Transcript Why teach ethics? in business schools?

Why teach ethics?
in business schools?
W. Guth
New York University
Enron, WorldCom, Global
Crossing, Kmart, Polaroid, Arthur
Andersen, Xerox, Quest
• Increasingly frequent images of disgraced and
sometimes handcuffed corporate executives appear on
television screens and in major newspapers
• Who’s to blame? Check one!
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Mom and Dad?
Priests, Rabbis, Mullahs?
Primary and secondary school systems?
Business schools?
The business system in the U.S.?
Materialistic culture in the U.S.?
Self-interested human nature?
All of the above?
Market Failure!
• According to economic theory, resources in any
economy will be allocated fairly and efficiently by
markets
– SO LONG as those markets function PROPERLY– i.e.,
transparently, competitively, non-coercively, with price as the
measure of the exchangeable value of goods
• Principal causes of market “failure”
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Monopoly power
“Public goods”
External effects
Information asymmetry
High transaction costs in confronting “abusers”
High costs of monitoring behavior under conditions of “moral
hazard” in contracts
When markets fail
• Managers still have to make decisions about how to use
the resources of their companies
• To protect the interests of the larger society, laws may be
passed to guide/punish managerial decisions
• In the absence of relevant laws, managers can attempt
to apply ethical analysis to guide decision-making
towards integrating the interests of the larger society with
the interests of the company
• In the absence of relevant law and/or ethical analysis,
managers will be guided by their self-interested human
nature
Self-interest and economic
liberalism
• “It is not from the benevolence of the
butcher, the brewer, or the baker that we
expect out dinner, but from their regard to
their own interest. We address ourselves
not to their humanity, but to their self-love,
and never talk to them of our own
necessities, but of their advantages”
• Adam Smith, The Wealth of Nations, 1776
But, must self-interest be
constrained?
• “One individual must never prefer himself so much
even to any other individual, as to hurt or injure that
other, in order to benefit himself, though the benefit to
the one should be much greater than the hurt to the
other…the man within immediately calls to him…that
he is no better than his neighbor, and that by…unjust
preference he renders himself the proper object of
contempt and indignation (and he deserves
punishment) for having violated one of those sacred
rules, on the tolerable observation of which depend
the whole security and peach [output] of human
society”
• Adam Smith, The Theory of Moral Sentiments, 1759
The Corporation – flawed
institutional character?
social responsibility is the new creed of
business leaders today, a self-conscious corrective to
earlier greed-inspired visions of the corporation. Despite
this shift, the corporation itself has not changed. It
remains, as it was at the time of its origins....,a legally
designated ‘person’ designed to valorize self-interest and
invalidate moral concern. Most people would find its
‘personality’ abhorrent, even psychopathic, in a human
being, yet curiously we accept it in society’s most
powerful institution. The troubles on Wall Street today,
beginning with Enron..., can be blamed in part on the
corporation’s flawed institutional character, but the
company was not unique for having that character.
Indeed, all public companies have it....”
• Balkan, Joel, The Corporation: The Pathological Pursuit
of Power and Profit, (Free Press, 2004, p. 28)
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“Corporate
Business Prudence and
Business Ethics
• The prudent manager seeks to maximize
the long-run risk-adjusted value of the firm
to its shareholders
• The ethical manager avoids violating the
rights of other parties in the economy.
• Any decision will be prudent, ethical, both,
or neither, as follows:
Business Prudence and Business Ethics
Prudent
Ethical
No
No
Bad Decision
Lose/Lose
Yes
Exercise
Moral Restraint
Yes
Exploit
Market
Failure
Good Ethics
Is
Good Business
Ethics/Prudence Decision Types
• Bad Decision – Violates a party’s rights
(e.g., fraud) and the firm is found out and
punished (e.g., Prudential Securities $1.4
billion settlement)
• “Good Ethics is Good Business” –
Honoring rights can be linked to longer run
shareholder value (e.g., building reputation
and loyalty). Sometimes rhetorically
embellished as “enlightened self-interest.”
Ethics/Prudence Decision Types
(Cont’d)
• Exploit Market Failure – Violates a party’s rights, but
there is little risk of retaliation (e.g., aggressive billing
hours, churning accounts, skimping on workplace
safety), so on a risk-adjusted basis shareholders’
interests are served, but at the expense of someone’s
rights
• Exercise Moral Restraint – the market fails, but instead
of exploiting it (even with low risk of getting caught), the
decision respects the rights of affected parties, thereby
lowering returns to shareholders – Often confronts, “all
our competitors are doing it, so we have to do it – e.g.,
bribery in foreign countries)
Applying ethical theory – Can it
help?
• Ethical relativism
– Individual
– Cultural
• Normative ethics
– Teleological
• Evaluates outcomes for individuals or groups,
rather than the moral quality of the actions taken
– Deontological
• Defines moral duties that restrain certain actions
irrespective of the value of the consequences
Teleological theories of ethics
– Egoism – a person (corporation) ought to do
whatever is in his/her (the corporation’s) best
interest – (which is also the best interest of its
shareholders)
– Utilitarianism – one ought to seek to produce
the greatest possible balance of good over
evil, or the least possible balance of evil over
good, for all who will be affected by one’s
actions – the stakeholder versus stockholder
approach to management decision-making
Deontological theories of ethics
• Kantianism – moral behavior is a matter of holding,
without exception, to certain principles
– Categorical imperatives
• A person should be willing to live in a world in which the action they
chose to take would be repeated for the same reasons whenever
the same situation arose, even if he/she happened to be on the
receiving end of such action
• A person may not use other human beings as means to achieve
his/her own purposes
– The Mirror Test at GE – an application of Kant’s categorical
imperatives?
• Contractarianism (Hobbes) – social exchange “contracts”
are morally binding, even if not formally discussed and
signed (Japanese approach to business contracts)
Modern Normative Ethics
• NORM – neutral, omni-partial rule-making-an
attempt to integrate teleological and
deontological ethical theory
Ronald Greene – 1994
• Integrative Social Contracts Theory –
differentiates between macro and micro social
contracts and proposes a method for integrating
them
Thomas Donaldson, Thomas Dunfee – 1998
• Normative vs empirical research in ethics
Purposes of Teaching Ethics in
Business Schools
• To introduce students to a broad range of
contemporary “non-market” issues
encountered by business professionals
• To develop a set of analytical perspectives for
making judgments when such issues arise
• To illustrate how the legal system is used to
redress market failures
• To examine the role of ethical norms and
reasoning in resolving non-market managerial
issues, and in establishing standards of
professional responsibility
One Approach
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Session 1 – Market Failure, Law and Ethical Analysis
Session 2 - Truth and Disclosure
Session 3 - Gifts, Side Deals, and Payoffs
Session 4 - Whistle Blowing and Loyalty
Session 5 – Agency and Fiduciary Duty
Session 6 – Trade Secrets
Session 7 – Control by Law
Session 8 – Moral Standards Across Borders
Session 9 – Product Liability
Session 10- Sales and Marketing
Session 11- Insider Trading
Session 12- Workplace Rights
Session 13- Right to Privacy
Session 14- Responsibility to Stakeholders