Franklin Strier: Business Ethics and Corporate Governance Inspire Research

Franklin Strier, professor of accounting and finance, had his article, "Conflicts of Interest in Corporate Governance," published in the December issue of The Journal of Corporate Citizenship. The piece dealt with the ways in which conflicts of interest lead to lapses in business ethics and underscores the work Strier completed last semester in establishing a Web-based Center for the Study of Corporate Governance and Business Ethics.

Though a wave of research on business ethics has followed in the wake of the rash of scandals at Enron, WorldCom, and others, the topic has been one of Strier’s scholarly interests since the 1970s. This article in particular deals with examples of conflicts of interest and how taking those conflicts of interest away will lead to better corporate governance.

“The one commonality of bad business ethics and bad corporate governance are conflicts of interest,” he says. “Remove the conflict and you prevent people from making poor ethical decisions. Take away the conflict of interest and you eliminate the chemistry that allows all of this to take place.”

Ironically, Strier worked for Arthur Andersen well before the firm fell from grace at the hands of its own ethics scandal. He points out that the hard times his former employer has faced in the midst of the embarrassing scandal are a direct result of the conflicts of interest he references in the article. The firm became corrupt when they began offering consulting services to the same companies it was offering accounting services. The conflict presented itself because Arthur Andersen was more likely to look the other way in their accounting reports of a firm doing shady practices from whom they hoped to win consulting work.

Providing another example, Strier outlines how the compensation packages for many big executives now come in the form of stock options. With stocks based on reported earnings, this provides an incentive for the executive to doctor such earnings so that they personally benefit from stock price increases. Instead of basing compensation on stock prices, he suggests structuring them around measures of innovation or consumer satisfaction recorded under the executive’s leadership.

Steeped in such scholarly work, Strier went on sabbatical last semester during which he developed the Website for the new online Center for the Study of Corporate Governance and Business Ethics.

“Billions of dollars have been lost because of these scandals and, in response to them, accrediting bodies like AACSB [The Association to Advance Collegiate Schools of Business, of which CSUDH is a candidate for accreditation], and people who are in advisory roles feel it’s essential that business schools imbue students, faculty and executives with a sense of ethics before stepping into the business community,” he says. The site aims to do so by providing a forum and central source for such topics on campus. At this point, the site includes a statement of purpose and a number of links to other online resources as well as published faculty articles and commentary on corporate governance topics in the news. 

In addition to providing a root structure for ethical conduct for those working in the business community, Strier hopes the site will serve as a resource for other scholars dipping into such research. With admittedly modest beginnings, he hopes the Center will eventually include a working paper series and, host on-campus conferences and executive training sessions.

Another irony not lost on Strier is the hot-and-cold approach to these topics over the course of time. “It seems we have to have a scandal before we react by insisting on a need for ethics training,” he says. "One last hope then for this Center and other scholarly work on such topics across the country is that this new wave of focus on business ethics and corporate governance will put that ironic cycle to rest by making people recognize that training and scholarship always needs to be there. Otherwise, the ethics will fall slack and a scandal will inevitably follow.

-Ryan Brandt