Teaching Practical Business Ethics

Every ethical dilemma embodies three central questions: What is the optimal ethical outcome? Why should I want the best ethical outcome? Can I achieve the best outcome while preserving professional and personal relationships and, if so, how? Legislative, scholarly, and pedagogical responses to recent ethical and financial scandals involving companies like Enron, Worldcom, Tyco, Parmalat, and Ahold have focused almost exclusively on the first two questions, leaving the third unanswered. This article engages the third question by presenting a pedagogical tool for encouraging executives to personalize and operationalize business ethics

Wink, Wink, Nudge Judge: Persuading U.S. Courts to Take Accountants Seriously in Federal Securities Cases, with Help from the U.K. Companies Act

The 2008 collapse of Lehman Brothers reopened wounds many thought were healed by the Sarbanes-Oxley Act (SOX) in 2002. The Lehman litigation finally ended in late 2013 with audit firm Ernst & Young paying $99 million to investors who claimed the firm misled them with generally accepted accounting principles (GAAP). Other defendants, including banks, officers, and directors, paid out more than$500 million. The bright line standards of GAAP and SOX were obviously not enough to protect Lehman plaintiffs or defendants. Why not? The 2006 fraud trial of Enron CEO Jeffrey Skilling offers clues. When asked at trial whether U.S. accounting principles (GAAP) permitted Enron’s accountants to mislead Enron’s auditors, Skilling’s accounting expert Walter Rush replied: “[T]his isn\u27t even an issue under GAAP. GAAP doesn\u27t talk about misleading. GAAP doesn\u27t talk about integrity. GAAP talks about accounting rules, how you measure assets and liabilities, what kind of disclosures you make.” At about the same time, the SEC’s Chief Accountant declared that most financial statements are misleading. Against this backdrop, in leading recent securities fraud cases, federal courts have disregarded or studiously avoided GAAP and accounting experts, examining more broadly whether financial statements are “fairly presented” or “not misleading,” thus dismissing costly accounting testimony as irrelevant and suddenly exposing defendants — like those in Lehman — to unforeseen legal exposure. Meanwhile, leading accounting scholars and professional associations, domestic and international, have vociferously decried the FASB’s narrow focus on GAAP compliance to the virtual exclusion of fairness and integrity in financial reporting. This article documents the tendency of federal courts to ignore accounting experts in federal securities fraud cases, chronicles the ongoing debate over GAAP compliance and fair presentation, summarizes relevant U.S. and U.K. statutes and regulations, and recommends reforms suggested by the U.K. Companies Act 2006, the IASB, and the FASB’s own Concepts Statement No. 8 that may help to restore the marketplace and courtroom relevance of accounting experts

Drones and Support for the Use of Force

Drones and Support for the Use of Force utilizes experimental research to analyze the effects of combat drones on Americans’ support for the use of force. The authors develop expectations drawn from social science theory and then assess these conjectures using a series of survey experiments. Their findings—that drones have had important but nuanced effects on support for the use of force—have implications for democratic control of military action and civil-military relations, and provide insight into how the development and proliferation of current and future military technologies influence the domestic politics of foreign policy

Carrots and Sticks of Whistleblowing: What Classification Trees Say About False Claims Act Lawsuits

Whistleblower lawsuits under the federal False Claims Act have markedly increased over the past decade. While the amount of individual settlements and judgments vary, over time the government has paid out an average of about 15% of its recoveries as awards to whistleblowers. This investigation used a classification tree algorithm to analyze a sample of recent False Claims Act qui tam settlements, identifying several factors that distinguish larger settlements from smaller ones. Notably, the public or private status of corporate defendants, the federal judicial circuit in which the case is settled, type of case, case duration, relator status, and whether the Department of Justice intervened in the case are significant indicators of settlement amount in qui tam cases. Companies can use this information to better evaluate their exposure to liability for whistleblower litigation, while potential whistleblowers and their counsel can use it to evaluate the likelihood of winning an award