2007 Commencement Speech
Mark Olson '65
May 27, 2007

When President Anderson called and invited me to be the commencement speaker this year my reaction was the same as how I suspect some of you will react in future years when you receive a similar opportunity.  Being asked to return to one’s alma mater to deliver a commencement address is simultaneously a thrilling and humbling experience and I thank you for extending this opportunity.  After immediately accepting, my next comment was “I suppose your primary advice is to keep it short.”  To which he responded, “We intend our commencement addresses to be meaningful.”  But the tone of his voice suggested he was grateful that I introduced the subject of brevity.  The commencement speaker at my graduation forty-two years ago was then Vice President Hubert Humphrey.  Humphrey was a brilliant and inspiring orator - but never brief.  President Anderson and I entertained ourselves briefly by wondering whether then St. Olaf President Sydney Rand had suggested to the Vice President that he should be brief.  We think not.

In considering today’s message, my thoughts went back to first floor of Old Main in the school year 1962-3 and my introductory accounting class then taught by Professor Charles Weisheit.  Charlie Weisheit came to St. Olaf from his native New Jersey but his full New Jersey accent had successfully warded off any influences from the speech patterns of Minnesotans who, as we know, speak the English language as God intended which is to say with no accent whatsoever.  Charlie also spoke out of the side of his mouth and the combined effect of his accent and manner of delivery suggested what we might today call a “Wise Guys” speaking style.  But the Wise Guys impression ended with his speaking style.  Charlie had a deep Christian faith that he communicated to his students by frequently inserting little vignettes into his lectures to highlight how the application of ethical values (Charlie would have said “Christian” values) could enhance the application of accounting principles.   I wish I could tell you that all of his students immediately grasped the relevance of Charlie’s vignettes but I don’t recall that being the case.  We occasionally referred to his class somewhat derisively as “Christian Accounting” as I think we saw his attempts to blend ethics and accounting as a collision rather than a confluence of disciplines. Ethics, I am sure many of us thought, belonged in philosophy and theology classes but seemed out of place in accounting

Fast forward exactly forty years to year 2002, the year many of you were beginning your final year of high school. That was also the year accounting scandals involving the likes of Enron, WorldCom and others shook the nation’s fundamental faith in our system of financial reporting.  Years ago scandals like those would have only been of interest to the readers of the financial press, affected investors and perhaps a handful of others.  But now over half of the nation’s households own shares of publicly traded stocks either directly or through retirement savings and the impact of those scandals reverberated broadly.  The combination of greed, hubris, arrogance and in some cases outright theft from some of these scandals resulted in Congress passing the Sarbanes/Oxley Act which, among other things, created the Public Company Accounting Oversight Board that I now Chair.  Last July, during my first week on the job, like all other new employees I received a briefing from our organization’s ethics officer whom I remember saying, “You’ve heard it said that good ethics is good business.  Here at the PCAOB we say ethics IS our business.” 

The PCAOB is far from alone in giving ethical training a high priority.  Ethics is increasingly a component of school curriculums, both at undergraduate and MBA and other graduate levels. Looking back, I now have a deep respect for what I was being taught many years ago in Charlie Weisheit’s class.  One might say that Charlie was ahead of his time.  I would submit, and I think Charlie would agree, that he was neither ahead nor behind his times.  Rather, some values are timeless and ethical behavior is one of them.  But unquestionably, ethical behavior – or the lack of it – has a much higher profile now than in prior times and I would like to direct my remarks today to the importance of making ethical behavior a component of whatever field you choose.  As my primary life experiences are from the financial world, the examples I will use today will largely come from that experience.  However, there is significant portability to ethical experiences and one could apply my examples to any other field.

If ethical behavior has a higher profile today than in the past, the first question one might ask is “why.”  Are people generally inclined to behave in a more ethical way today, or more unethically? Or perhaps are people more repulsed by unethical behavior that at other times?  I am not sure that either is the case, but in my judgment there are at least four factors that have made us more aware of ethical behavior. The first reason is that we live in a far more transparent society than ever.  Due in part to the extraordinary growth of technology, information that previously could have been discovered only through laborious digging now can be unearthed while sitting at one’s desk and then once uncovered communicated literally around the world by touching a computer key.  The numbers of news sources and outlets have increased exponentially with the advances in telecommunications.  Because there are more people chasing more news than ever we have many more news stories.  We are aware of more behavior – both ethical and not – than in prior times.

I could site numerous examples to demonstrate this point, but one particular example comes to mind. The example is a little complex but it illustrates an important point, so please stick with me.  Analysts have long noted a correlation between the granting of stock options to corporate executives and the upward movement of the price of the stock on which the option has been granted.  It had long been suspected – and earlier studies seemed to prove – that options were granted just ahead of positive news about the company thereby allowing the option grantee the opportunity to benefit if the stock increased in value as a result of the news.  A study issued recently by Erik Lie, a professor of Economics at the University of Iowa demonstrated just the opposite.  Rather than issuing stock options in advance of good news, some corporations may actually have backdated the effective date of the options to a date when the stock was trading at a low value thereby assuring the grantee an immediate increase in the value of the option.  Only when that information was electronically available so that he could access and download it from a data base of 15,000 companies, was Lie, a native of Norway, able to uncover the practice.  As many as 2000 companies are estimated to have engaged in the practice.  The consequences of these actions can vary widely from mild embarrassment to potential civil liability for the executives involved.

This leads me to point two.  We live in confrontational times.  It is evident in the relationship of children to parents; of students to teachers; of citizens to government leaders; of shareholders to business management as well as literally all manner of subordinates to superiors.  At times I am sure that all of us who have been on the receiving end find this type of confrontation to be tiresome at best and counterproductive at worst.  But where we see these characteristics in an atmosphere of mutual respect they also generate a symmetric reduction in hypocrisy and duplicity.  Examples of the worst manifestations of this change are not difficult to find when we learn of verbal and even physical confrontations between students and teachers.  Another example is in the public media where at times a “gotcha” attitude dominates and news organizations seem willing to go to long lengths to dig dirt of questionable reliability on our public and high profile citizens. But positive examples are also readily apparent.  For example, our high profile government leaders who in past years were able to hide unsavory behavior by reaching an understanding with a handful of news sources now know that in today’s more transparent times those techniques no longer work.  There also appears to me to be a reduction in the number of command and control management arrangements where the leader at the top was deemed to be all wise, all knowing and all powerful.  Instead I am seeing consensus driven organization management styles becoming more common.  These changes are driven in part by resistance by people at the function level to accept and execute decisions without being included to some extent in the decision making process.  Consensus environments are also less conducive to perpetration of unethical acts than environments where a single person makes all the rules.

Point three is complexity and here is where the ethical challenges are the most difficult, and therefore the most important to watch for.  Permit me to use another example from the business world.  I stated earlier that over one half of U. S. households are now shareholders in one form or other.  This broad distribution of stock holdings has created a focus in corporate America on “shareholder value.”  Partially as a result of this focus, the markets often reward top stock performance and punish bad performance.  This is good for shareholders.  And because it is good for shareholders this strong performance for the stock often translates into higher financial rewards for senior management.  Further, the best rewarded businesses are not those that achieve occasional strong performance, but those that achieve year after year strong performance. 

Now the complexity.  Despite the fact that accounting guidance is very precise, virtually every item on a financial statement is to some degree an estimate, and therefore requires some element of judgment.  Also, the more complex transactions tend to require greater amounts of judgment.  Financial executives, under pressure to maintain shareholder value, face the daily challenge of accurately booking entries that reliably report underlying financials. In many of these decisions there is often more than one appropriate decision and therefore no bright line between the right and wrong choice.  The ethical challenges in these situations are obvious and initially misguided decisions can, through repetition, cascade into major misstatements or even fraud.

In the course of my career I have had the sad misfortune of witnessing associates and acquaintances compromised by a combination of circumstances that have led to careers being ruined and in a few cases incarceration as a result of their actions.  In two cases that immediately come to mind, I thought then and still think that the individuals were fundamentally honorable people.  But they paid dearly for allowing themselves to begin down a path of unethical behavior.  When a person begins down such a path and then recognizes that he or she is headed for an ethical conflict, the best course of action is to reverse course and make whatever correction is necessary.  Too often, however, we see either denial or a cover-up being the response.  There is an old saying in Washington DC.  “There are two rules involving scandals.  First rule – it is never the act it is the cover-up.  Second rule – nobody ever remembers rule number one.”

My fourth point is that ethical behavior is much more than simply avoiding dishonesty.  We are fortunate to live in a nation where our rules and laws do not prescribe what we must do but instead define what is unlawful.  That allows plenty of room for questionable - but still legal - behavior.   Some institutions have had their good names sullied by acts deemed to be ethically questionable though not illegal.  A current example involves a subject familiar to many of you – student loans.  It has recently been reported that some colleges and university employees responsible for processing student loans had received direct payments from certain lenders without the knowledge of the student who trusted the loan advisor for guidance on receiving the best loan terms. When the practice became known the reputations of the educational institutions involved were compromised.  I was pleased when reading a recent newsletter that St. Olaf had an established practice of not accepting these payments.  The practice of accepting gifts of any sort from a vendor has long been a questionable practice as it challenges the objectivity of the person accepting the gift. It is one of a number of practices that can put the reputation of an organization at risk.  Increasingly leaders recognize they are answerable for ethic misbehavior of subordinates and therefore find comfort in developing ethical guidelines for their employee’s actions.   For that reason, many organizations develop a code of conduct putting parameters around acceptable behavior and specifically defining unacceptable behavior Most include the warning that the appearance of a conflict of interest can have the same consequence as an actual conflict.

 

As your careers unfold, most of you will be invited to join an organization in your respective field.  As you consider whether you wish to join an organization I suggest you be alert to evidence of that organization’s ethical commitment.  Evidence can include the following:

  • Has this organization established a formal code of conduct or valued behavior?
  • Is the valued behavior consistent with your own values?
  • What evidence tells you that there is a commitment to these values at the highest levels of management?
  • How is that code of conduct communicated?
  • How is it enforced?
  • What happens to people who violate the code?  Are there real consequences?

Finally, as you can imagine, the easy part is putting the words on paper.  The tough part is establishing and maintaining an environment where ethical behavior is accepted and incorporated into professional standards. 

You may recall that earlier in this talk I referenced an ethics officer in our organization.  The person who fills that responsibility is a senior person at the PCAOB.  We are not alone in having such a position; in fact the discipline of ethics officer is increasingly common in government and business.  It is now a mandatory requirement for federal government agencies and a common component of many organizations outside government. This new initiative, in my judgment, is one of the most significant improvements in the work world during my career.

Your understanding of ethical behavior started with lessons learned at home, from your interaction with peers and by observing role models.  As graduates of St. Olaf College you will now move to the next phase of your lives with the benefit of a rigorous academic regimen including mandatory courses in ethics provided in an environment where ethical values been taught in the Lutheran tradition.  These values are therefore not simply a recitation of approved behavior, but are fundamental principles that can guide you as you are confronted by ethical choices.    I would encourage you to view your preparation not as immunity to ethical misbehavior, but rather to be aware of your potential vulnerability.  This thought reminds me of a product that is marketed to frequent air travelers.   Sold in tablet form it is a combination of vitamins, herbs, and other elements that purport to enhance the immune system in the contagious atmosphere of commercial airplanes or other crowded environments.  I am not sure if the tablets work, but I see little downside to additional doses of vitamins and herbs and so I take the tablets when I travel.  Would that your St. Olaf education could provide you with a similar shield that could amount to immunity from ethical misbehavior.

Instead, I hope that the St. Olaf experience provides a solid basis on which to establish your own ethical principles while at the same time alert you to your potential vulnerability to ethical misconduct. Admission of vulnerability is not an admission of weakness.  Rather, it is recognition that there are not always bright lines on ethical challenges and that not all ethical decision are intuitive.  Also please remember, ethical challenges will come at you early in your career; as early as when you fill out your first job application.  A high official at the Massachusetts Institute of Technology recently had a bright career come to an abrupt end when it became known that in an early job application she had inflated her resume and never corrected her initial misstatement even as she continued to be promoted through the MIT administration.

Let me close today with a final observation.  In my judgment it is a great time to be young.  This is not a statement that I make casually and for about two decades from the mid 1970s to the mid 1990s I did not believe that graduates of those times entered as promising a job environment as had their predecessors. But in today’s world the same factors that create complex ethical challenges are also creating an environment where new opportunities abound.  An increasingly global economy, rapid changes in technology and the depth and resilience of our capital markets are driving the creation of new jobs and changing existing jobs at a remarkable rate and in nearly all fields.  This rapid rate of change generates opportunities at a much earlier point in a career than was true even fifteen years ago and therefore more quickly creates opportunities for professional growth and advancement.

The recipients of these opportunities will be those who are best prepared to recognize and capitalize on them.  Therefore let me amend my statement and say it is a great time to be young if you are appropriately prepared.  As St. Olaf graduates you have a strong base with your liberal arts education to contribute in a meaningful way to a rapidly changing society.  Just as I now look back and remember the lessons from Charlie Weisheit as far more than just understanding accounting principles, I am sure you will similarly see your St. Olaf education as having prepared you in multiple ways for meeting the challenges ahead.

I wish you well and a warm Um Ya Ya.