What Would You Do?
Game Challenges Business Students to Balance Profits With Ethics

By Scott McCartney
Staff Reporter of The Wall Street Journal

For the young executives at computer-maker InfoMaster, the company budget was on the line. Terrorism threats were swirling in Jakarta, Indonesia, and the company had to either shut down production there for one quarter and beef up security, or ignore the threat and keep churning out hot-selling products.

The executives opted for production over protection. Soon after, a bomb exploded at the plant. "I just killed 350 people," said a dazed David Marye, InfoMaster's 25-year-old chief ethics officer.

Real-World Decisions

Luckily for Mr. Marye, both InfoMaster and the terrorist attack were fictitious, part of an elaborate game created last year by the University of Texas' McCombs School of Business. Three made-up student-run companies competed in the computer-hardware industry, all trying to maximize revenue, keep costs down and beat back competitors. But the prizes-$11,000 and the chance to perform in front of a high-level, real-world executive panel-were real.

While the simulation appeared to be about the bottom line, the real intent was to teach students about handling the delicate balance of business and ethics, and the sometimes high moral price of too much cost-cutting. The results were eye opening-and painful. Idealistic students, who started the game preaching virtue, succumbed to the everyday challenges of making their numbers and whipping the competition. Some students were stunned that, under pressure, they readily chose corner-cutting paths they had vowed never to take.

The Texas program was created after the WorldCom scandal broke in 2002, as officials looked for ways to teach better behavior to M.B.A. students. The academics knew that while students talk like angels in ethics classes, they behave avariciously in finance classes.

Steven Tomlinson, a finance lecturer, pushed to put students under pressure and throw choices at them. He hired Allen Varney, a designer of video and board games, and consulted with a soap-opera scriptwriter and corporate executives. Scripts were written, rules devised and software created to track decisions.

The result was the Executive Challenge, a three-day game played late last year, where teams of about two dozen students were divided into three companies, each given a limited amount of production capacity and a set of workers with varying skills. A three-month financial quarter typically lasted 30 minutes, forcing companies to make quick decisions. The game offered both individual and corporate shortcuts and lures. Early on, players might getaway with ignoring problems and postponing expenses, but then the problems grew like weeds. "The game is all about temptation," Mr. Varney says. "Business-school students, as a breed, are overconfident."

On the first day, all three made-up companies-InfoMaster, General Data Machines and Starr Computing-spent money on corporate-culture initiatives at the expense of new products. InfoMaster even created an ethics team with leaders from different departments, headed by Mr. Marye, who worked as an analyst for Enron before seeking a master's degree.

Yet as the revenue race tightened, behavior changed. On the second day, each company learned that it had hired an employee who had stolen software from a competitor and that the stolen code was now used in the company's most profitable products. General Data and Starr both opted to turn themselves in and try to negotiate licenses. InfoMaster, despite its ethics team, took the path of least resistance: hoping not to get caught.

General Data proved consistent with its choices-for the most part. Faced with a toxic-waste issue at a river near one of its plants, it opted to dredge the river and make the issue public, even though it didn't believe it was responsible for the pollution. But doing the right thing came at a price. The company was in last place in revenue after the first day.

By the end of the second day, student executives began routinely opting for less-expensive options. General Data was hit with asexual-harassment complaint against its vice president of sales, and it chose to postpone action while investigating the allegation. But the investigation discovered that the complaint was credible, and major. "We thought we did the right thing," said Jay Manickam, who was General Data's chief executive.

InfoMaster, in the lead after the first day, opted to keep quiet on the toxic-waste issue, paying for only a low-cost cleanup and referring the matter to its insurance company. A thorough cleanup would have required shutting down production for one quarter, something InfoMaster was unwilling to do. "We've taken care of it," said Mr. Marye.

On the final day, stakes grew very high. Each team learned of a heightened terrorism risk for U.S. targets in Indonesia and warnings that if security at each company's plant wasn't beefed up, an entire factory could collapse in a terrorist bombing.

General Data opted to move its Indonesian production to Singapore, losing substantial revenue. Starr opted to stay in Indonesia but spent money to evacuate Americans, toughen security and boost insurance coverage. The higher costs forced it to abandon one product line. "We tried to take the high road," says General Data CFO Michael Stewart.

InfoMaster, still leading in revenue, didn't want to take such a painful step. The company evacuated Americans from Indonesia, but didn't spend to protect its plant and workers there. CEO Vivian Rhoads said production capacity was the top priority for the company.

A short time later, Mr. Varney delivered a news bulletin to the InfoMaster executives: A terrorist bombing had killed 350 workers, mostly young Indonesian women, at InfoMaster's Jakarta factory. The classroom fell silent.

"Companies do make decisions they think are best for the long term and sometimes they aren't," Ms. Rhoads said to her classmates. "Three hundred and fifty people died partly because of a decision we all made."

'PR Over Lives'

At the end of eight quarters, InfoMaster still had the most revenue, despite the Indonesian bombing, followed by Starr and General Data. Each company then had to present its results to a judging panel of real-life corporate executives.

Starr, despite cash-flow problems, was the compromise choice for the $11,000 prize because it had minimized risks and still produced solid revenue and strong product lines. The panel criticized InfoMaster's decision to pick "PR over lives" in Indonesia.

InfoMaster executives, who had remained confident of victory, were crushed. "What's scary," says Mr. Marye, "is that I never thought I'd make choices that way."