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Simmons School of Management Dean Writes Recent Piece on Business Ethics
Business Ethics: Back in the spotlight - Written by Deborah Merrill-Sands, Dean, School of Management, Simmons College
Business ethics are back in the business school spot light, yet again. And that light is shining hotly and brightly.
The current global economic crisis, unleashed by the sub-prime mortgage scandal, has made us question what, if anything, we learned from the corporate scandals that grounded high-flying companies such as Enron and WorldCom, just a short eight years ago. Once again, we have been propelled into an economic crisis by executives’ myopic focus on short-term results at the expense of long-term organizational performance, by organizational cultures that tolerate unbridled risk-taking over sound judgment and integrity in decision-making, and by a relaxed regulatory environment that reflects an uncritical faith in the corrective power of the markets. As we experience every day, the cost of these crises to companies, communities, and to each of us as individuals is enormous, reaching all corners of the globe and impacting future generations. To put this in perspective, the $700 billion bailout of the US financial services industry alone is greater than the 2007 annual GDP of 92% of the countries in the world!
And, yet, despite the repeated shocks to the system, we cannot seem to break the cycle. Wharton professor Thomas Donaldson argues that "creeping industry precedents" or bad practices that become institutionalized, are the hidden danger underlying these crises. "People may have ethical doubts about a practice, but after a while if a whole industry does it, you think you can't compete" and "the danger becomes normalized." This is exactly what occurred in the subprime crisis. Mortgage brokers minimized the assessment of risk and pushed subprime mortgages aggressively out to households that could not afford them. Then the risk was passed on as larger companies repackaged the mortgages into other complex instruments where the real value and risk was difficult to assess. Does this reflect innovative business practice and a tolerable pursuit of profit and self-interest? Or, does it reflect poor ethical judgment and, ultimately, irresponsible business practice? To me, the lessons from the corporate crises of the past eight years are obvious: maximizing short term gain without carefully assessing and holding oneself accountable for the longer term impact on stakeholders and the organization’s sustainable performance reflects poor business practice and failed leadership.
So what do business schools need to teach to help shape leaders who will integrate ethical considerations into managerial decision-making and not blindly repeat the mistakes of the past? The problem is not trivial for business schools. A recent study by Rutgers University of 54 universities found 56 percent of graduate business students admitted to having cheated – more than in other professional schools in the survey. In 2007, business schools were rocked by a cheating scandal at Duke University’s Fuqua School of Business that involved an extraordinary 10% of its graduating class. Positively, Duke University took bold action. Convicted students were either expelled or suspended for a year. Duke’s action set a good precedent. It is up to leaders of business schools and leaders of business organizations to shape organizational cultures that incorporate ethical values explicitly into managerial decision-making and leadership behavior. It is up to us to ensure that a blind eye is not given to ethical malpractice and that such malpractice is not institutionalized to become normal operating procedure as Professor Donaldson has warned. This is critical to what we call “principled leadership” at the Simmons School of Management.
I see our role at the School of Management as equipping students with 1) the judgment to evaluate all businesses practices and decisions through an ethical screen and ensure that bad practices do not become “institutionalized” through complacency; 2) the skills and courage to be able to identify ethical lapses and call them out for critical scrutiny; and 3) the principles to hold themselves accountable for ensuring that the pressure for short term results is not met at the expense of long term organizational performance.
At the MBA level, we have integrated attention to business ethics throughout the curriculum and the co-curricular activities. Our first case in Foundations of Business focuses on an ethical dilemma as does our final case in Strategy and Leadership. Students analyze the causes of the ethical dilemma and develop strategies for addressing it in ways that are good for them and for their organization. While attention to ethical decision-making is woven throughout the curriculum, ethical analysis and decision-making is a primary focus of our capstone course Leadership, Governance, and Accountability and students’ mastery of these skills is assessed in this course. The School of Management MBA Alumnae Association has also instituted a student award for principled leadership.
In the undergraduate management program, required courses for the undergraduate management major include readings, discussions and speakers on ethics in management and principled leadership. Ethics are an integral part of managerial analysis in Managerial Accounting and students’ mastery of the ethical concepts and analytic skills are assessed in this course. Attention to ethics is also integrated into the capstone senior seminar course and electives in corporate ethics and socially-minded leadership are offered on a regular basis.
As we move to the next level in teaching business ethics, we are supplementing our case method approach, which helps students to analyze and understand ethical dilemmas in the workplace, with a new approach to teaching students the skills they need to speak up and to give voice to their values when they observe ethical malpractice in their organizations. We are joining MIT, Yale, and 33 other business schools in piloting an innovative curriculum called Giving Voice to Values in both our MBA and undergraduate management programs. This approach, recently highlighted in the Financial Times, has been developed by former Harvard Professor Mary Gentile in association with the Aspen Institute’s Business and Society program and the Yale School of Management (see article in SIMMONS magazine, Winter 2008).
As dean, I am committed to continuing to strengthen our focus on developing innovative means to educating our students to be effective principled leaders and managers who know how to pursue profitability and success from a foundation of ethical decision-making, not in spite of it.
I am grateful to the EILEEN FISHER company and the MBA class of 2008 for their generous support for our efforts to strengthen our teaching and research in ethics and principled leadership.
[1] Philadelphia Inquirer, Sept. 21, 2008, http://www.philly.com/philly/business/20080921_Lenders_lost _moorings__some_say.html; Knowledge@Wharton, "Eyes on the Wrong Prize: Leadership Lapses That Fueled Wall Street's Fall", September 17, 2008, http://knowledge.wharton.upenn.edu/article.cfm?articleid=2048
[2] New York Times, “34 Duke Business Students Face Discipline for Cheating,” May 1, 2007, http://www.nytimes.com/2007/05/01/us/01duke.html; Christian Science Monitor, ‘Duke’s B-School Cheating Scandal,” May 4, 2007, www.csmonitor.com/2007/0504/p08s01-comv.htm