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Source: Diane Swanson, 785-532-4352,
News release prepared by: Erinn Barcomb-Peterson, 785-532-6415,

Thursday, Feb. 5, 2009


MANHATTAN -- Diane Swanson could easily say, "I told you so."

Swanson, the chair of the Business Ethics Education Initiative at Kansas State University, has long called for government oversight of executive pay, and now Washington is agreeing. President Barack Obama announced a $500,000 pay cap for some senior executives in businesses that received government bailouts.

"Back in 2006 I was saying that paying excessive executive salaries is a bad habit that needs to be broken," Swanson said. "I've long said that it is one of those areas where government oversight is desirable because self-regulation by business alone hasn't worked to resolve the issue."

Swanson said that the argument that executive pay is justified by superior performance has long been in doubt. Now, with taxpayer dollars at stake in cases where failed businesses seek to bailed out, she said it is all too clear that bad management is not the only problem.

"Instead, greed, lack of accountability and failure to grasp the degree of social misery caused by bad decision-making seems apparent," Swanson said. "In short, many richly-rewarded executives are out of touch with their proper role in society."

Not that Swanson thinks regulation is a cure-all. She said that regulation can have unintended, undesirable consequences that need to be monitored. Still, she said that the recent pay scandals gave government officials little choice but to step in.

"After all, taxes are not meant for subsidizing bonuses in the private sector," she said. "With the country in economic distress, I can think of much better ways to spend public money; soup kitchens for the homeless come to mind."

Swanson's research in business ethics includes a study showing a correlation between executives' values and how much they want in pay. Working with Mark Orlitzky, now of Penn State University Altoona, Swanson found that executives who downplay ethics in their decision-making are the same ones who state a preference for unusually high salaries.

Swanson and Orlitzky also found that executives who were short on ethical values and were long on pay preferred salaries that were many times higher than those earned by their lowest-paid employees. Swanson said that although pay for the lowest-earning workers decreased between 1960 and 1990, compensation for top managers increased greatly, regardless of the companies' performance records.

But what sent up a red flag for Swanson were results showing that these income-rich, values-poor executives also were likely to have had more business education.

"I saw this as yet more evidence that business education was teaching greed and self-centeredness instead of service to community," Swanson said. "Business students should learn that business people not only serve themselves but society as well. The point is that senior managers need to have some kind of community-mindedness or more harmful effects of corporate scandals will be inflicted on society in the future."

That's why Swanson has spearheaded a campaign to emphasize the importance of requiring at least one ethics course of all business graduates, a policy that many -- if not most -- business schools still resist strongly.

At K-State, students earning a master's in business administration take a capstone ethics course. K-State also offers an elective in professional ethics, and faculty cover the subject in other business classes.

"I'm proud to say that K-State's model of ethics education has been recognized internationally," Swanson said. "As educators, we have a duty to society to arm future managers with knowledge of ethics and corporate social responsibility."