Tyco-funded ethics center remains unclear


No matter what the outcome of the expected retrial of former Tyco International executives Dennis Kozlowski and Mark Swartz, their prosecution has already had an effect in New Hampshire. Or at least it’s supposed to. In October 2002, Tyco - which at the time was based in Exeter -- agreed to pay New Hampshire $5 million to set up a “statewide investor education program” and “a corporate governance program.” Today, nearly a year and a half later, “the money is just sitting there,” said Secretary of State William Gardner, who chairs the board that oversees the Tyco money and is working on setting up the program. “Rome wasn’t built in a day.” If Gardner has his way, ancient Rome (and Greece) would lay the foundation of the ethics that he says are needed in the business community. In fact, rather than discussing the nitty-gritty of corporate governance, Gardner said he envisions spending much of the settlement money on a more general ethics course for businesspeople based on the ancient classics. “The classics are the foundation of human relations,” he said. “There is a component to make people think about the frailties of us all.” The alleged frailties of former Tyco CEO Kozlowski and the board overseeing him, are the reasons the state got this money in the first place. The agreement stemmed from negotiations between the state Bureau of Securities Regulation - part of Gardner’s office -- and the Tyco board over what the state viewed as its failure to fully perform its fiduciary duties in the Tyco scandal. (The board resigned shortly after the settlement was announced.) The $5 million wasn’t only the largest such settlement in the state’s history, it also stood out because it was not to be deposited in the state coffers, or dribbled out to thousands of stockholders. It was specifically supposed to be used to establish a program or center dealing with corporate governance. “It is very unusual to have this kind of settlement,” said Gardner. “It was unheard of.” Gov. Craig Benson tried to grab some of that money to balance the budget in the 2003 legislative session, but the Legislature did not go along, persuaded by the argument that the funds were earmarked for corporate governance. (The bureau also satisfied legislative appetite by feeding it other settlement money that had no such restrictions.) In September 2003, the bureau announced the formation of the Center of Corporate Responsibility and Corporate Citizenship, , complete with a board of directors that included officials from the Secretary of State’s office - which is designated in the agreement as having the final say on the spending of the funds -- and the University System of New Hampshire, where the funds are currently deposited. The center promptly contracted with Patricia Crawford to set up a forum on corporate responsibility for the 2004 presidential primary, but the candidates failed to commit to taking part. Five of the candidates did submit to center-supported separate 10-minute interviews on corporate governance-related issues. The interviews were broadcast on New Hampshire Public Television and were conducted by New Hampshire Business Review editor Jeff Feingold. In January, Crawford gave the center’s board a detailed list of recommendations - including simple grant-giving, working with academic institutions, developing a speaker series and publishing a column in local newspapers. But, almost three months later - and almost a year after the Tyco money was officially appropriated -- the board has not acted on any of Crawford's recommendations and has been largely silent, all against a backdrop of ongoing corporate scandals, trials and investigations, from continued fallout from the Enron debacle to the recent string of multimillion-dollar fines against many of the nation’s most prominent mutual funds. “Do I think they should be doing more, with me or without me? Yes,” said Crawford, whose status as director has been in limbo. “I think that in these times we need some sort of activity. As citizens, we are watching executive trials unfold, and we need to hear from the center now more then ever. I don’t mean their opinion, but their guidance. That is their mission.” Academic program? Other corporate expressed their frustrations more bluntly, arguing that the board is almost showing fiduciary negligence by sitting on the money, which has earned almost another third of a million dollars since last year. But they - still hoping that the center might someday benefit their own efforts - have not spoken out publicly. “There is a certain irony,” said John H. Vogel Jr., faculty director of the James M. Allwin Initiative for Corporate Citizenship at the Tuck School of Business at Dartmouth College. “They got the money because a board’s process breaks down, and it seems like a process issue all over.” But John Lynch, a center board member who also chairs the University System of New Hampshire board of trustees, says the board has been “actually moving quite quickly,” sifting through faculty proposals to develop a corporate governance course. While nothing is set in stone yet -- Lynch envisioned setting up some sort of corporate governance interdisciplinary program at the University of New Hampshire, and perhaps the other state colleges as well. The center also is looking into at setting up a speaker’s program, maybe an annual conference and perhaps a program specifically designed for corporate board members. While it’s unclear how much money would be spent on an academic program, “it should be significant,” Lynch said. “The goal would be to link these programs with underlying research material across the state.” State Sen. Lou D’Allesandro, D-Manchester, who has been asked to join the board, also viewed the center as “an academic exercise.” But when D’Allesandro talked about classics, he wasn’t just referring to Plato and Aristotle. “I’m hoping that they can look at some good case studies - the genesis of Tyco and what happened. That’s a classic. Look at WorldCom and Enron. Those are classics,” he said. D’Allesandro did think that things could “go a little quicker, but getting it right is very important too.” The question remains: Is there a need for another academic program in corporate ethics? Vogel runs such a program at Tuck, aimed at MBA students about to enter the corporate world. Vogel would have no trouble spending that money at Tuck, but first, he said, “it is useful to ask yourself, ‘Who are we trying to impact? What will have the most impact in corporations, at least in New Hampshire?’” If you were going to set up an academic program, “you need to be holistic,” Vogel added. “If all you are offering is a class, I’m not optimistic that even a brilliantly taught class would have an impact. You need some role models, people who came to campus who went to jail, or stellar corporate citizens. But I wish it was so easy.” There are other such courses nationally, said Nell Minow, editor of The Corporate Library, a corporate reform resource center based in Portland, Maine. The Business Roundtable, for instance, is developing a corporate responsibility curriculum and the Aspen Institute in Aspen, Colo., applies the classics in workshops to business leader. “Why spend that money duplicating what is already out there?” she asked. Minow said the money might be better spent on establishing award programs -- perhaps an ethics award for corporations similar to the Baldrige Award, which focuses competitiveness, quality, and productivity. “That might influence corporate behavior as well as gain visibility for the center,” she said.
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