Letters to the Editor

August, 2002

WHEN ENRON declared bankruptcy, the business community suffered its most severe financial and moral sentinel event since the 1929 Crash. The impact of this event sent shock waves through the stock market, financial centers, auditing and consulting firms, Enron shareholders, employees, and graduate schools of business administration and legal colleges. This GSB alumnus with 56 years of postgrad experience has been troubled by the muted response of the GSB to this crisis.

The only GSB response [that I am aware of] has been Dean Joss's comments in the May 2002 issue ["A Commitment to Lead"]. His staunch defense of GSB Dean Emeritus Robert Jaedicke was waffling, considering the compelling evidence of Jaedicke's complicit role in approving Enron's false financial endeavors. Jaedicke's expertise was in accounting/auditing, the very disciplines ignored by the Enron board.

An analysis of the GSB's courses reveals a paucity of ethics, financial accountability, and moral discipline subjects.

EUGENE DANAHER, PhD '46
Tallahassee, Florida

Response from David M. Kreps, Senior Associate Dean for Academic Affairs:
When Dr. Danaher writes that an analysis of the GSB's course offerings reveals a paucity of ethics courses, it is important to know what sort of analysis he undertook. As part of the required (core) curriculum, students begin with 10 classroom hours on ethics. And there are a few electives in our course catalog with names such as Ethics in the Biotech Industry and Ethics and Global Business.

But having specific courses on ethics is, ultimately, the wrong way to teach the subject. Students regard one-off courses as just that÷something that doesn't fit in with the bulk of their lives. Having electives is good, but only if students elect to take the electives, and often precisely the students who would benefit the most from such courses are the students who avoid these electives.

The approach that we take is to weave discussions of ethics and ethical issues into our entire curriculum. The example I know best, because I designed the course and am in the process of writing the textbook, is the required microeconomics course, in which we have direct discussions of ethical issues (on price discrimination, implicit collusion, labor relations, and the instrumental role of ethical norms) in at least four sessions out of nineteen. This approach means that ethical concerns become part of the big picture rather than being marginalized. That makes for much more effective teaching of the subject.

If you look at our catalog, you'd see E200, Managerial Economics, and think, "No ethics there." But you'd be wrong. So the picture isn't as bleak as you might suppose. Neither is it as bright as it should be; the administration agrees with the spirit of Dr. Danaher's remarks, that the GSB can and should do more on this vital topic.

David M. Kreps

I WRITE IN RESPONSE TO Dean Joss's May column, "A Commitment to Lead." Joss notes that it is too soon to judge ex-dean Bob Jaedicke, head of the audit committee of Enron's board of directors. I find it ironic that it should appear in the same issue as John McMillan's paean to markets.

Loyalty to Jaedicke is commendable, but he failed to do his job. Jaedicke may have been of the "highest character and competence," but he certainly got rolled by management. Whether he did anything illegal is not the question.

The connection to the piece on markets? Some have said that Enron's collapse proves that the market works. Is it working when billions are lost, California electricity consumers get shafted, jobs go down the tubes, pensioners lose their all, and a financial industry can do nothing but point fingers at others? I like McMillan's final paragraph, which begins, "Markets are not miraculous."

JOHN T. BENNETT, SLOAN '73
Alexandria, Virginia

ON PAGE 29 [of the May 2002 issue] writer Helen K. Chang quotes Romain Wacziarg, assistant professor of economics: "Trade economists know that a country opening up to trade will specialize in certain sectors, putting resources into producing goods and services that are more efficient, and abandoning those that are relatively inefficient."

This businessman and Stanford MBA (from a class exposed to professors of business economics Theodore Kreps and Jesse Allen, who were also involved with the real world) has observed that the many countries opening up to international trade in the last 10 years have mainly specialized in low wages and unenforced labor and environmental laws. Multinationals built or leased many more maquiladoras along our Mexican border to produce a wide range of goods at substantially lower costs than their U.S. employees did.

Then plants started moving to the Philippines, to Indonesia, and now to China for governmental subsidies and extraordinarily low wages. (At present, more than 50 maquiladora facilities have been vacated in pursuit of lower wage and bribery costs.)

Now there are some 800 tech support centers in India taking advantage of relatively low wages for English-speaking engineers there.

None of the foregoing are examples of "comparative advantage"÷at least not in any benign meaning of the term.

WILLIAM S. HAY, MBA '50
Soquel, California

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Kathy O’Toole, Editor
Stanford Business magazine
Graduate School of Business
Stanford University
Stanford, CA., 94305-5015

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