Profit Without Honor
Ever since Enron, business schools -- the training grounds for corporate tycoons -- have been forced to face the fact that they have failed to produce honest brokers. Why they have failed is a complex and revealing tale, one that I can relate from personal experience, having taught ethics at Harvard Business School (HBS) from 1987 to 1989 -- the years many of today's current corporate officers were in training.
HBS -- which deserves particular scrutiny, as the school to which many others look when they design their own curriculums -- had little in the way of formal ethics teaching in 1987. And that was typical. A 1988 survey of MBA schools found that only one-third had a required ethics class.
It was in 1987 that John S.R. Shad, then chairman of the Securities and Exchange Commission, made a personal donation of some $20 million to HBS to support the teaching of ethics. On April 21, 1989, after months of contentious debate, an initial proposal was put up for a faculty-wide vote. As a visiting professor, I was sitting in the bleachers -- and I witnessed a memorable scene. Reactions ranged from distrust to outright hostility. One economist argued that "we are here to teach science." Another faculty member wanted to know, "Whose ethics, what values, are we going to teach?" And a third pointed out that the students were adults who got their ethics education at home and at church. By meeting's end, the project had been sent back to the drawing board.
Debates continued over whether ethics should be a required course or a separate elective or, alternatively, whether the topic should be integrated into all classes. A member of the marketing department mused that if the latter policy were adopted, his department would have to close because much of what it was teaching constituted a form of dissembling: selling small items in large boxes, putting hot colors on packages because they encourage people to buy impulsively, and so forth.
A finance professor was also concerned about its effects on his teaching. Students later told me that they learned in his course how you could make a profit by breaking implicit contracts. Say, for instance, that you acquire controlling shares in a company such as Delta, where workers used to work harder and pose fewer demands than at other airlines because of an informal understanding that they had lifelong employment. The finance course would explain that once you take over, you could announce that you are not bound by any such informal arrangements. While such a change might be deemed a prudent move for the company, it could also bring personal gain to the new management: Your stock jumps (because your labor costs seem lower, absent commitments to carry workers during a downturn) and, bingo, you cash in your stock options and move on.
In the following years, an ethics course was taught at HBS, but it was ghettoized -- a minor requirement to be gotten out of the way as quickly as possible. These days, students take a required "mini" course on ethics upon arrival, and there is a required first-year course titled "Leadership and Organizational Behavior." And that's it. It's the same at other schools. One student at Stanford B-school, which until recently had a similar program, described his ethics class as "like going to church on Sunday." The George Washington University School of Business and Public Administration, where I now teach, has an elective on moral reasoning (the art of clarifying what your values are, rather than educating you on how to develop higher moral standards). And the University of Michigan, which has an activist student group that pushed its B-school to be mindful of social policy, requires only that students take one class in ethics or in law. Many other schools do less.
A subtle but damaging factor in this is the dominance of economists at business schools. While there is no evidence that economists are personally less ethical than members of other disciplines, approaching the world through the dollar sign does make people more cynical. This fact has been documented by data from an oft-cited experiment to test the standard economics teaching that, when offered the possibility, people will take a "free ride" -- and that it is "rational" for them to do so.
Take a group of workers in which each person's contribution to a given task is indistinguishable from everyone else's, and rewards (say pay raises) are handed out equally. A rational person (so goes the economics reasoning) will work as little as he or she can. In 1981, sociologists Gerald Marwell and Ruth E. Ames put this theory to the test with an experiment in which 12 groups were given a chance to take a free ride. Members of 11 of the groups refrained. That wasn't the case with the 12th group. How did that group differ? Its members were graduate students in economics. Those students had been mistaken about most people's behavior. But they had learned their own lesson well. All too well.
In my own HBS ethics classes, students resisted my argument that executives should take ethical considerations into account. They held, as they had been taught, that a company focused entirely on efficiency would drive a second one, more concerned with ethics, out of business. Ethics, they told me repeatedly, were something a corporation simply cannot afford. Only if being moral bought the corporation "good will" -- with a value that could be calculated and demonstrated -- should the corporation take ethical considerations into account.
In recent years, many B-schools have added courses that do promote values other than the maximization of investors' and managers' incomes -- and Harvard has been praised as at the forefront of this trend with its "Initiative on Social Enterprise." Such courses generally favor social values, and usually liberal ones, such as concern for environment or the well-being of minorities and workers in the Third World rather than traditional values, such as personal integrity, veracity and loyalty.
Many business school professors choose to steer clear of teaching morality, pointing out, with some justification, that while it is relatively clear what economics dictate and even what the law dictates, what is "ethical" is far from obvious. What appears ethical to one person is not to another, they say, and what is ethical under some conditions is not under others.
This equivocation was driven home to me during a crisis that erupted when I was at HBS. A professor instructed his class to read a case study about Braniff, an airline then headed toward bankruptcy: After a customer heard that Braniff was in financial trouble, he called the head of the company and said that he wanted to purchase a large number of tickets. But, the customer wanted to know, would the company be up and flying a few months hence? The head of Braniff, the story goes, responded that he was not sure. The students argued that the CEO should have lied, that he endangered the shareholders' equity by being candid, and that he was representing the shareholders, not the customers. The professor teaching the class was at a loss, and he asked an associate dean how to proceed.
Unsure himself, the dean arranged for a faculty conference to discuss the question. Those present made numerous arguments to justify lying. Business, some said, was like poker: If you play, you know that bluffing will take place. Others took a utilitarian line, arguing that there are no absolute values and that what is moral depends on the consequences of one's actions and on what their utility (or benefit) is. Based on this rationale, the CEO should have lied. To do otherwise might have caused the already troubled airline to collapse, causing harm to the shareholders, employees and creditors. Still others took a market-driven approach to truth-telling: People who are found to be lying will lose customers while those who are trustworthy will gain them -- making truth-telling a good idea in this case. Only two faculty members insisted that telling the truth is an absolute moral value and that the CEO should therefore avoid lying.
The result was unfortunate. The professor returned to his classes, as many others did, with a reinforced sense that teaching ethics was a tricky business and that one should not take a firm position in favor of one value or another. It all depends. . . .
A recent Aspen Institute study of about 2,000 graduates of the top 13 business schools found that B-school education not only fails to improve the moral character of the students, it actually weakens it. The study examined student attitudes three times while they were working toward their MBAs: on entering, at the end of the first year and on graduating. Those who believed that maximizing shareholder values was the prime responsibility of a corporation increased from 68 percent upon entrance to 82 percent by the end of the first year.
In another study, students were asked if, given a 1 percent chance of being caught and sent to prison for one year, they would attempt an illegal act that would net them (or their company) a profit of more than $100,000. More than one-third responded "yes."
In light of the recent corporate scandals, some B-schools will surely attempt to strengthen ethics education. They should recruit more faculty members to teach ethics. And ethics courses should be approached not as a way to circumvent challenges by outsiders (such as the consumer protection movement or advocates of the poor) but as a moral obligation any decent person heeds. The ethics requirements set by the Association to Advance Collegiate Schools of Business, which is responsible for the accreditation of B-schools, should be more straightforward: No MBA student should graduate without having taken at least one full-term course in a class aimed at heightening students' ethical standards.
Congress should also haul the deans of the leading B-schools into a hearing to tell the public how ethics has been taught at their schools -- and what they now plan to do differently. The resulting public scrutiny might prompt them (and other members of the faculty) to serve as better role models. It might get them off the boards of companies such as Enron, where some B-school deans recently found themselves in the hot seat.
Although such changes will not guarantee that we will never face another slew of business scandals, it might at least make them less likely.
Amitai Etzioni, a professor at George Washington University, is the author of "The Moral Dimension" (Free Press).