Varaiya Questions Roots of Corporate Scandals

Nikhil Varaiya has an interesting take on the corporate financial scandals of the last few years.  Varaiya, Chair of the Department of Finance in the College of Business Administration, sees the problem primarily as one of failed business strategy rather than faulty ethics.  He explains that failures in business strategy lead to a poorly performing company and, when coupled with performance pressures from stockholders, can lead to cheating or “cooking the books.” 

So should business professors teach ethics?  Varaiya doesn’t see that as the complete solution.  “These executives clearly knew what was right and wrong and chose to fudge the books,” he says.  “It’s possible to hide some of the problems, but not all of them and not for very long.”

Trying to meet the growth expectations underpinning an increasing stock price itself, some under performing companies fudge the numbers.  “But you can’t continually fudge the numbers,” says Varaiya.  “There’s a certain amount of subjectivity in accounting, there are ‘gray areas’ in how inventory is counted, how revenue numbers are recognized.  In many cases, once a little information comes out, everything unravels.”

Varaiya believes that ethics are interwoven into every aspect of business. But he focuses on teaching business strategy and allows students to see through case studies what happens when business strategy succeeds or fails. 

Teaching in SDSU’s Executive MBA program, Varaiya says his students are senior managers who want to discuss real-world applications.  Varaiya teaches through a mixture of lecture, case studies and material drawn from journals such as the Financial Analysts Journal, Harvard Business Review, tying practice with theory.  He appreciates the classroom dialogue and has been recognized by his students six times with the Outstanding Faculty Award in the Executive MBA Program. Varaiya also teaches a course in entrepreneurial finance in the MBA Program.

His own research, in the areas of mergers and acquisitions, financial institutions, valuation, strategic management and recent work on startups informs his teaching.  “I don’t believe you can be a good teacher unless you’re very actively engaged in research,” says Varaiya.   

His articles, op-ed pieces and case studies have appeared in several leading academic and practitioner journals.

He is a past chairman of the board of the USE Credit Union where he was a board member  from 1993 to 2000. He is also vice president - professional development of the San Diego chapter of Financial Executives International and has been a member of its board since 1991.

Varaiya began his academic career in his native India, graduating from Bombay University with a B.S. in math and an M.A. in economics.  Hailing from a strong academic family (his brother is a university professor and all his siblings have advanced degrees), Varaiya continued his education earning an MBA and Ph.D. in finance from the University of Washington.

Outside of work, Varaiya enjoys spending time with his family at their Rancho Bernardo home.  “We love the area,” says Varaiya.  “Mostly when I’m not working we are trying to manage the kids’ schedules, shuttling them between softball and music classes and whatever else is on that day.”

When he does manage to find quiet time for himself, Varaiya enjoys reading.  He recommends “The Life of Pi” by Yann Martel and works by V. S. Naipaul, an Indian author who was awarded the Nobel Prize in Literature in 2001.  He is also a fan of Japanese samurai films, especially films staring Toshiro Mifune.

To read his essay on ethics vs. education, visit the Financial Executives International website at:
www.fei.org/mag/exclusives/varaiya303.cfm