Is the way schools teach business ethics creating a generation of ethical managers?
When times get rough, the topic of ethics resurfaces. Not too many people questioned the moral behaviour of financiers until the economy collapsed in 2008. In the wake of the crisis, however, the questions kept coming. Can markets be rational and efficient? Is it wise for business to be a moral-free zone? How do we combine short-term individual, or company interest, with long-term social well-being? Do managers need to heed not just shareholders’ interests, but also those of stakeholders? And how is this reflected in business education itself?
It needed the economy to hit an iceberg for these questions to be voiced loudly. And since they are philosophical ones, and the MBA belongs to the realm of economic sciences, it didn’t exactly have the proper tools to deal with them when they emerged. In fact, this all started many decades ago when academic subjects became more specialised and the economic sciences slowly became divorced from the humanities.
It wasn’t until the dire consequences of the crisis were felt that some of the downfalls of the breakup became painfully apparent. Citing ethics in business, when the economy and markets seemed to work just fine, looked a bit naïve, if not heretical. After all, the markets could take care of it all, right? Wrong!
In 2008, when the financial system was rescued largely by public funding, it became clear that there was something fundamentally flawed in this perception of how the world worked. So, for the MBA, the time was right to emphasise the importance of ethics and to reintroduce history of the economy, psychology and behavioural economics into business schools’ curricula. It could have been different if the MBA hadn’t been viewed by the gatekeepers of Wall Street and the City of London as an ultimate pass to the league of the “masters of the world”. But, in fact, it was. The MBA suffered a reputational blow despite crises of comparable magnitude having occurred in the past - even when the world of finance was full of literature and history graduates.
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A hunger for new business ethics
A survey by AMBA and Durham Business School (UK) from December 2009 asked 500 graduates about ethical concerns and the MBA. Eighty per cent of respondents cited the need for ethics and corporate social responsibility to play a more significant role in business education. And an overwhelming majority of the 100 business schools polled said that organisations’ actions had to be based on corporate social responsibility.
One of the most notable expressions of the expected change in business education was the “MBA oath”. Started as an initiative of Harvard Business School’s students from the Class of 2009, the manager’s equivalent of the Hippocratic Oath quickly gained support among reputable business schools. It was an acknowledgement that managers’ actions affect society way beyond the companies they run. It was also an attempt to introduce ethical standards to the profession. The MBA oath serves as an illuminating indictment of our times. It also betrays an idealism highly atypical of periods in which business carries on as usual:
“As a business leader, I recognise my role in society. My purpose is to lead people and manage resources to create value that no single individual can create alone. My decisions affect the well-being of individuals inside and outside my enterprise, today and tomorrow. Therefore, I promise that: I will manage my enterprise with loyalty and care, and will not advance my personal interests at the expense of my enterprise or society. I will understand and uphold, in letter and spirit, the laws and contracts governing my conduct and that of my enterprise. I will refrain from corruption, unfair competition, or business practices harmful to society. I will protect the human rights and dignity of all people affected by my enterprise, and I will oppose discrimination and exploitation. I will protect the right of future generations to advance their standard of living and enjoy a healthy planet. I will report the performance and risks of my enterprise accurately and honestly. I will invest in developing myself and others, helping the management profession continue to advance and create sustainable and inclusive prosperity.
In exercising my professional duties according to these principles, I recognise that my behaviour must set an example of integrity, eliciting trust and esteem from those I serve. I will remain accountable to my peers and to society for my actions and for upholding these standards. This oath I make freely, and upon my honour.”
Does the rising tide lift all boats?
Other initiatives in this spirit, such as the think tank Institute for New Economic Thinking and International Student Initiative for Pluralist Economics, have also created ripples on the once calm business education surface. However, especially after the success of the Thomas Picketty book “Capital in the 21st century”, many observers feel that the change in the economic sciences has not been profound enough.
Two renowned Cambridge academics, Ha-Joon Chang and Jonathan Aldred, explain the resistance to change by referencing the specific reality mainstream economists had constructed over the years. In an article for the Guardian, they describe it as “a Kafkaesque world in which proposed reforms are rejected because they are redundant, as economics already has tools to analyse ‘everything’. At the same time, if reforms involve issues that existing theories cannot explain well, they are rejected because they would take the curriculum outside the domain of economics. Challenged, for example, to introduce to the economics syllabus the study of the actual behaviour of traders in financial markets, academics defending the status quo reply that, first, their models can already capture the behaviour of ‘rational’ traders, and, second, the descriptive study of the actual behaviour of traders is a subject for sociologists, historians or psychologists.”
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To illustrate the discrepancy between the academic and the real world, Ha-Joon Chang and Jonathan Aldred cited how professors responded to their students in Norway, on being asked to study real economies: “Our task is to give you an analytical framework; you have the rest of your lives to learn about current affairs.”
More open to other disciplines
It is exactly the need for the MBA to become more holistic, to ask more questions and to include more psychology, history, even philosophy, that presents the big challenge in preparing tomorrow’s business leaders. The financial crisis was just one development that betrayed the need for a fresh approach. Climate change was also a huge deal-breaker. The world is changing and so we should also change some of our assertions and our approach to managing resources - be they natural, financial, human, or other.
And even if there is little objection to ethical content being emphasised in the MBA curriculum, opinions still differ on how exactly this should be done: “Business schools are starting to recognise that ethics can’t be cordoned off from the rest of a business student’s education,” wrote Ray Fisman from Boston University and Adam Galinsky from the Kellogg School of Management in a 2012 article for Slate. “The most promising approach, in our view, doesn’t even try to give students a deeper personal sense of mission or social purpose – it’s likely that no amount of indoctrination could have kept Jeff Skilling from blowing up Enron. Instead, it helps students to appreciate the unconscious ethical lapses that we commit every day without even realising it, and to think about how to minimise them.”
Strengthening the ethical aspects of business education is clearly needed, since the MBA gets criticised too often when a scandal erupts in the business world. The latest example was the Volkswagen emissions. “I don’t want to blame business schools for the reality; I just think that they play a role in exacerbating it when they could perhaps play a much better role in minimising it,” the Emory University ethicist Edward Queen explained for Poets and Quants at the end of 2015. Joint research by two professors from Copenhagen Business School and the University of Hamburg showed that, between 2005 and 2009, accredited B-schools doubled the number of ethics-related courses. However, the website informs us that 75% of these were electives.
How to combine ethical behaviour with the sometimes harsh realities of the business world is the subject of ongoing debate. Yet it is exactly in combining the contradictions between creating value, and creating a sustainable economy, that the secret of good leadership lies. Finding the right balance is needed to streamline and facilitate the change from the shareholders’ perspective to the stakeholders’ perspective. It’s a much needed change that has already been embraced by many CEOs and companies. It demands a reform in substance, not just a PR move. Good business schools foresaw this trend, rather than just following in the steps of industry.
This article is original content produced by Advent Group and included in the 2016-2017 annual Access MBA, EMBA and Masters Guide under the title “Hippocratic Business”. An online version of the Guide is available here.