Few would question that the corporate world is in compliance mode—and for good reason. Memories of when companies like Enron and Global Crossing manipulated earnings, lied to investors, and inspired Congress to enact the Sarbanes-Oxley Act may now be a decade old, but they are still fresh in the minds of many executives.

More recently, the events of the 2008 financial crisis brought on by big banks investing in mortgage-backed securities that weren't worth the paper they were written on are even harder to forget, especially since we are still enduring the economic hangover that ensued. And once again, Congress addressed the problem with legislation. The resulting Dodd-Frank Act is so complex that roughly 75 percent of it has yet to be implemented after more than two years.

In this presidential election year we hear from one side that government regulation is killing the creation of new businesses and new jobs, and from the other that regulation is needed to protect the innocent from fraudulent business practices. CEOs say they are sitting on major capital reserves that could be unleashed to expand capacity and create new jobs, but until there is some clarity in what the future holds for the regulatory environment, they will continue to sit on that cash.

So, how did we get to the point where the burden of regulation and compliance became necessary? We seem to have developed a culture where top managers think it's OK to provide fudged earnings numbers to investors, and OK to foist near-worthless mortgage-backed securities on unsuspecting customers causing the downfall of several major investment banks.

Two recent events might shed some light on how we got to the point where cheating is justified as a means to an end. Both occurred in schools, where students are supposed to be learning the values of integrity. This fall allegations surfaced that as many as 125 Harvard University students, possibly with some help from graduate-student teachers, took part in a cheating scandal involving a take-home final exam during last year's spring semester.

According to the university, nearly half the students in a 279-person class are under investigation for suspected cheating, collaboration, and plagiarism. The dean of undergraduate education, Jay Harris, called the situation “unprecedented in its scope and magnitude.” The students face the possibility of a one-year suspension from Harvard or revocation of their diplomas if they had already graduated. As one graduate said, “I could lose my job.”

The second situation occurred at another prestigious school, the Stuyvesant High School in New York City and the alma mater of four Nobel laureates. As the New York Times reported last March, the school's student newspaper, The Spectator, conducted a survey of 2,045 students and 80 percent said they had cheated in one way or another during their time at Stuyvesant High. Last June 71 juniors exchanged answers to state regency exams through text messages with fellow classmates. The students who participated in the survey said lower-level cheating occurs every day.

In the typical case study approach, building awareness and analysis of an ethical problem is not enough if the parties don't possess a sense of value and ability to do something about it.

The Times article went on to describe the culture at Stuyvesant as one where students rationalize that cheating is OK—a necessary evil in a highly competitive environment—in order to reach their goals of dream colleges and dream jobs. Are they making bad decisions by taking risks they believe are necessary to achieve their goals?

There is a good chance that some of these bright, highly motivated, rule-bending students at Harvard University and Stuyvesant High School will one day become top executives in America's biggest companies. These examples suggest that these future leaders are coming up through a culture where unethical means may be accepted as justification for what they are trying to achieve.

Michael Josephson, president of the Josephson Institute, has conducted numerous studies of cheating in high school and college. He says based on a 2011 study of 40,000 high schoolers, 59 percent admit they cheated in the past year and, “Yet neither schools nor parents take this seriously. Cheaters not only cheat themselves. They cheat fellow students who earn their grades fairly, and they cheat everyone who is misled by a fraudulently acquired grade,” he says.

With astounding foresight our founding fathers, while embracing capitalism, also built the system of checks and balances that has served us well, nurturing and rewarding our best and brightest while protecting the rest over the years. Burdened by the evidence in today's capital markets where some have adopted the notion that unethical means may justify the end goal, our legislators and regulators are working the system to define the level of compliance necessary to achieve fairness in the marketplace. In this system, the emphasis is on spotting and policing wrongdoing on the back end, rather than encouraging integrity on the front end.  

This criticism isn't meant as a broad-brush indictment of corporate executives by any means. But a look at the Securities and Exchange Commission's recent enforcement actions tells the story of major institutions like Citigroup, Goldman Sachs, JP Morgan, Wachovia, Wells Fargo, and many others cited for violations ranging from misleading and defrauding investors, to selling unsuitable investments, to creating “dummy assets” to inflate a deal's credit ratings. Are they crooks? Are these financial institutions doing well? Are their stocks holding their own? Did the goals of their leaders justify the means?

Teaching Ethics

If cheating in our high schools and colleges is as wide spread as reported, what is the role of our business schools in teaching ethics?

Mary Gentile, a former Harvard Business School faculty member and now director of Giving Voice to Values, an organization supported by The Aspen Institute and Yale School of Management, gives business schools a failing grade when it comes to teaching ethics. “You don't have to look far to find a lot of MBAs doing the much scorned ‘perp walk,'” she recently told Bloomberg BusinessWeek. “Even more disconcerting are all of those business school graduates who may not have crossed the legal line but have presided over, or at least given silent assent to, a stream of decisions that have led to the current collapsing dominoes in the worldwide financial condition.”

Gentile says that after analyzing several managerial and financial misbehaviors, she found that in most situations enough people recognized the lapses in ethics and judgment to have put a stop to them, but not enough believed it was possible to do so. So, in the typical case study approach, building awareness and analysis of an ethical problem is not enough if the parties don't possess a sense of value and ability to do something about it.

The New York University's Stern School of Business stakes a claim to the first business ethics courses some 30 years ago. The University of Virginia's Darden School is one of the first top-ranked business schools to establish a required, stand-alone first-year ethics course. Others offering ethics courses are the University of Denver, San Francisco State University, the University of North Carolina, and the University of California, Berkeley. More and more of these schools are coupling ethics with corporate social responsibility.

The University of Chicago's Booth School of Business is one of the few that does not offer an ethics course in its catalog, but as one professor said they discuss the topic during their lectures and integrate it into courses on several disciplines.

As one who teaches ethics as part of my communication courses at a community college, I have to wonder how we can effectively teach good values, when students may be drifting to a culture that accepts some degree of cheating if it achieves the goal of getting accepted to a four-year university. And, if that learned behavior is carried into the workplace upon graduation, is it any wonder we are in a compliance mode, where restrictions, checks, and penalties are the only way to get our business leaders to do the right thing?