"Scared Straight" for the business set

MBA students take a mandatory trip to prison for a lesson on ethics from corporate criminals.

Published October 11, 2000 7:47PM (EDT)

They were among corporate America's best and brightest: a principal at an aerospace-engineering consulting firm, a senior finance executive with a well-funded Internet company, a district manager of a managed healthcare giant and a division sales manager of a major pharmaceutical supplier. In all, there were about 60 senior and midlevel corporate executives seeking their MBAs through Pepperdine University in California.

Seated before them late last month were some of the worst examples of corporate criminal behavior: two insurance executives serving lengthy sentences on fraud and money-laundering convictions, a bank officer who also worked for a company that did business with his bank and two entrepreneurs convicted of telemarketing offenses.

The subject? Business ethics. The MBA students spent a full day at Nellis Federal Prison Camp outside Las Vegas, listening to the prisoners' tales of greed, arrogance and corruption.

"This is 'Scared Straight' for white-collar executives," convicted felon Mark Morze told the MBA students, referring to the 1972 documentary film in which juvenile delinquents are brought to a maximum-security prison to hear about the horrors of life behind bars. Morze served eight years for stock fraud, bank fraud and income-tax evasion for his part in a swindle in which he and others, working out of suburban Los Angeles offices, bilked investors and others of $100 million in the 1980s.

"We are exactly like you ... you are exactly like us," one inmate warned the MBA students. "You may think you are smarter than us because you are not in prison. Let me be blunt: You are not."

Pepperdine developed its "Ethics in Business" program for its executive MBA program more than 10 years ago. Its purpose is to make students personally confront ethical issues, and to show them what can happen to business executives without an ethical or moral grounding. Participation in the prison trip is required for graduation.

The evening before the "class," the students, instructors and a few spouses gathered at a hotel on the Las Vegas strip for an introductory session. Morze and another ex-white-collar convict from Ohio -- both of whom had been released after completing their prison sentences -- laid the groundwork for the next day's visit to Nellis.

The inmates would offer finely honed, self-justifying performances, the MBA students learned. The inmates might acknowledge their guilt and express remorse, but they also might swear by their innocence. They might insist they were victimized by a far-too-powerful criminal justice system and by overzealous federal prosecutors and judges. They might blame their lawyers, co-workers or employers. They might say their crimes didn't hurt anyone. "It's all lies," Morze said.

Nellis, a minimum-security facility enclosed by Nellis Air Force Base, houses about 560 male inmates, most serving time for drug-related convictions or white-collar crimes. Nationally, white-collar criminals represent 0.7 percent, or 780, of all federal prisoners. (The facility, which houses many white-collar inmates with advanced degrees, is nicknamed "Camp Tell-Us" because a number of inmates have testified against others.)

With its large white-collar clientele, the place is more reminiscent of a military compound than a prison. Modest fences and gates surround the base itself, and inmates are housed in drab, two-story barracks with dormlike sleeping rooms. Prisoners -- ranging in age from 19 to 72 and dressed in military-style khaki pants and shirts -- have access to an exercise yard, a small gym and computers. (None of the computers in at least one classroom had Internet access.)

As promised by the former inmates the previous night, the MBA students heard various stories of how good and gentle men with pure motives ended up serving time. Statistically, one prisoner said, two of the approximately 60 MBA aspirants will end up in prison on white-collar charges, an unverifiable assertion that brought nervous titters from the students and subsequent good-natured bets about who the two might end up being.

Prisoner Mike Calozza described himself as a former insurance salesman with a high-income clientele. With an annual income in the mid-six-figure range, Calozza -- who has seven children -- says he had a sterling professional reputation and took part in community activities in Seattle.

Calozza's downfall began in the mid-'90s, when costs mounted on a new home he was building. He started gambling, and after misappropriating a modest amount of a client's money, things started snowballing. He ended up running a Ponzi-type pyramid scheme involving several million dollars. His house of cards subsequently collapsed, and he received a 10-year sentence after pleading guilty to money laundering.

Other inmates were noticeably vague in describing their crimes -- sometimes contradicting themselves. Rarely was there any mention of their victims, or of the impact their crimes had had on their families and friends. While some admitted that, in hindsight, their downfalls were caused by greed, pride, ego, arrogance, competitiveness and excessive love of money, others cast themselves merely as successful businessmen whose luck had changed for the worse.

The inmates said ethical lapses often are sins of omission, not commission, and that ethical and legal quagmires frequently escalate from seemingly inconsequential actions. "It started with the first lie, then the second lie was much easier," said Ron Loetz, a San Francisco Bay Area insurance executive, serving seven and a half years for bilking clients out of $3.7 million. "It happened gradually, so slowly that I didn't even realize the change in myself."

According to local news reports, Loetz persuaded clients to buy health insurance from his agency, telling them their plans were fully insured and met federal legal requirements. Neither promise was true.

For several of the MBA students, listening to the inmates was a sobering and cautionary experience. Donald Livingston said the session opened his eyes to "how large the gray zone can be, especially when it comes to financial matters." Livingston, a quality manager for a Fortune 500 manufacturing company, said he gained a better understanding of how easy it might be for a businessman to find himself pulled one small step at a time into an illegal situation. "The examples we saw were pretty blatant, but I can see how someone might find himself drawn into a situation that could result in prison, even if he started out with good intentions," he said.

Jim Lemle, division sales manager with Alcon Surgical in Orange County, Calif., believes the prison session will help him deal with future ethical dilemmas. "I pursue business very aggressively, but I also do gut checks with myself, with legal, with my wife and with my peers," he said. "And if it doesn't feel good, it's time to step back and ask why. It sometimes seems like I'm the one who always has to say, 'No, no' to expense reports that I've been asked to sign that don't look right, 'No' to doctors who don't always understand business issues. The prison session reinforced why I have to say 'No,' and made me feel good about doing it."

Pepperdine officials said it would be impossible to gauge the impact of the prison visit on their students. However, Pepperdine professor James Martinoff told the students that those who had attended past sessions had sought legal or other advice immediately following the prison visit to help resolve ethical dilemmas. A few who apparently found themselves working in ethically challenged situations had resigned from their jobs, he added.

While the students initially seemed to be open, if not empathetic, to the prisoners' ethical plights, some admitted later that their feelings hardened when they came to believe they were being manipulated by losers and criminals. Others were doubtful that the prisoners would reform upon release. Despite coming off as exceptionally bright and talented, some students said, the prisoners came off as if they believed they were smarter than everyone else.

"They all knew that what they were doing was probably legally, and certainly ethically and morally, wrong," one student said. "We heard several of them blaming everyone but themselves. I don't buy it."

Nevertheless, several students said they were humbled by the experience. "It appears that I took the right fork in the road," one student said. "Or if I didn't, at least I didn't get caught."

By Eric Lassiter

Eric Lassiter is a journalist living in Los Angeles. He accompanied the MBA students on their trip to Nellis Federal Prison Camp.

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