The Ethics of Student - Faculty Business Deals

The Ethics of Student-Faculty Business Deals

The Akamai Corporation has meant big money for one Massachusetts Institute of Technology professor and one of his students. Back in 1995, Tom Leighton, a professor of applied mathematics at MIT, started playing around with ways to use complex algorithms to ease congestion on the Web. He enlisted several researchers, including one of his graduate students, Danny Lewin. At the time, they weren't thinking about starting a company. But Mr. Lewin, following the keen instincts of a cash-strapped graduate student, suggested they enter the project in the Sloan School's annual business-plan competition. They won the software category in the preliminary round and then entered the finals, where they finished among the top six.

Mr. Leighton and Mr. Lewin were still interested in the technology mainly as an academic exercise, but the possibility that their work could have real-world applications pulled them inevitably into business. They launched Akamai Technologies Inc. in the fall of 1998, and took it public the following October. Opening day saw the stock soar from $26 a share to more than $145, giving the company a day-one market cap of $13.13 billion.

This sounds like a great business venture, but there still is a small problem. Mr. Lewin was one of Mr. Leighton's students when they formed the Akamai Company. This brings about the moral question of the case. Should students and professors be allowed to start companies together? Although there is no clear answer, there is widespread agreement among administrators that schools need to address the question. As a result, many M.B.A. programs are in the process of reviewing and, in many cases, implementing policies and guidelines governing student-professor business collaborations. The burden of this moral question falls mostly on professors since student is not an establish profession and thereby has no formal code of ethics.

On one side of the issue are those who point to ethical considerations and insist that schools can't tolerate the possibility that students may perceive any conflict of interest on the part of a professor. On the other side are those who've invested substantial time and money in a business-school education specifically to gain access to professors. These people don't want to consider any restriction on their ability to conduct their business lives as they see fit. Caught in the middle are administrators, who must protect their schools' academic integrity while trying to accommodate students and faculty alike.

About a decade ago it wasn't as common for students to start businesses before graduating. But now, business schools increasingly operate like incubators, with entrepreneurial centers funds that invest in students' ideas. A professor can offer a young company both suggestions and credibility. Most professors also are looking to start companies and expand on their entrepreneurial instincts. The emergence of business school as a starting point for businesses has raised the expectations of students and has complicated what might otherwise be a straightforward ethical question.

In theory, of course, it's not the best idea for faculty to start businesses with students, because of the potential for conflicts of interest. If a professor and student are working on a business plan together, for instance, there's a chance that the professor may inflate the student's grade or allow him to skip class, all in the name of rounding up investors and making money. If one student gets an awful grade and a fellow student who has business ties to the professor lands a good one, class morale could suffer even if the student deserves it. Grades may not matter when it comes time to graduate, but the situation may irritate students who feel they're getting inferior access to the professor's time and intellect whether or not any real unfairness exists. The appearance of conflict might present more problems then the conflict itself.

Laura Hartman, a professor of business ethics at DePaul University, says the issue is the same as it would be were a faculty member and student having a romantic relationship. The acid test for a professor, she says, is this: "Are you engaged in something that will jeopardize or distort an appropriate relationship with your student?'' Ms. Hartman concedes that the university environment is rife with possibilities for conflicts of interest. She has often co-written papers with students, for example, and while she believes it has never posed a problem, she acknowledges that someone could argue that she helped to advance certain students' careers by working with them. "It begins a slippery slope,'' says Ms. Hartman.

Business-school administrators by and large agree, and many are racing to get ahead