Financial Times Review of The MBA Oath book

In this week’s Financial Times, Philip Delves Broughton gives a review of the MBA Oath Book. You can read it here.

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Compromise Situations and the Oath

MBA alumnus and author of The Compromise Trap Eliabeth Doty has a very interesting take on misconceptions about compromise at work and how the MBA Oath helps address them. Doty argues that a proactive, self-aware approach is an important part of organzational and individual integrity: 

Not knowing how susceptible we are to situational influences can lead to less ethical behavior because we are unprepared and ill-equipped to counter these powerful situational forces – or fail to create the set of relationships, touchstones and practices that enable us to self-activate our values regardless of the environment.

How can the Oath be strengthened as a shared touchstone that reinforces integrity?

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Should the GMAT report cheating to admissions committees?

Julia Tyler an executive vice president at the Graduate Management Admission Council, the makers of the GMAT recently wrote an op-ed in the Financial Times about cheating on standardized management exams. It happens. So who is responsible for doing something about it? It would be easy for the test makers to absolve themselves of responsibility. After all, they are just writing tests. But Tyler bravely argues that their responsibility runs deeper than that.

The easy position for the testing companies is to say that this is the responsibility of the schools and the companies that recruit from them. Business schools admit and educate the students and the companies employ them, after all. Moreover, the graduate management admission test and other admissions exams set out to predict success in the academic components of an MBA, not the ethics of the would-be student. True – but not good enough.

While admissions tests do not probe moral competence, occasionally administration of the test highlights unethical behaviour. Neither testing companies nor business schools can ignore this. Application to business school is a “high stakes” investment and how a candidate handles the process can be an indicator of personal ethics.

In The MBA Oath, a book we’ve written about the oath coming out this month, we use the analogy of earthquakes to describe the financial crisis. When a student cheats on an admissions test, there is no earthquake, but there is a fracture in the system. As Ms. Tyler describes it,

On the face of it, cheating on an admissions test is a victimless crime. But what about the candidate who is denied a place because of this act of individual selfishness? Corruption undermines business. Corruption and cheating have no place in management education. Knowing a student is cheating therefore demands action before they can take greater risks in a broader context.

She argues that business schools cannot merely trust that these tests are being administered securely any more than than test makers can just trust that students are taking the tests without rigorously building their security. Everyone has a stake in ensuring that these tests are administered and taken ethically.

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239 business graduates in Egypt sign the MBA Oath

This week, 239 graduating MBAs from Egypt’s ESLCA signed the MBA Oath. ESLSCA, Ecole Supérieure Libre des Sciences Commerciales Appliquées, is one of Europe’s leading business schools. The campus in Egypt runs a masters program in international business. We have learned that their entire class of graduating students signed the oath at their graduation this week. They incorporated the oath into their graduation ceremony. The students recited the Oath while standing up in Arabic and it wasdisplayed on two large screens in English. They all raised there right hands
and recited the last line of the Oath in Arabic and English and then they were announced as graduates. Congratulations to the graduates!

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Who will be the next Deans?

BusinessWeek has good coverage of the ongoing searches for new deans at Kellogg, Booth and Harvard this year, three of the top business schools in the world. According to the Bloomberg BusinessWeek ranking, these are the top three full-time programs, and each one has its top post open. It’s a tough time to take over. At each of the schools 15% fewer graduating students have jobs this year. Who will the new leaders be? And what will they stand for? We hope that the boards of these schools consider new leaders who are committed to the highest standards of business integrity and leadership. We encourage alumni and current students to write to search committees at their schools and tell them you want a dean who supports the principles in the MBA Oath.

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Being A “Force For Good” vs “Not Being Evil”

In the past week, two companies showcased their unique approaches to acting in accordance with their beliefs.

Last Monday, Twitter CEO Evan Williams announced that the company had gone through a process to “define their operating principles“.

The number one principle is “be a force for good.”…from a business perspective, Twitter needs to fundamentally be about helping people make better decisions.

To “be a force for good” easily evokes comparisons to Google’s “don’t be evil” mantra. Google’s decision today to shut down its mainland China homepage, redirecting visitors to the uncensored Hong Kong version, might be seen as a manifestation of this policy.

However, the move brings to light the ambiguity inherent in such decisions. Is Google proactively encouraging a policy change that it believes is better, or is it blatantly defying local laws?  Is this a bona-fide move to stick by its principles, or is it a tactical withdrawal from a market it has had trouble gaining traction in?

Is it the same to be a “force for good” than it is to “not be evil”?

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Google stops censoring results in China

Today Google made history. David Drummond, the Internet giant’s chief legal officer announced on Google’s company blog that the company is no longer censoring its search results in China.

“earlier today we stopped censoring our search services—Google Search, Google News, and Google Images—on Google.cn. Users visiting Google.cn are now being redirected to Google.com.hk, where we are offering uncensored search in simplified Chinese, specifically designed for users in mainland China and delivered via our servers in Hong Kong.”

The move is radical because it means an official break with the government of China. It may eventually lead to the Chinese authorities blocking all Google traffic, closing the door on the world’s largest online market for the world’s largest search engine. Why did Google take this drastic action? Drummond explains it is in response to “sophisticated cyber attacks originating in China.” In investigating the attacks,

“we had uncovered evidence to suggest that the Gmail accounts of dozens of human rights activists connected with China were being routinely accessed by third parties.”

The advocacy group Human Rights Watch is quoted in BusinessWeek calling Google’s decision an “indictment” of censorship. Previously, a search for “Tiananmen Square” from google.com would yield 200 million results and the top ones would cover the protest and bloodshed in 1989 but a search for the same term from google.cn, the Chinese version, would be heavily censored. The protests would not show.

Google’s move forces China’s hand. Either the government will allow unfiltered, uncensored search, or it will show its citizens and the world that information is still controlled from the top in China.

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Repo 105 and Financial Funny Business

There has been a lot of talk about Lehman’s use of Repo 105s in the press recently but not a lot of good explanation of what it actually means. A repo loan is a loan where the borrower “sells” an asset today for cash and promises to buy the asset back at a higher price in the future. It is basically a collateralized loan with an obligation to re-purchase (“repo”) the collateral. There’s nothing bad about this. Its a very common practice in the financial world.

So what’s the deal with Repo 105? Mark Chu-Carroll gives a nice summary at his blog Good Math Bad Math:

A repo105 is a repurchase agreement where you borrow $100, using $105 worth of property as collateral. Then you can, in your financial statements, put that down as a sale with a roughly $5 loss.

Why would Lehman want to record the loss? Well, Chu-Carroll explains, you may want to do that to hide even worse potential losses you might suffer. Imagine you own a bunch of bad CDOs, ones you fear are going to be just worthless trash. What do you do?  Chu-Carroll continues:

If you own them, then you need to mention them in your financial statements, and you need to estimate just how much you lost on them. That can make you look really bad…So, here’s what you do. You wait until just before you’re required to issue your financial statement. Then, you set up a repo of the things that you don’t want to show in your books. They’re garbage – so you can’t really sell them. But if you do a repo105, then you can claim to have sold them. And instead of losing 80 or 90 percent of their value, you lost a measly four percent. No biggie there. So you do the repo, and you do it for a term of 7 days.

Now, since you “sold” them, you don’t need to mention them in your financial statements. You don’t need to talk about how much money you’re on the hook for with those. After all, you sold them for close to 96% of their face value! They’re off your picks. Any liability you have from owning them, you’ve just erased. Poof! They’re gone.

The shadiness is evident. Instead of being transparent about their true positions, companies doing repo105 loans hide some of their weaknesses to make themselves look stronger than they really are. Is this permissible under the rules of the game? Or should we have a higher standard?

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Have businesses become more ethical?

An Investor’s Business Daily story reports that businesses have made major ethical strides in the past couple years:

The Ethics Resource Center’s National Business Ethics Survey, released late last year, shows that 49% of employees witnessed misconduct in the past year. That’s improved from 56% in the previous survey two years ago. Whistle-blowing is up and pressure to commit ethical violations is down. Ethical cultures are stronger, too. “It makes sense when things are not going so well and there’s more scrutiny from regulators and the press, people will be more conscientious,” Michael Oxley, chairman of the Ethics Resource Center, a research group in Washington, D.C., told IBD.

We don’t know much about the survey but we’d like to learn more. We do agree with Mr. Oxley however that behavior changes when attention is paid to the behavior. From the beginning of the MBA Oath we have said, Let’s put a spotlight on leadership. Let’s go public.Let’s commit to creating value responsibly, ethically and legally. That is how change is made.

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Testing a new twitter app

Testing to see if this blog posts to our twitter stream.

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