Stop the Merry-Go-Round:
It’s Time to Get Serious and Teach Ethics to Help End the Games
By Mark DiSalvo and Mark Connolly
The media are filled with the seemingly never-ending games of financial fraud and scandal. We continue to witness a basic lack of ethical standards, the end result of which translates into higher consumer costs, economic ruin, cynicism, and most assuredly a lack of confidence in our business sector, government and society generally. And despite all of this, nothing is being done to train citizens and future business leaders concerning the simple task of proper behavior. This is playground stuff – learn to play by the rules and, where rules don’t exist, act appropriately. These are easy guidelines every kid running around an elementary school playground understands. Why is it so hard for those of us in business suits to remember what our schoolmates and playground monitors taught us?
In 2002, the New Hampshire Securities Bureau reached a $5 million agreement with Tyco Corporation concerning its alleged corporate malfeasance. At that time, that settlement was one of the largest securities settlements in the nation’s history. The funds have since been dedicated to establishing programs within higher education in the state for the advancement of ethical standards in both the private and public sectors.
Just days ago it was announced JP Morgan will be ponying up $13 billion to state and federal regulators to address its mortgage dealings failures. It has been estimated the remaining level of legal exposure by the largest US financial institutions could result in the settlement total for alleged mortgage fraud in the United States to be in excess of $100 billion. It is now evident 2013 will likely mark the high-water mark toward addressing the responsibility of the financial-crisis era of the first decade of this century, a period resulting in two major economic slowdowns—all because of ethical lapses in our financial markets. Both periods resulted in Congressional action to address regulatory shortcomings (Sarbanes-Oxley in 2002 and Dodd-Frank in 2010).
Unfortunately, as yet, no action has been taken to address the ethical behavior break-down in our country and how such behavior not only diminishes society but damages our economy as well our very way of life. No national effort has been crafted to teach that “greed is not good.” Now is the time to take stock on why ethics matters. We need to get America’s future business and community leaders thinking about ethical behavior and what it means in terms of responsibility and accountability.
American entrepreneurialism and government support for it has created the most dynamic country in world history. This dynamism has also produced unparalleled growth and economic opportunity. However, the recent past also shows that unlawful and unethical behavior left unchecked can result in moral break-down and economic self-destruction. We must instill a sense of citizenship and personal responsibility across society.
Financial fraud settlement funds are not government budgeted monies per se or even tax payer dollars but instead are used to fund further government fraud mitigation programs as well as benefit the general treasury of government. However, none of the national financial fraud funds has been targeted to address the importance of personal responsibility and ethical conduct.
We propose the Congress direct a small portion of settlement funds to a dedicated national educational ethics program. We come to this notion as a former securities regulator and private equity manager of troubled and fraudulent funds. Such a program can be guided and administered by the recently-established Consumer Financial Protection Bureau (CFPB) so as to promote ethics and ethical curricula within post-secondary education institutions, including professional graduate schools, as well as teaching the importance of ethical obligations in primary and secondary education.
Our proposal offers the following guidelines for consideration: (1) a non-partisan panel of educational, financial, consumer and business experts be established to propose how best to implement such a program; (2) any program is to be free of all ideological or political bias; (3) the panel’s work to be funded by an appropriation from financial fraud settlement funds; and (4) the award of any funds for the teaching of ethics in curricula is to be on a voluntary basis.
Funds could also be used in concert to leverage the few already established ethics education programs in the nation. The basic premise of our proposal is a correlation between the fact that fraudulent behavior causes the literal diminution of the world economy and a modest part of the financial fraud settlement funds be utilized to address the root cause of the matter.
Doing nothing will mean no real change—consider that the settlement funds derived during 2002-2003 for financial fraud did nothing to affect the course or impact of the much more severe 2007-2010 financial crisis. It is time to act now and teach future generations that ethics matter – if only to diminish future economic blowups.
Business can be rough at times but it will be a better playground if we stop the endless games. Extending the lessons on how to play fair will be a boon to us all.
Mark Connolly is the former Director of Securities Regulation for the State of New Hampshire and Principal of New Castle Investment Advisors, and Mark DiSalvo is CEO of Semaphore, a leading global provider of Private Equity funds-under-management.