Criticisms of business seeing value creation only in terms of achieving short-term, unsustainable results and how business schools prepare future leaders predate the financial meltdown. Warren Bennis and Jim O’Toole talked about the need to reform business education several years ago. The crisis simply made it more obvious that business as usual isn’t working, either in the classroom or boardroom.

The piece of management education reform that involves the role of ethics has added importance not only because trust in business has fallen so far, but also because it is tied to how leaders behave and the impact that has on a company culture as well as society.

When students return to campus in coming weeks, dialogue and debate on the purpose of management education and how ethics is handled will continue, impacted by initiatives that seek to help reinforce high ethical standards. Some examples are the MBA Oath project, and programs giving students experience practicing values and integrating ethics into other organizational risk considerations.

While well-regarded companies that have recently suffered reputation meltdown are real-world examples for the classroom, even more important is learning about other models for doing business, like Pepsico, a company that is intentionally setting high ethical standards for itself while still making significant profit.

For many companies ethics has a walk-on part—not much focus beyond the compliance function and website rhetoric about how a company describes its values. If integrating ethical considerations into strategic business decisions was the norm, we wouldn’t keep enduring debilitating crises where consequences of actions apparently aren’t clear to leaders until a regulator shows up or media headlines send stock prices lower.

Performance with Purpose

The reality is that crises at Toyota, Goldman Sachs and BP – to name a few -- involved ethical failures as potent as the business miscalculations and addiction to gaining ever-higher quarterly profits, where choices and shortcuts harmed stakeholders. Just as the ethical debacle of Enron was a wake up call met by additional regulation and beefed up ethics focus in companies, the corporate crises so far this year offer another kind of wake up call that companies and management education would do well to heed. How many more examples do we need of value creation only being about profit at the expense of society?

Indra Nooyi, Pepsico’s chairman and CEO, told students at Yale’s School of Management in May 2010 that “performance with purpose is how we run the company.”  She explained that “Performance with purpose is about how you can intimately link what a company can do with what the needs of society are and together deliver great performance.”

“Pepsico wants to be the model of the good company,’ she continued, “an example of how business should be done in the 21^st century.” This sets the bar very high at Pepsico. The business model requires integrating ethical considerations into the mix of business considerations, aligning decisions with purpose, and acting in a manner that inspires employees to do their best work. The result, if made a reality, establishes trust with stakeholders.

It is the inconsistencies that often trip a company up. Simon Webley, Research Director at the Institute of Business Ethics in London, makes a distinction between doing ethical things (like philanthropy and environmental activities) and doing things ethically. Doing the former is no substitute for doing things ethically, he says, mentioning a company in the U.K. known for the wonderful things it does for the community, but yet it doesn’t pay its suppliers on time. “It is easier to do CSR (corporate social reposnibility) than to integrate high ethical standards throughout the organization.”

Adhering to high ethical standards is at the heart of the Oath Project started at Harvard Business School last year as a grassroots movement of students and faculty. The voluntary pledge to “create value responsibly and ethically” seeks to create a community of MBAs (signers are from more than 250 schools) who share a high standard for ethical and professional behavior. Nitin Nohria, who became Dean of Harvard Business School this month, has been a strong supporter of the project.

Role of Values

Will signing a piece of paper change anything? It depends. We should consider how change occurs; it starts with a personal act of intention, followed by action, gaining reality through repetition and reinforcement until it becomes how things are done by an individual, and a collection of individuals. It is too soon to know the success of the movement or its influence on the companies graduates join. However, it is a start. The Oath Project is supported by many organizations, including Aspen Institute’s Business and Society Program (BSP).

Part of expressing high ethical standards is the ability to speak up in support of those values. Over 100 business schools globally are participating in an innovative, cross-disciplinary business curriculum called Giving Voice to Values (GVV) created by Mary Gentile. The program raises different kinds of questions than the case study approach: “Rather than asking ‘what is the right thing to do?’ she says, “we ask ‘how can I get the ‘right thing’ done?’” In GVV, students go on to answer other questions raised including: “What do I say to whom, what will they say back, and then what do I say? What data do I need? What allies do I need, etc.”

In GVV, Gentile says, “we ask students to create and practice literal scripts and action plans so that the program goes beyond awareness building and analysis to action.” The relatively new program was incubated at the Aspen’s BSP and also sponsored by Yale School of Management before moving to Babson College last year.

To help students practice integrating ethics into the decision-making mix, Loyola Marymount University (LMU) has developed an invitational intercollegiate business ethics case competition which attracts international participation. It is also sponsored by the Ethics and Compliance Officer Association, a professional group for corporate compliance officers, whose members serve as judges. MBA and undergraduate teams make presentations showing their understanding of the legal, ethical and financial dimensions of problems.

“Every decision you make in business generally occurs when you are under pressure, without all the information or time you’d like, and in the midst of competing factors – usually financial, legal or ethical issues,” says Thomas White, professor and director of the Center for Ethics and Business, who created the competition. “There needs to be more emphasis on ethics education in MBA programs (however it is done) because individuals need more technical ability in recognizing and resolving ethical issues, which are as sophisticated and complex as any financial problem, and getting more so.”

The success of business education reform has many champions, and is coming up again at a time when there is crisis fatigue as well as examples of successful companies with a value proposition that puts a priority on social good. Will current business leaders support training new leaders in skills and competencies that support new models of business or will we need to endure more business as usual?

Gael O’Brien is a Business Ethics Magazine columnist. Gael is a thought leader on building leadership, trust, and reputation and writes The Week in Ethics, a weekly column at http://theweekinethics.wordpr

In filing the complaint, the Justice Department said it also intervened in a 2007 civil suit against Oracle filed by Paul Frascella, the company’s Senior Director of Contract Services. The False Claims Act allows private citizens with knowledge of fraud to file whistleblower suits on behalf of the United States and share in any recovery.

If the United States intervenes in the action and proves that a defendant has knowingly submitted false claims, it is entitled to recover three times the damage that resulted and a penalty of $5,500 to $11,000 per claim, the Justice Department said.

The government said the GSA had relied on disclosures about Oracle’s commercial sales practices to negotiate the minimum discounts for government agencies who bought Oracle software. The contract required Oracle to update GSA when commercial discounts improved and extend the same improved discounts to government customers. “Oracle misrepresented its true commercial sales practices, ultimately leading to government customers receiving deals far inferior to those Oracle gave commercial customers,” the Justice Department said in a press release.

An Oracle spokesperson could not immediately be reached for comment.

Photo by Peter Kaminski via Wikimedia Commons

Citigroup has agreed to pay the SEC $75 million to settle charges that the bank hid exposure to more than $40 billion in subprime CDOs. (That works out to roughly $1 fine for every $500 worth of hidden exposure.) Read the full SEC complaint.

In what the New York Times called "an unusual move" the SEC also charged one current and one former Citi executive for making the misstatements. Former CFO Gary Crittenden will pay $100,000 and Arthur Tildesley - formerly the head of investor relations - will pay $80,000. Neither Citi nor the execs admitted to any wrongdoing.

According to the SEC enforcement director Robert Khuzami, Citigroup had boasted in 2007 "of superior risk management skills in reducing its subprime exposure to approximately $13 billion," when in fact,  "billions more in CDO and other subprime exposure sat on its books undisclosed to investors."

"We are pleased that we have reached agreement with the SEC to put this matter concerning certain 2007 disclosures behind us, and that the SEC is not charging Citi or any individual with intentional or reckless misconduct," said Citigroup spokeswoman Shannon Bell.

As we have noted in our bailout tracker, Citi's subprime losses have been massive, and resulted in multiple taxpayer-financed bailouts -- $45 billion overall.

Citi execs have in the past said they were "deeply sorry" for ... not predicting the market collapse.

We've reported on some of Citi's specific CDO dealings with a hedge fund called Magnetar, and some of the disclosure questions about those deals as well as others. For more on trouble Citi and others could be facing, check out our bank investigations cheat sheet.

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.   This article is republished with permission under a Creative Commons license.

General Electric Co. agreed to pay $23.4 million to settle charges that two GE subsidiaries — along with two other subsidiaries of public companies that have since been acquired by GE — participated in a $3.6 million kickback scheme with Iraqi government agencies to win contracts to supply medical equipment and water purification equipment.

The U.S. Securities and Exchange Commission charged in a civil suit that from 2000 to 2003 the subsidiaries violated the U.S. Foreign Corrupt Practices Act by paying bribes in the form of cash, computer equipment, medical supplies, and services to the Iraqi Health Ministry or the Iraqi Oil Ministry in order to obtain valuable contracts under the U.N. Oil for Food Program.

According to the complaint, GE subsidiaries Marquette-Hellige and OEC-Medical Systems (Europa) AG made approximately $2 million in kickback payments to the Iraqi government under the Oil for Food Program.

Subsidiaries of Ionics Inc. and Amersham plc made approximately $1.55 million in cash kickback payments, the SEC charged.  Amersham was acquired by GE in 2004 and is now known as GE Healthcare Ltd.  Ionics was acquired in 2005 and is now known as GE Ionics, Inc.

The settlement includes a $1 million penalty and $22.4 million in disgorgement of profits and interest.  The SEC said GE cooperated in the investigation.

"Bribes and kickbacks are bad business, period," said Robert Khuzami, Director of the SEC's Division of Enforcement. "This case affirms that law enforcement is active across the globe - offshore does not mean off-limits."

Cheryl J. Scarboro, Chief of the SEC's Foreign Corrupt Practices Act Unit, added, "GE failed to maintain adequate internal controls to detect and prevent these illicit payments by its two subsidiaries to win Oil for Food contracts, and it failed to properly record the true nature of the payments in its accounting records. Furthermore, corporate acquisitions do not provide GE immunity from FCPA enforcement of the other two subsidiaries involved."

In statement, GE said it “is committed to the highest standards of integrity and transparency in our business practices.  We constantly strive to improve in this regard, and we have already applied the lessons of this matter to help us further strengthen our policies and practices.”

As for this case, GE said, 14 of the 18 contracts cited by the SEC involve businesses that were not owned by GE at the time of the transactions. “The SEC alleges that, in acquiring these companies, GE acquired their liabilities as well as their assets,” the company said.

GE Healthcare units in Europe were involved in four of the contracts cited by the SEC.  GE said the subsidiaries “declined to make cash payments to the Iraqi Ministry of Health, but they acquiesced when their agent offered instead to make in-kind payments of computer equipment, medical supplies, and services to the Iraqi Health Ministry, and then failed to reflect the transactions accurately in their books and records.”

“This conduct did not meet our standards,” GE said, “and we believe that it is in the best interests of GE and its shareholders to resolve this matter now, without admitting or denying the allegations, and put the matter behind us.

GE also said it has received confirmation from the U.S. Department of Justice that the Department has closed its investigation and will take no action on the matters involved in the SEC suit.

The SEC said it has now taken 15 FCPA enforcement actions against companies involved in Oil for Food-related kickback schemes with Iraq, recovering more than $204 million.

It has been fascinating to watch over the last decade as more investors around the world actively embrace the importance of companies acting responsibly on environmental, social and governance (ESG) issues.  And equally, if not more important, we have seen companies globally step up and confirm the importance of being a responsible corporate citizen and its central importance for protecting and building shareholder value.

Walden Asset Management recently conducted research on how companies see their roles in this evolution. The wide ranging quotes compiled below all connect to the premise that being a responsible company is good for the bottom line.  What’s significant about the quotes is that they all come from the companies themselves, drawn from several dozen corporate social responsibility reports (CSR) including a wide range of industries.

Please understand that including a quote from a company does not mean that I or Walden Asset Management automatically think this company is a “living model” for good CSR reporting or performance.  However, these quotes do illustrate the expanding belief that CSR has become vitally important for a company’s business, and that transparent reporting is, as one CEO said, one of “the prices of doing business today.”

Special thanks go to Carly Greenberg, a Summer Associate at Walden, who painstakingly reviewed dozens of CSR reports to gather this information.

Industry: IT

Intel

From the President and CEO statement, Paul S. Otellini

“Corporate responsibility is about doing the right things right.”

“Our approach has created value not only for our stakeholders and society, but also for Intel.  We have reduced costs through energy conservation investments, minimized risks by proactively working with our communities and supply chain, and enhanced our reputation as a leading corporate citizen by building trusted relationships around the world.” (pg. 2)

HP

“As one of HP’s seven corporate objectives, global citizenship has long been integral to the success of our business. We’re responding to pressing issues, such as mitigating climate change, using energy more efficiently, enriching education and improving healthcare, by providing solutions that are transforming how people live, work and connect.” (pg. 3)

Dell

From the Letter from CEO, Michael Dell

“Dell has a full-time commitment to being a responsible corporate citizen. It’s a commitment driven by the types of goals, strategies and accountabilities that characterizes every part of our business.” (pg. 4)

From the Text of the Report

“We live in an increasingly complex world. That reality, combined with the financial downturn of the global economy and the issues facing our planet and our communities, means business as usual is not enough. To make a meaningful difference, we must inspire and innovate….

"During times like these, we must continue to build trust with customers and stakeholders by demonstrating our positive impact on society and the planet and developing meaningful measures for reporting our progress. Corporate responsibility is a critical component of Dell’s overall business. We are committed to being a responsible corporate citizen.” (pg. 6)

Xerox

From the Letter from the CEO, Ursula M. Burns, and Chairman of the Board, Anne M. Mulcahy

“Despite the toll the recession has taken, we are pleased to report that it has not caused us to waiver from our belief in the need to behave responsibly as a good corporate citizen in the communities and countries in which we operate. There are two broad reasons for that – a belief that good citizenship is the right way to behave and an equally important belief that behaving the right way is a good thing for our business.” (pg. 2)

“The more we have integrated sustainability into our business operations, the more it has become a part of our DNA. We like to think of ourselves as a leader, still pushing the boundaries of what is possible.” (pg. 2)

“We were an early leader in the sustainability movement because we thought it was the right thing to do for the environment. But we discovered something else along the way. Every one of our innovations ended up either saving us money or creating new markets and new revenue. We found, in other words, that we don’t have to choose between the environment and profit. We can do both.” (pg. 3)

“Conducting our business with integrity and transparency builds credibility and attracts investors.” (pg. 4)

“Nurturing a greener world through sustainable innovation and development saves money, creates value and helps develop new markets.” (pg. 4)

Industry: Energy

Shell:

From the CEO introduction statement, Peter Voser

“Safety, environmental and social performances are now closer to the core of our business plans and decisions.” (pg. 1)

“I believe sustainable development works best when it is thoroughly integrated in our business decisions at the very earliest opportunity…That is exactly how it must be if we are to meet the complex challenges ahead in the most effective and responsible way.” (pg. 1)

From the interview with CEO Peter Voser, interviewed by Aron Cramer

“Sustainability is central to the way we do business, our business principles and our long-term strategy, so we take a very far-reaching view, not a short-term view.  It means to me that we help to meet the growing energy needs of the world in economically, environmentally, and socially responsible ways.  You can’t have one without the other two” (pg. 7) –Peter Voser

“We wanted to embed sustainable development as deeply into the business as possible” (pg. 7) –Peter Voser

Exxon Mobil:

“It is our view that successful companies are those that see business objectives and sustainability objectives as interlinked.” (pg. 2)

“For a number of years, our business lines have been incorporating sustainability considerations in their operations and sharing the outcomes with stakeholders.” (pg. 2)

“Our disciplined approach and long-standing commitment to corporate governance have contributed to our continued success during the global recession of 2009.” (pg. 15)

“We believe that an unwavering commitment to high ethical standards and business integrity is critical to our competitive advantage and shareholder value.” (pg. 16)

Industry: Utilities

Duke Energy

From the Letter from the Chairman and CEO, Jim Rogers

“In tough economic times, when every aspect of our business is under scrutiny, some might ask whether we can afford to focus on sustainability. To that I respond: Can we afford not to?” (pg. 4)

“Sustainability – operating our business in a way that is good for people, the planet and profits – is, in my opinion, no longer optional. It is the strategic and decision-making approach we are following at Duke Energy to create long-term value.” (pg. 4)

“At Duke Energy, sustainability describes the way we work; it is a competency that leads to improved risk management, efficiency and innovation for today’s complex, resource-constrained and connected world.” (pg. 4)

Industry: Telecommunications

AT&T

“At AT&T, when we talk about 'sustainability,' we’re not just talking about the environment. We’re talking about a broad array of initiatives that will make our business and communities stronger well into the future.” (pg. 13)

Verizon

From the Message from the Chairman and CEO, Ivan Seidenberg

“Our corporate responsibility process helps us assure that our practices keep pace with the evolving needs and expecta­tions of our customers.” (pg. 7)

“We have built a sustainable model for incorporating corporate responsibility into the way we manage our business.” (pg. 7)

Industry: Food & Beverage

The Coca-Cola Company

From the Chairman and CEO Letter, Muhtar Kent

“In the midst of the global financial downturn, the economic, environmental and social implications of business are more important than ever. There’s no question that the world is undergoing a massive resetting of priorities, values and expectations.”

“The strength and sustainability of our brands are directly related to our social license to operate, which we must earn daily by keeping our promises to our customers, consumers, associates, investors, communities and partners. It is an honor, and a responsibility that we take very seriously.”

From the Text of the Report

“LIVE POSITIVELY^™ is our commitment to making a positive difference in the world. Through redesigning the way we work and live, we consider sustainability as part of everything we do. As we act with an eye toward future generations, we will focus on driving business growth and creating a more sustainable world.” (pg. 12)

Kraft

From the Message from the Chairman and CEO, Irene B. Rosenfeld

“To build and sustain brands people love and trust, one must focus—not only on today but also on tomorrow. It’s not easy…but balancing the short and long term is key to delivering sustainable, profitable growth—growth that is good for our shareholders but also good for our consumers, our employees, our business partners, the communities where we live and work, and the planet we inhabit.” (pg. 5)

Industry: Materials

Alcoa

From the Message from the Chairman and CEO, Klaus Kleinfeld

“During these tough economic times, we recommitted ourselves to integrating sustainability as a core value for Alcoa; protecting the health and well-being of our employees and our communities; conducting business with the highest code of ethics; preserving the environment and our natural resources; and earning our license to operate each and every day.”

The Dow Chemical Company

“In short, we are committed – through chemistry – to the betterment of global humanity. And it is this commitment that drives all of our strategies for growth and profitability.” (pg. 3)

From the Letter from Chairman and CEO, Andrew Liveris

““Setting the Standard for Sustainability” is our desire to have corporate citizenship inherent in everything we do as a global corporation, directly supporting our vision of being the largest, most profitable and most respected chemical company in the world.” (pg. 20)

From the Statement from CEO presenting overall vision, Andrew Liveris

“We see sustainable development as an opportunity to tap new markets that create value for our customers, consumers and the planet.” (pg. 23)

” By integrating sustainability elements into every facet of our business – from our product offerings to our energy use – we are creating a better future for our Company and the world.” (pg. 23)

Industry: Consumer Services and Products

Procter & Gamble

From the President and CEO Statement, Bob McDonald

“In fact, our growth strategy for the coming decade is linked tightly to our Purpose. We will grow P&G’s business by touching and improving more consumers’ lives in more parts of the world … more completely.

"To execute this strategy and fulfill the Company’s Purpose, we must grow responsibly and sustainably. As a result, Sustainability is at the heart of P&G’s business model. Keeping Sustainability at the core of our business fuels innovation and strengthens our results.” (pg. 4)

“We’re a company that focuses on growth now and for generations to come, and therefore Sustainability should and will be a focus area for me.” (pg. 4)

Nike

From the Letter from the CEO, Mark Parker

“We saw that doing the right thing was good for business today – and would be an engine for our growth in the near future. With each new discovery and partnership, we willingly gave up old ideas to shift our thinking toward a better, smarter, faster and ultimately more sustainable future – financially, environmentally and socially.” (pg. 4)

“All companies face a direct impact from decreasing natural resources, rising populations and disruption from climate change. And what may be a subtle effect now will only become more intense over the next five to ten years. Never has business had a more crucial call to innovate — not just for the health and growth opportunities for our companies, but for the good of the world.” (pg. 5)

“We see sustainability, both social and environmental, as a powerful path to innovation, and crucial to our growth strategies.” (pg. 5)

“And for all the athletic and cultural and financial successes of the company, believe our work in sustainable business and innovation has equal potential to shape our legacy.” (pg. 5)

“There is now only one path and it leads to greater sustainability, equity, growth and prosperity.” (pg. 5)

Wal-Mart

From the Letter from CEO, Mike Duke

“I meant we would make sustainability a priority throughout our entire company and we would act with a sense of urgency.” (pg. 3)

“It shows that even during the economic crisis, our company does not slow down on sustainability or even just stay the course; we redouble and strengthen our efforts.” (pg. 3)

“When we look at the world today and the trends that will shape the world in the future, we see that sustainability is no doubt one of Wal-Mart’s greatest opportunities to make a difference for our business, our communities, our customers and the planet.”  (pg. 5)

Kimberly-Clark Corporation

From  the “Choices for a Sustainable Future” section

“Put simply, sustainability is critical to our future success. It’s an enormous challenge. But we choose to do it, and to work with those who support positive change, because it’s the right thing to do. That’s one choice that will never change.” (pg. 3)

From the Message from the Chairman and CEO, Tom Falk

“Sustainable business practices are woven into the fabric of our Global Business Plan. We challenge ourselves every day to look for ways to sustain the resources we enjoy today for generations to come. That’s why Kimberly-Clark is focused on setting and achieving sustainability performance metrics for our brands and facilities. And through our resource stewardship, we are demonstrating to our stakeholders that sustainability isn’t just the right thing to do, it’s also good business.” (pg. 4)

Industry: Automotives

Ford

The letter from Executive Chairman and Chairman of the Board, William Clay Ford Jr.

“We continue to aggressively search for new ways, both big and small, to improve our economic and environmental sustainability. Often the actions we take accomplish both goals.”

“Creating a strong business and building a better world are not conflicting goals – they are both essential ingredients for long-term success.”

From the Letter from President and CEO, Alan Mulally

“We also know that the successful companies of the 21st century will be those that understand global sustainability issues and offer viable solutions. Through a decade of work and a disciplined reinvention of our Company, we have built sustainability into our business model.”

Industry: Pharmaceuticals

Pfizer

From the Letter from the Chairman of the Board and CEO, Jeff Kindler

“In times like these, some companies might choose to focus simply on running their businesses and think of their corporate responsibility work as a luxury that can wait for better times. Not Pfizer. We believe successful companies can’t do one without the other.” (pg. 5)

Industry: Capitol Goods

Caterpillar

From the CEO and Chairman’s Message, Jim Owens

“We’re making sustainable development part of how we do business. In 2007, in the midst of our growth period, we set bold aspirational goals for 2020, and abandoning those goals, in the face of dramatic economic challenges, was simply not an option. This isn’t a passing fad that we only care about during prosperous times. It’s a serious commitment. And it’s a real business opportunity, now and in the future.”  (pg. 2)

“Good things happen when we integrate sustainability into our products, services and solutions. We improve our competitiveness and create and capture customer value. We save money, reduce our environmental impact and improve employee satisfaction. And by partnering with others, we can help ensure sound policies that promote sustainable development and innovation.” (pg. 2)

“In the next decade, the most successful companies will be those that integrate sustainability into their core businesses. That’s what we’re doing at Caterpillar, and we are also helping our customers do the same.” (pg. 3)

“Some of Caterpillar’s fastest-growing businesses are those focused on the sustainability of materials and resources.” (pg. 3)

“In fact, the economic downturn has helped secure sustainability’s place at the core of our strategy. It’s not something extra that we do during good times. It’s something that creates and captures value for the company, our customers, investors, employees, suppliers – and really, the world.”  (pg. 4)

Industry: Industrials

General Electric Company

From the Letter from the Chairman of the Board and CEO, Jeff Immelt

“Successful companies can only create solutions to some of the world’s toughest problems by working collaboratively. Business must engage — with communities, governments, customers and each other — because the status quo is not an option. It is not only possible for a global business leader to be a good citizen, but a requirement.” (pg. 4)

“Based on a commitment to integrity, a commitment to performance and a commitment to learn and grow stronger, GE is creating a better company coming out of this reset — a renewed focus that is better for GE, and also better for our world.” (pg. 4)

Trade Associations and Consultants

BSR Report 2009: Innovating for Sustainability

From the Letter from the President and CEO, Aron Cramer

“2009 presented numerous challenges for the entire world, not least for all of us dedicated to sustainable business. At the start of the year, many observers thought companies would consider corporate responsibility to be an expendable luxury that could be cut along with other discretionary budgets. 'Sustainability,' they predicted, would be redefined as 'basic economic survival.'  Fortunately, these predictions did not play out. Rather, 2009 showed us that sustainability can—as we had argued—help pull business out of the recession.” (pg. 1)

“Despite the difficulties presented by the economic conditions, it is clear that sustainability remains as important to business—and to the world—as ever before.” (pg. 1)

From the Text of the Report

“What’s more, revived economic growth is again exacerbating existing challenges related to climate, water, and biodiversity.  Long after the recession passes into history, these trends will be shaping economic conditions. They are the reference points that business should consider in shaping their strategies.

More and more companies recognize this. As a result, they are making sustainability not just a program, but, in fact, the defining feature of success in a fast-changing world.” (pg. 5-6)

“While calmer economic conditions have returned, the road to tomorrow’s prosperity is not the same as what came before. The businesses that assert leadership, take a comprehensive approach, use sustainability as a driver for innovation, and champion sustainable consumption will not only become the sustainability champions, but also the most successful companies in the years ahead.” (pg. 11)

Accenture Report: “A New Era of Sustainability”

This report summarizes findings from a survey of CEO’s globally

From the Forward by Georg Kell, Executive Director UN Global Compact, and  Bruno Berthon, Managing Director Accenture Sustainability Services

“It is a decade that, CEOs believe, could usher in a new era where sustainability issues are fully integrated into all elements of business and market forces are truly aligned with sustainability outcomes.” (pg. 2)

“Today’s CEOs are more convinced than ever of the need to embed environmental, social and corporate governance issues within core business. But they are also convinced that good performance on sustainability amounts to good business overall: The imperative to act has shifted from a moral to a business case.” (pg. 2)

From the Text of the Report

“93 percent of CEOs see sustainability as important to their company’s future success.” (pg. 10)

“Demonstrating a visible and authentic commitment to sustainability is especially important to CEOs because it is part of an urgent need to regain and build trust from the public and other key stakeholders, such as consumers and governments—trust that was shaken by the recent global financial crisis. Strengthening brand, trust and reputation is the strongest motivator for taking action on sustainability issues.” (pg. 10)

“Our survey found widespread agreement among CEOs about what the next era of sustainability will look like: It is one where sustainability is not only a separate strategic initiative, but something fully integrated into the strategy and operations of a company.” (pg. 11)

“96% of CEOs believe that sustainability issues should be fully integrated into the strategy and operations of a company (up from 72% in 2007).” (pg. 14)

“80 percent of CEOs believe that the economic downturn has raised the importance of sustainability as an issue for top management.” (pg. 16)

“74 percent say that the downturn has led their company to align sustainability more closely with core business.” (pg. 16)

“Also bolstering the continued commitment to sustainability during the economic downturn has been demand for sustainable products and services.” (pg. 18)

From “Industry perspectives: Belief in the importance of sustainability varies considerably by industry”

“Fully 100 percent of automotive CEOs identify sustainability issues as important or very important to their future success. This finding reflects how environmental concerns present both a challenge to the industry and an opportunity to serve a new market with low carbon alternatives such as e-vehicles.” (pg. 19)

“CEOs from the energy and utilities sectors also see sustainability issues as critical to their future success.” (pg. 19)

“Wolfgang J. Ruttenstorfer, CEO and Chairman of European oil and gas company OMV, said, ‘I regard these issues as bringing competitive advantage in the long term; a transparent approach clearly oriented toward values, human rights and environmental objectives is the only right approach that will be  appreciated in the long term.’” (pg. 19)

“Support is especially high in the banking industry, for example: 68 percent of CEOs note that sustainability is “very important” to their success…a commitment to environmental and social issues may be a prominent part of restoring brand value as the financial industry struggles to regain the trust of consumers.” (pg. 19)

“CEOs in the communications and electronics & high-tech sectors are the least likely to identify sustainability issues as critical to their future success— just 22 percent and 31 percent of those industries’ CEOs, respectively, cite sustainability as very important to their future success…leading companies in these sectors are beginning to think beyond the direct physical impacts of their business on sustainability issues, and are looking to shape a vision of the role that they can play in society by driving sustainable development…providing companies around the world with new technologies and ways of working that will help them achieve their own environmental objectives.” (pg. 19)

KPMG

This report published every 3 years; following statements are from the 2008 report.

From the Forward

Message from Global Head of Citizenship and Diversity, KPMG International, Lord Michael Hastings of Scarisbrick CBE

“As you will see in the results, there has been an important shift in this direction with CSR reporting becoming the norm instead of the exception within the world’s largest companies. Three years ago only 50 percent of companies surveyed included CSR in their reporting, in this survey the number jumped to 80 percent. More companies report the information as it relates to specific objectives and more companies include this information in their annual reports.” (pg. 5)

Message from Global Head, KPMG Sustainability Services Partner, KPMG in the Netherlands, Wim Bartels

“But would these reports pass the “greenwash” test? For the first time in the 15 years we have been doing this survey, we think they just might. Nearly all of the Global 250 companies that report also publish a corporate responsibility strategy with defined objectives.” (pg. 5)

From Text of the Report

“One of the most significant findings of the 2008 survey is that corporate responsibility reporting has gone mainstream - nearly 80 percent of the largest 250 companies worldwide issued reports, up from about 50 percent in 2005.

National trends - National level companies trail the G250 with only 45 percent of the total sample issuing reports, but numbers vary from less than 20 percent in Mexico to more than 90 percent in Japan.” (pg. 7)

“Now that some of the world’s largest companies have been able to quantify the business case for corporate responsibility and reporting, it is likely that the practice will spread through countries and sectors to the smaller players.” (pg. 7)

“Reporting is necessity if companies are to know and understand their social and environmental impacts, and how to minimize the dangers and maximize the opportunities associated with new and emerging challenges.” (pg. 10)

““In these challenging times it is now perhaps more crucial than ever for companies to show their commitment to transparency through sustainability reporting. Effective public disclosure of economic, environmental, and social performance can enable a company to rise above the rest and take advantage of the opportunity to position itself as a forward-thinking leader among an increasingly sophisticated constituency of stakeholders. No longer is publishing a sustainability report merely a matter of mitigating risk to reputation and costs. More than ever, employees, investors, and consumers are looking to the companies from which they buy, invest in, and work for to join them in addressing the critical sustainability issues of the day in innovative ways.” (pg. 17)--Judy Henderson Board of Directors, Global Reporting Initiative

After being laid off from her job as a high school teacher in Dayton, Ohio, Nicole Massey decided to go back to college. For months, she scoured the Web for ways to fund her tuition, while supporting her 10-year-old son, Tyler. So when ads turned up in Massey's inbox claiming that President Barack Obama had created special college grants and scholarships for single mothers, her hopes soared.

"You see his picture," Massey said, "so I clicked on it." The link took her to a new window, where she was asked to enter her name, age and other information about the degree she wanted. The site then produced a list of schools that lined up with Massey's choices.

Almost immediately, recruiters from for-profit colleges, including the University of Phoenix, Kaplan University, Grand Canyon University and a couple of local schools, bombarded Massey with e-mails and calls.

"That's when I would bring up the thing, 'What about the Obama loans? What about the money for the single moms in the stimulus?'" she said. "And they would say, 'Well, we'll call you back with more information about that.'"

They never did -- and little wonder: "There is no such thing as an Obama grant for moms," said Robert Shireman, who until early this month was deputy undersecretary at the U.S. Department of Education. "Moms are eligible for federal financial aid generally -- Pell Grants, student loans and other aid -- but nothing specific to moms or single moms." Nevertheless, the Obama mom ads have become "ubiquitous," he said.

For-profit universities and career colleges are flourishing in the down economy, thanks in part to a gusher of taxpayer money flowing into the federal government's Pell Grant program for economically needy students. Hundreds of thousands of Americans have already enrolled in for-profit colleges, which are fiercely competing for new recruits.

The grant windfall has fueled another boom: for online marketers that gather contact information from prospective students and sell it to schools. Just a few years ago, these firms, known as lead generators, fed the subprime mortgage machine. Now they are earning more than $1 billion a year for finding prospective students, according to one industry estimate.

Consumer advocates say they are alarmed by parallels between the subprime mortgage industry and for-profit schools, which also have come under fire for targeting low-income groups and signing up students for loans that can leave them buried in debt. Some schools earn nearly 90 percent of their revenue from federal student aid programs.

Single moms, the critics say, are especially vulnerable.

"In comparison with an 18-year-old traditional college student, a single mom faces unique, often unsurpassable obstacles to getting an education," said Greg C. Frazier of Community Connections of Jacksonville, a group that works with disadvantaged women in Florida. "Frequently she will be lured by the promises of low-cost, easy online courses that in reality do not deliver."

Harris Miller, president of the Career College Association, said the 1,400 for-profit colleges, universities and trade schools his organization represents object to using misleading or false advertising to recruit students. But Miller said lead generators often are subcontractors a couple of steps removed from a school's recruiting operation, making them hard to police.

Shireman, while denouncing the ads, said the Education Department lacks authority to crack down on subcontractors. A spokeswoman for the Federal Trade Commission, which does have such power, called the ads misleading but declined to say whether the agency is investigating them.

Vital Market for Career Schools

Mothers are an important market for the for-profit schools. Women account for 65 percent of their students, and more than half have dependent children, according to the Career College Association. In many instances, returning to school could provide mothers with a step up to a better job and improved circumstances for their children.

But women who've responded to the ads told ProPublica they felt "targeted," "victimized" and "insulted" once they discovered the Obama grants do not exist.

When banner ads and pop-ups appeared in her Facebook profile and on the Web site Blackplanet.com, Lisa Jackson, a single mom from Washington, D.C., clicked on the links.

Jackson lost her job as a project manager in a furniture dealership last year and spent a lot of time online looking for ways to escape unemployment. She realized there were no Obama grants for single moms after receiving e-mails from several for-profit schools.

"I feel it's an insult to my intelligence to some degree," she said.

The use of President Obama's name also troubled Jackson, who is African-American.

"Some of these advertisers are playing on the sense that we have our first African-American president," she said, noting that Obama's image and name have been used to promote mortgage refinancing in minority neighborhoods. "It's sad. They've used it for the wrong reasons."

Priya Raghubir, a marketing professor at New York University's Stern School of Business, said it's not a coincidence that marketers are recycling techniques from the subprime mortgage boom. Obama has strong appeal among younger people, minority groups and lower-income households, she said. The same people were disproportionately targeted for subprime loans, according to research by the Department of Housing and Urban Development.

"For these groups particularly, he is a figure, a celebrity, who is highly liked and also signals something they would like to associate with -- the way he has used education to break a number of barriers and get to where he has at such a young age," Raghubir said.

Watchdog groups, Congress, the Education Department and some investors have voiced concerns (PDF) about recruitment and at for-profits schools. A recent report (PDF) by the College Board found that more than half of the students at for-profits graduate with $30,500 or more in debt -- compared with about a quarter of private college grads and 12 percent from public schools.

Middlemen in the Recruiting Game

Last year's economic stimulus bill added $17 billion for the government's need-based Pell Grant program, and an expansion signed earlier this year by Obama is expected to provide around 820,000 additional grant awards over a decade, according to an Education Department spokesman. The money began rolling in during the fiscal year that ended in June, and while public, private and for-profit schools all saw big gains in Pell Grant revenue, the overall increase to for-profits was highest -- 70 percent over the prior year.

The University of Phoenix -- the largest for-profit school -- took in more than $1 billion from some 300,000 Pell Grants alone in 2009-2010, Education Department data show. That's about what Phoenix's parent company, the Apollo Group, spent on "selling and promotional" activities in 2009, according to company financial filings.

For-profits spend heavily on lead generation, typically some 20 to 30 percent of their ad and marketing budget, according to Ampush Media, a San Francisco lead generation firm. An Ampush research report prepared in February estimated that higher-education leads were a $1 billion market and said that market was "expanding rapidly" while mortgage leads had only "muted growth."

Experian PLC, a company that provides consumer credit reports and advice, also operates lead-generation businesses. The company once used a video of a woman dancing energetically in front of her computer to funnel people to one of its websites -- LowerMyBills.com.

The site was a major source of leads for subprime lenders during the housing boom, according to Sam Rogers, mortgage industry analyst at the Center for Responsible Lending, a nonprofit that monitors lending practices. (The Sandler Foundation, the principal funder of ProPublica, also provides significant financial support to the center.)

Experian used the same video at another of its websites, ClassesUSA.com, which collects information to sell to colleges. Another ad for LowerMyBills.com features a buxom blonde dancing suggestively under the text, "New Housing Bill Passed! $133,000 Mortgage for Under $529/Month!" That same dancing blonde sometimes also linked to ClassesUSA.com.

A third Experian ad is an animation of two young women walking side by side, with a banner saying, "Obama Asks Moms to Return to School."

Steve Krenzer, president of Experian Interactive Media, declined to comment on why Experian used the ads to target both subprime mortgage borrowers and students.

"Here's an example of an icon of the American financial sector luring unwitting consumers into prohibitively expensive borrowing that they can't afford and that the taxpayers will have to make good," said Barmak Nassirian, spokesman for the American Association of Collegiate Registrars and Admissions Officers, an industry group whose members include some for-profit schools.

ProPublica asked the two other major consumer credit reporting companies, Equifax and TransUnion, whether they had any such ads. TransUnion said it does not engage in direct-to-consumer lead generation. Equifax did not comment.

The most common ads are pop-ups that show up onscreen automatically. ProPublica also found examples of websites that referred to Obama mom grants or loans and provided links to lead generators.

"Barack Obama has made the pledge to help moms go back to school while the government pays for it," said one. "Unemployed mothers can snatch a college diploma at the comforts of their own home without spending a dime for baby-sitting (sic)," read another.

Schools pay anywhere from a few dollars up to $85 per lead, said Daniel Kim, president of a small New Jersey-based lead generation company called MyCS Network. Although some nonprofit schools use lead generators, the biggest clients for higher-education leads are for-profit universities, according to Kim, who has worked in the industry since 2004.

ProPublica contacted several lead generators linked to the Obama mom ads, but all either declined to comment or did not return calls or e-mails. To determine which schools were buying those leads, we asked volunteers from the ProPublica Reporting Network to click on the links, fill out the online forms and report back.

Hana Shepherd, of New York City, received 10 calls and nine e-mails from recruiters within a day of filling out a form. Susan Sawyers, also of New York City, received pages of e-mails.

The schools included Walden University, Kaplan University, Ashford University, American InterContinental University, Capella University, Colorado Technical University and the University of Phoenix -- all for-profit institutions.

Volunteers also received e-mails from two private, non-profit universities: Golden Gate University and the University of Southern California Rossier School of Education. Jennifer Hanlon, director of marketing at 2tor, the company that manages the Rossier School's online advertising, said she was surprised and disappointed to hear about the ad.

Part of the problem, said Hanlon, is that lead generators frequently farm out work to subcontractors. "It's frustrating being an advertiser because you contract with one person and they have a group of affiliates they work with," she said. "You just have to be a diligent advertiser and find out where you're being seen, and if you see anything on the shady side, you have to do your due diligence."

A spokesman for Capella said school officials also "periodically review messaging" used by lead generators, and that they had terminated Capella's "involvement" with several ad campaigns earlier this year after discovering they were "paraphrasing President Obama." A spokeswoman for Golden Gate University said the school would "immediately" ask any of its lead generators to stop should they find the marketers using Obama mom ads. The other schools did not comment.

At our request, volunteers asked the lead generators and college recruiters about Obama grants or scholarships for moms. While no recruiter claimed the grants actually existed, they generally did not dispute that they did. More often, said Shepherd, "I was told that a financial aid person could assist me later when I asked about the Obama grants."

A Regulatory Vacuum

At a round-table meeting in Northern Virginia this winter, Education Secretary Arne Duncan was surprised by a question from one of the attendees.

"One of the students participating in a discussion actually asked: 'Is there an Obama scholarship for moms? Because I've seen ads about it,'" said Shireman, who was Duncan's deputy.

Duncan had never heard of the ads, let alone an "Obama" scholarship for moms. But Shireman had. "I've seen the ad myself on my personal e-mail," he said, describing it as "misleading." Yet the department lacks authority to stop the advertisements, Shireman said.

"We're not a general regulatory agency around issues of marketing," he said. "The Department of Education doesn't have any direct authority over third-party entities, unless those third-party entities are working for the schools."

The department recently released draft regulations that would strengthen its ability to crack down on misleading ads, Shireman said. But the new rules apply only to the schools or companies that work for them directly -- not to subcontractors.

The Federal Trade Commission does have jurisdiction over fraudulent marketing, and is "actively looking at scams that use news about the economic stimulus package to falsely claim that the package includes money for government grants, home repair, to pay off debts, scholarships," said Lois Greisman, director of the agency's Marketing Division.

But Greisman said she could not comment on whether the FTC is looking at any specific entity and could not point to any previous enforcement action involving the Obama mom ads. Blackplanet.com did not respond to our request for comment and Yahoo! declined to comment about ads on its sites.

Miller, the Career College Association president, said for-profit schools have objected to the tactics used by some lead generators. In one instance, he said, schools were stunned to discover that a lead generator was using the promise of free food or housing to attract people to enter their data. "No one thought this was OK," he said.

Schools often work with a primary lead generator and may require that company to sign a contract giving the school oversight of ad copy. Miller said his group is encouraging schools to hire their own "mystery shoppers" to police lead generators.

But Kim, of the lead generator MyCS Network, said all misleading techniques make the industry "look bad." They persist, he said, for a simple reason -- they work.

"It's tough because there are these large companies doing it," Kim said, "and they're getting these leads to the schools, and the schools think these leads are good."

Correction (7/24): An earlier version of this story incorrectly described the University of Southern California Rossier School of Education as a public school; USC is a private, non-profit university.

Correction (7/25): An earlier version of this story also incorrectly described Golden Gate University as a for-profit school; Golden Gate University is a private, non-profit school.

ProPublica's Joe Kokenge contributed to this report.

Several ProPublica readers belonging to its Reporting Network assisted reporter Sharona Coutts with identifying schools buying leads. If you'd like to help ProPublica with its reporting, join its Reporting Network.

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.   This article is republished with permission under a Creative Commons license.

Dell Inc., several former executives, and Chairman and CEO Michael Dell agreed to pay more than $100 million to settle Securities and Exchange Commission charges that they failed to disclose material information to investors and used fraudulent accounting to make it falsely appear that the company was consistently meeting Wall Street earnings targets.

The SEC charged that Dell did not disclose to investors large “exclusivity payments” the company received from Intel Corporation to not use central processing units (CPUs) manufactured by Intel’s main rival, Advanced Micro Devices Inc. (AMD).

“It was these payments rather than the company’s management and operations that allowed Dell to meet its earnings targets,” the SEC said.  “After Intel cut these payments, Dell again misled investors by not disclosing the true reason behind the company’s decreased profitability.”

Dell had disclosed last month that the company and Mr. Dell were in negotiations with the SEC and that it had established a $100 million reserve in anticipation of a settlement.

Mr. Dell, former CEO Kevin Rollins, and former CFO James Schneider were charged by the SEC in connection with the disclosure violations. Mr. Schneider, former regional Vice President of Finance Nicholas Dunning, and former Assistant Controller Leslie Jackson were charged for their roles in the improper accounting.

Dell Inc. agreed to pay a $100 million penalty to settle the SEC’s charges. Michael Dell and Mr. Rollins each agreed to pay a $4 million penalty, and Mr. Schneider agreed to pay $3 million, to settle the SEC’s charges against them.

Dell Inc. and the individuals agreed to the settlements without admitting or denying the SEC’s allegations, "as is consistent with SEC standard practice," the company noted.  The agency said its “investigation is continuing as to other individuals.”

The SEC’s complaint charged that the exclusivity payments made by Intel to Dell for not using CPUs made by AMD grew from 10 percent of Dell’s operating income in fiscal year 2003 to 38 percent in fiscal year 2006.  It peaked at 76 percent in the first quarter of FY 2007.

In fiscal year 2007, after Dell announced its intention to begin using CPUs made by AMD, the company and the individuals charged failed to disclose the basis for the company’s sharp drop in its operating results.  “In dollar terms, the reduction in Intel exclusivity payments was equivalent to 75 percent of the decline in Dell’s operating income” the SEC said, and Messrs. Dell, Rollins, and Schneider told investors in an earnings call “that the sharp drop in the company’s operating results was attributable to Dell pricing too aggressively in the face of slowing demand and to component costs declining less than expected.”

Intel is the subject of antitrust lawsuits brought by the Federal Trade Commission and several states.  In November 2009, Intel agreed to pay AMD $1.25 billion as part of a settlement in a private antitrust suit brought by AMD.

In a statement yesterday, Dell Inc. said Mr. Dell’s settlement “does not involve any of the separate accounting fraud charges being settled by the company and others. Moreover, Mr. Dell’s settlement is limited to claims in which only negligence, and not fraudulent intent, is required to establish liability, as well as secondary liability claims for other non-fraud charges.”

Sam Nunn, presiding director of the Dell Board, said, “The Board believes that this settlement is in the best interest of the company, its customers and its shareholders, as it brings a five-year SEC investigation to closure. Dell’s Board reaffirms its unanimous support for Michael Dell’s continued leadership, and the management team in its ongoing commitment to transparent accounting, integrity in financial reporting and strong corporate governance."

Mr. Dell said, “We are pleased to have resolved this matter. We are committed to maintaining clear and accurate reporting of our periodic results, supporting our customers, and executing our growth strategy.”

Asbestos has long been known to cause debilitating and often fatal diseases such as lung cancer, mesothelioma and asbestosis. It is banned or restricted in 52 countries, and its use has plummeted in the United States since its peak in the early 1970s.

But since the mid-1980s, a global network of lobbyists has spent nearly $100 million to maintain a market for asbestos, according to an investigation by the Center for Public Integrity. Borrowing a page from the tobacco industry, these trade associations have funded scientists whose studies raised doubts about the health risks of asbestos and have preserved significant sales by focusing on the developing world.

Today's remarkable investigation describes the asbestos trade in the countries where it is still flourishing: India, where asbestos use is booming among the rural poor; Brazil, where one federal inspector has battled the industry for a quarter-century; Russia, which produces nearly 1 million tons of asbestos each year; and China, the world's biggest asbestos consumer.

A leading industry group, the Asbestos Cement Products Manufacturers' Association, said in the report that the only type of asbestos that is currently used -- chrysotile, or white asbestos -- is much safer than brown or blue asbestos, which were commonly used in the past.

The investigation cites statements by several health organizations warning that all forms of asbestos are dangerous and carcinogenic. You can read the whole report here.

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.   This article is republished with permission under a Creative Commons license.

I admit it: I judge people by the way they behave, with me and with others. Which makes me think that, despite the lofty environmental goals of Green Garmento, I won't be doing business with that company any time soon.

Why? Because the owner, Rick Siegel, appears to have stolen credit for his business idea -- not the idea itself but credit for the idea.

How you react to his story depends on how you define both good business practice and social enterprise. I've tried to define "social enterprise" before but let's revist the subject.

In a New York Times article some weeks back, Siegel was lauded for social entrepreneurship, innovation, and environmental good works inherent in his business, Green Garmento. Green Garmento is a reusable dry cleaning bag that eliminates the need for all that flimsy plastic headed to landfills.

Just one month later, The Times ran a second Green Garmento article, laying out some new information. In the original story, Siegel had credited his product to his own frustration dealing with hangars and plastic and dry cleaning. He recounted his struggles perfecting his product, the failures along the way, and noted that after his product was well into development, he learned of a similar product called Converta Bag.

Not his inspiration. Not a problem.

But he failed to mention yet another eco-friendly cotton dry cleaning bag, Clothesnik. This is a problem because, as he and Clothesnik's founder Jane Wyler agree, Siegel attempted to invest in Clothesnik after seeing the product at a trade show ... before he "invented" his bag.

In fact, Siegel's emails to Wyler indicated that her product was enticing precisely because "it could be replicated by potential competitors” and a strong competitor "could undermine your uniqueness and reap the available rewards."

Which is what Siegel did.

(I'm not sure why an easily replicated product is an attractive investment but to each his own.)

Entrepreneurs often see a product, tweak it, improve it, and make it their own. That's just plain good business: Build a better mousetrap.

But Siegel did something else. He specifically claimed that the idea sprung fully formed from his brain; when asked, he failed to give credit to the real innovator.

Legally, he is probably on solid ground. How about ethically?

I think a better business man, with good marketing and ethical sense, would have acknowledged the inspiration of Clothesnik and then detailed why his product was better and what problems it solved that Clothesnik hadn't.

He'd have given credit where credit was due and he'd have promoted his product nicely.

How you treat other people, other businesses, your clients, your employees -- it all matters. At least it does to me.

Do you think his behavior was ethical? Is it more disturbing because he was touted as a social entrepreneur? Is there a higher standard of behavior for social enterprise? Should there be?

Geri Stengel is founder and President of Ventureneer, an online education and peer support service

Investment banking firm Goldman, Sachs & Co. agreed to pay a record $550 million penalty and reform a number of its internal business practices to settle Securities and Exchange Commission charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.

The Goldman settlement came ironically on the same day that the U.S. Senate approved by a 60-39 vote a sweeping financial reform bill that promises profound changes in the way Goldman and other investment banks do business.  The bill is expected to be signed into law soon by President Obama.

Of the $550 million to be paid by Goldman in the settlement, $250 million would be returned to harmed investors and $300 million would be paid to the U.S. Treasury.

In agreeing to the SEC's largest-ever penalty paid by a Wall Street firm, Goldman "also acknowledged that its marketing materials for the subprime product contained incomplete information," the agency said.

In its original complaint filed in April, the SEC alleged that Goldman misstated and omitted key facts regarding a synthetic collateralized debt obligation (CDO) it marketed that hinged on the performance of subprime residential mortgage-backed securities.

The SEC said Goldman failed to disclose to investors vital information about the CDO, known as ABACUS 2007-AC1, particularly the role that hedge fund Paulson & Co. Inc. played in the portfolio selection process and the fact that Paulson had taken a short position in, and was betting against, the CDO.

The SEC said in its complaint that investors in the ABACUS CDO had lost more than $1 billion.

In a consent order submitted to the U.S. District Court for the Southern District of New York, Goldman said:

"Goldman acknowledges that the marketing materials for the ABACUS 2007-ACI transaction contained incomplete information. In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was "selected by" ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson's economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure."

"Half a billion dollars is the largest penalty ever assessed against a financial services firm in the history of the SEC," said Robert Khuzami, Director of the SEC's Division of Enforcement. "This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing."

The SEC said Goldman agreed to settle the charges without admitting or denying the allegations by consenting to the entry of a final judgment that provides for a permanent injunction from violations of the antifraud provisions of the Securities Act of 1933.

The settlement with Goldman does not include Fabrice Tourre, a Goldman banker who played a key role in marketing the securities in question and who was charged along with the firm.

A copy of the final judgment regarding Goldman filed with the court can be found here.

"The landmark settlement also requires remedial action by Goldman in its review and approval of offerings of certain mortgage securities," the SEC said.  "This includes the role and responsibilities of internal legal counsel, compliance personnel, and outside counsel in the review of written marketing materials for such offerings."

In its consent document, Goldman said  it is "presently conducting a comprehensive, firmwide review of its business standards."  The review includes an evaluation of Goldman's "conflict management" and "disclosure and transparency of firmwide activities, structured products and suitability, education, training and business ethics, and client relationships and responsibilities."  The SEC said it "has taken this review into account in connection with the settlement of this matter."

Goldman acknowledged that the SEC had not made any promises "with regard to any criminal liability that may have arisen or may arise from the facts underlying this action or immunity from any such criminal liability."

The SEC's Mr. Khuzami said in a press conference following announcement of the settlement that there was no relationship between the agency's announcement and passage by the Senate of the finance reform bill.  “Let me personally assure you that there is absolutely no consideration to those kinds of external events in deciding what cases we bring, how we bring them, or when we bring them,” he said. “The internal processes, the nature of settlement negotiations, and a whole host of other variables makes that virtually impossible to do. And even if it were possible, it is absolutely not the type of considerations that the S.E.C. engages in.”