In Bristol-Myers Case, Columbia Business School Dean Says "Do as I Say, Not as I Do"

Can you teach ethics to MBA students while helping an indicted CFO accused of inflating the price of Bristol-Myers Squibb (BMY) stock? If you're Glenn Hubbard, dean of the Columbia Graduate School of Business, the answer is yes.

Columbia's business school prides itself for emphasizing business ethics. They're part of the core curriculum, and the school gives a special prize to ethical business leaders every year. Incoming students receive a fearsome lecture on business ethics from Prof. Michael Feiner, in which students are warned not to end up like Columbia alumnus Clifford Baxter, former chief strategy officer at Enron, who shot himself to death rather than live with what he had done. (There's also a wider movement among business schools to focus more on ethics.)

So it's somewhat surprising that Hubbard is serving as an expert witness for former BMS CFO Frederick Schiff, who is accused of misleading investors in 2001 and 2002 over BMS's "channel-stuffing" scheme. BMS paid tens of millions to wholesalers to get them to order more drugs than they needed. This overstated the company's revenues by $1.5 billion. BMS's stock tanked in April 2002 when this was revealed, and Schiff and BMS president Rick Lane were indicted for securities fraud. BMS paid $150 million to settle the SEC's fraud charges in the case. Hubbard -- the former chairman of President George W. Bush's Council of Economic Advisors, who in 2002 said of the Iraq War, "The costs of any intervention would be very small" -- is one of Schiff's expert witnesses. He's arguing that "BMS's stock price was not inflated during the January 2000 through April 2002 period as a result of inadequate or misleading disclosures by BMS with respect to the nature and extent of wholesaler inventories," according to a ruling in the case. To be clear, this is nonsense. BMS's stock fell because of its April 2002 disclosures that its wholesaler practices were not what everyone had been led to believe they were. No one outside Schiff's legal team believes anything else. Here's what happend to BMS stock over the period:

BMS disclosed on April 1 that wholesalers were holding excess inventory, and on April 3 that Lane would leave the company. Schiff followed a few days later. You can see that investors got wind of something in late March, when the stock was at $50, and that following the disclosures BMY lost another $10 and went down to around $30.

It's not that Hubbard himself is doing anything unethical. Criminal defendants deserve robust advocacy. But if your business school is attempting to instill into its students basic notions of fairness, this isn't the case to be seen defending.

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