Business ethics beyond the classroom
by Judith F. Samuelson
It took a series of cataclysmic corporate scandals and Wall Street embarrassments, including the resignation of the chairman of the New York Stock Exchange, but the business community is now in reform mode. Government regulators, reform commissions, and corporate leaders are actively seeking ways to rekindle the public's trust in business.
By and large, Enron, Arthur Anderson, and their cousins have been treated by the press as a case of a few bad apples. Asking why managers don't seem to know the difference between right and wrong, the media have had a field day interviewing business school deans—attempting to pin the values of an Andy Fastow or a Jeff Skilling back to their alma maters—and in the process have stimulated discussion in academic journals, listservs, symposia, and accredited MBA programs. Faculty are debating the teaching of ethics—questioning what is ethics, how to teach ethics, to whom it should be taught, even whether business ethics can be taught at all. (Some say it's too late to influence the morality of 26- or 28- year-olds who enroll as MBAs.)
I believe this debate is generating more heat than light. With our first MBA president in the White House, it's clear that business schools are an important training ground for future leaders of all sectors. Business education merits both close examination and radical measures. The problems at Enron and on Wall Street aren't the result of a select few who missed Ethics 101. Problems of this scale result from what we measure and reward as a society—and what, in turn, we reinforce in the core teachings of business schools.
A few years back a scandal erupted over Royal Caribbean Cruises Ltd.'s practice of reducing costs by having its ships dump toxic waste into harbors and coastal waters, despoiling the precious shorelines that were the destination of the tourists onboard. Only in the most narrow, shortsighted definition of business success would this practice make sense—and yet it happened, and other businesses continue to commit similar violations. This happens because the incentive systems and success measures both taught and practiced in business, promulgated by consultants and measured by accountants and bankers, are consistent with this outcome. In this context, no amount of ethics training can compete. It's time for a new model.
The good news is that today's debate offers a rare opportunity to help prepare the next generation of business executives to respond to the ethical, social, and environmental considerations that companies face.
In my work at the Aspen Institute Business and Society Program, we call the new model Social Impact Management. We help business executives integrate financial success and social and environmental progress. We envision business leaders who consider the long-term impact of business decisions—on employees, communities, and the natural world as well as on the bottom line—and who employ social innovation as a key element of business strategy.
In applying this model, Royal Caribbean Cruises Ltd.'s internal cost analysts and bankers would take into account the company's social and environmental impacts over a longer-term horizon. They would be interested in risk factors like the firm's reputation with future customers. They would also listen to the firm's so-called stakeholders—the host communities dependent on tourism and the suppliers and employees who bear the risk if the firm fails to think through the long-term impact of its operations. More complicated than staying focused on quarterly profits and share price? Indeed. Critical to our long-term health as a society? Absolutely.
If we succeed in helping change the rules of the game—and there are promising early signs—we will help managers and leaders assess the impact of their decisions not just on this quarter's profits, but also on the generations that come after us.
The Aspen Institute collaborates with the World Resources Institute every two years on an international survey of leading business schools that assesses the extent to which business schools prepare their graduates for social and environmental stewardship. The program Web site, www.BeyondGreyPinstripes.org, features a robust and searchable database on classroom teaching, faculty research, and student activities that challenge the dominant short-term focus of management education. The 2003 data identify 700 course offerings in 100 MBA programs. Dozens of pioneering faculty and scores of innovative educational activities are helping students explore the connections between business and the society that business both shapes and depends on.
It is not that traditional ethics training doesn't matter; it does. In fact, it's often the ethics faculty who call for reform and ask how to make their discipline and the broad offerings of business schools more relevant and marketable. But the most vexing managerial questions today present themselves as a balancing act between two “rights”—or two “wrongs.” Even the most pragmatic code of ethics often doesn't help a manager with these day-to-day decisions. What's the true cost of a layoff in a down economy? How do you balance demands for low-cost labor abroad and full employment at home? Do you pursue tax shelters to maximize the return to investors, or pay the tax to support government functions like education and transportation on which the business depends? These questions are critical both to a firm's reputation and its license to operate around the globe. But they are complex, can be personally risky, and require value judgments, emotional intelligence—even wisdom. And yes, they have ethical dimensions, but segregated in a class of ethics they fail the market test.
These complicated questions are an important part of business reality today. Global business, after all, is an important investor in needy corners of the globe, often more significant in local impact than government. Visionary corporate leaders don't focus solely on wealth and job creation; they understand the importance of closely monitoring the supply chain, investing carefully in regions torn by civil war and numbing poverty, and paying attention to environmental and health concerns. The real world challenges the artificial divide between “business” needs and the conditions in the communities that host the business, educate its workforce, and supply the labor and natural resources that fuel the enterprise.
Thus, Social Impact Management, at its core, encourages students to reflect on and respect the interdependence of business and society. The complexity of this relationship grows as governments sustain greater stresses and demands—and as business continues its search for new markets and skilled labor in regions where the needs are great, the societal norms are in flux, and civil institutions are weak.
In fact, given the extraordinary scale and reach of global companies and service firms, business now competes with government as the most important actor in societies around the globe. I would go so far as to state that it will be business—profit-hungry, talent-rich, globetrotting business—that is both motivated and equipped to solve the most complex problems of our age, from poverty to global warming, but it will require more complex definitions of success than shareholder value.
The innovators we identify in the Beyond Grey Pinstripes 2003 survey understand that in order to offer critical support to our future managers, bankers, and consultants, the traditional business decision rules and models taught in MBA program finance classes need more than an inoculation of ethics. They may need to be rethought altogether.
Schools can start by taking a cue from the students themselves. In a survey of MBA students at thirteen business schools in North America and Europe on attitudes toward business and corporate responsibilities, we found that 85 percent wanted ethical reasoning and corporate responsibility taught as part of accounting. A large majority also wanted ethical questions incorporated in organizational behavior, general management, and strategy courses. Even finance classes, the bastion of bottom-line thinking, were targeted by more than half the students we surveyed.
How would this actually work in business education? For starters, schools would value field experience and experiential learning that engages the complexity and diversity of life from the ground up.
Marketing and strategy classes would assess the business concerns associated with managing a company's supply chain—like the risks to operations and reputation that arise from deploying low-cost labor in the developing world—and would review innovative case examples and models for community investment to spread business benefits to host communities. Finance classes could examine credit standards for environmental and social impact risk assessment (like the World Bank's Equator Principles, recently endorsed by Citigroup and Barclay's Bank) as an integrated part of cash flow analysis. Operations classes would review the cradle-to-grave responsibility for waste management of manufactured products like refrigerators and cell phones.
A fresh look at complex global business transactions will pose fundamental questions about the mission and purpose of the business enterprise that will challenge Milton Friedman's axiom “The purpose of business is business.” And it will definitely raise the need for assessment tools that are able to measure more than short-term profit potential.A decade or two ago, the public thought it was government's job to adjudicate the tensions and tradeoffs among commerce, human rights, environmental progress, and healthy communities. For good or ill, these are now business concerns. The solutions lie in the domain of public-private-nonprofit partnerships that manage scarce water resources, price and distribute drugs, manage patents, invest in emerging markets, and serve populations that fall outside the mainstream. Without an understanding of this interdependence, neither business, nor the society in which it operates, can thrive.
Leading MBA Programs
The Beyond Grey Pinstripes 2003 survey identifies six schools as on the cutting edge of incorporating stewardship into their MBA programs. Although each is unique, all six demonstrate extraordinary commitment to preparing students to manage complex social and environmental challenges. Relative to the other schools in the survey, these cutting edge schools demonstrate:
• More significant infusion of social and environmental content
into core courses and, on average, three times as many relevant elective
The next nine schools are not as consistent in their achievements across both social and environmental domains and across teaching, research, and extracurricular activities. Nevertheless, they demonstrate significant activity and provide examples of excellence.
Schools on the Cutting Edge
(Schools are listed in alphabetical order.)
George Washington Washington, D.C.
Schools with Significant Activity
Calgary (Haskayne) Calgary, Alberta