Wharton grads respond to Rajaratnam conviction

May 17, 2011: 2:55 PM ET

The embarrassing conviction of Wharton alumnus Raj Rajaratnam loomed large at the business school's graduation ceremony this year. Reactions from this year's graduating class ranged from the angry and fearful to the confident and hopeful.

By Joel Schectman, contributor

(poetsandquants.com) -- Storm clouds spread across University of Pennsylvania's gothic campus yesterday on Sunday, threatening to thunder on the graduation of one of America's top business training grounds. As more than 800 Wharton MBA graduates donned

Raj Rajaratnam

Raj Rajaratnam (Wharton '83) was convicted on 14 counts of fraud and conspiracy

their regal blue, red and brown sashes, the possibility of a downpour forced the school to move the ceremony to an indoor basketball arena. Segway-riding security officers shepherded the mob of relatives through the confusion.

The coming storm didn't dampen the celebratory mood. Neither did last week's conviction of Raj Rajaratnam (Wharton MBA '83) in the biggest insider trading case since the 1989 conviction of junk bond king Michael Milken (Wharton MBA '70).

The billionaire Galleon manager was recently convicted on 14 counts of fraud and conspiracy. The case centered on illegal tips that he received from several people, including two other Wharton MBAs who he first met while studying at the school in the early 1980s. Those Wharton alums pleaded guilty to insider trading in the hopes of receiving lenient sentencing.

"We are all ethical, we are not speaking for the school, and there's no comment," snapped one grad as she helped two friends make last minute adjustments to their gowns.

The embarrassing fall of three Wharton alumni loomed large at this year's ceremony. "This is something we are hypersensitive to right now," said one 31-year-old graduate. One graduate who spoke positively about the school's ethics curriculum later asked repeatedly that her name not be used in this story, after her husband worried that her comments could harm her career prospects.

Bad apple or bad orchard?

Several Wharton grads said the Galleon chief and his accomplices were "bad apples," and "bad eggs," that couldn't besmirch the record of its huge alumni network.

One professor of management who attended the ceremony said: "We work hard to train them [in ethics] and we will renew our efforts. But something like this could happen at any institution." The professor also said that the alumni involved in the Galleon were adults. "They go out and bring shame on our institution. Shame on them."

In the spirit of graduation day optimism, some said that the quality of this year's graduating class and the school's training would prevent future scandal. "I know all 114 people in my [executive MBA] class. And I can't imagine that happening to any of them," said Bruce Crocker, a 62-year-old lawyer from Pittsburgh. "It is such an ethical group of people."

Not all grads were as confident as Crocker. One student, from the United Kingdom, said that business schools' focus on profit makes ethical lapses almost inevitable. "You spend four semesters learning to push to the edge, to identify any possible advantage," he said. "And just one half of one credit on ethics. That's just six class sessions. It's amazing that there aren't more of these cases."

Others said that Wharton should devote more class time preparing students for real-world moral challenges and that the Galleon case would stir the school to action. "There isn't enough focus on ethics," said Talal Salman, a 29-year-old grad from Lebanon, who is going to work at Morgan Stanley (MS). "The brand has taken a hit and they are going to makes changes to the curriculum."

Wharton's way forward

Wharton plans to lengthen its required ethics class to a full semester starting in the fall. The curriculum change came in the wake of the financial crisis, not the recent Galleon decision, said Thomas Donaldson, a Wharton business ethics professor. "The crisis threw ethics onto the table as something very serious and there was a lot of soul searching."

Beyond the one required class, ethical issues are integrated into other classes at the school to varying degrees, Donaldson added. He believes that Wharton and other business schools can do better. "The Galleon case was a shock to the community," he said. But Donaldson cautions that there are limits to how much influence a business school can have on the future actions of its students. "We can prepare them for the temptations, but we can't inoculate them completely. The temptations in the business world are huge," Donaldson said.

The ceremony ended and the storm still had not come. As a 27-year-old grad from Uganda was leaving campus with her family, she said, "We were disappointed to hear this could happen to people who went here. We hope we can do better."

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