care.
26. Epsilon | March 8th, 2012 at 1:02 pm
Forgot to add:
Ivy League colleges are where people can get the “connections” and learn how to best suck every last drop of cum from the plutocrats.
27. Jay | March 9th, 2012 at 11:00 am
I realize I’ll get torn up by NC and Exiled readers for even mentioning this, but… in the wake of the financial collapse in 2007-08 it was Harvard BS students who came up with the idea for the MBA Oath:
http://mbaoath.org/
An oath doesn’t guarantee ethical behavior, just like the Hippocratic Oath doesn’t guarantee ethical physicians, but still… more liberal business schools didn’t come up with anything at all.
28. Heywood Jablowme | March 9th, 2012 at 4:44 pm
@27. Jay,
Yeah, but 80% of the HBS students refused to sign it:
http://www.nytimes.com/2009/05/30/business/30oath.html
29. Masha In Bel Air | March 10th, 2012 at 1:20 am
Since the rubber slipped off, they try Larry since Russian Federation is full steam ahead.Deal with Rosnet and Exxon.
Tenacity DC, tenacity. We Can Do This.Larry is very good with anal love economics.Is true he is the next cover of USA GQ?
30. Fissile | March 10th, 2012 at 10:54 am
Robert “Kill Ratio” McNamara, architect of the Vietnam War, was a HBS alum.
As an encore, he went on to run the World Bank.
31. Anarchy Pony | March 10th, 2012 at 10:57 am
I suspect that southern brave is actually a brilliant performance artist.
32. DR | March 10th, 2012 at 1:08 pm
Hey all, just donated $100 bucks to the guys – and those of you who’re not yet supporting I double dog dare challenge you to do the same. If we can’t do the courageous shit they do, that’s the least we can offer. God bless Mark/Yasha and keep going
33. Southern Brave | March 10th, 2012 at 6:07 pm
http://www.youtube.com/watch?v=DRMBxnxWiNQ
I just hope you all are aware that this madness represents a disproportionate amount of the American population.