By Rick Gould, CPA, JD
Having weathered the rigors of graduate and law school, as well as teaching a graduate course in Entrepreneuring, I’ve noticed something is absent from the classroom environment. There is a critical piece missing from the overall education puzzle.
Many of today’s troubles on Wall Street stem from the lack of emphasis on sound business practices and ethics. Special focus on these critical areas is needed to develop a specific mindset. Education in the areas of developing strong ethics and pay-for-performance systems are the cornerstone for addressing this problem.
Incentivization programs are an important ingredient to the capitalistic system. But when executives become rich as their companies chalk up huge losses, then the stockholders are paying a hefty price and long-term share value and reputation are eroded. And this turns out to be a lose-lose for all stakeholders involved.
What is missing in most of today’s post-graduate MBA programs, Law School and Doctoral programs is analysis of executive compensation systems. This should be a required course early on in all programs, certainly at business schools and the required ethics course at law schools.
The concept of bonuses based on actual performance must be ingrained as the new cultural mindset going forward. Organizational structure, the role of the Board of Directors and how board members get compensated should all be scrutinized. Base pay, bonuses, stock options, expense allowances and perks should all have transparency and accountability.
Revamping corporate governance and compensation systems to be deeply rooted in ethics, to be specifically tied to actual performance, and to be transparent will go a long way toward preventing the degree of financial meltdown we have witnessed this past year.
What critical piece of the puzzle do you think is missing? How do you foster sound business practices and ethics in your firm?