The Big Question

B-Schools' New Mantra: Ethics and Profits


Business schools are moving beyond business as usual. Across the country, MBA programs have responded to growing criticism that graduates are fixated foremost on shareholder profits. Amid the unending financial scandal and the worst downturn in decades, the curriculum has shifted toward sustainability, long-term profitability, and integration of specialties. The question is how deep the changes will go.

The list of prominent business schools that have enacted curriculum overhauls in the last few years includes the Wharton School at the University of Pennsylvania, the Haas School of Business at the University of California-Berkeley, and the the Harvard Business School. Schools have also forged new paths with the ascension of such deans as ethics scholar Nitin Nohria at Harvard and Sally Blount, an expert on the social impact of business, at Kellogg School of Management at Northwestern University.

Some scholars worry that the emphasis on ethics may be window dressing to appease critics. “In many schools ethics is a throwaway course, a tacked-on ad hoc way of dealing with the way that everyone was complaining about a scandal,” said John Hasnas, a professor of ethics and law at the Georgetown University McDonough School of Business. “Some places are reacting in a more thoughtful manner. I think that is happening more now than it has in the past.”

Few believe that this shift stems from a single scandal or the downturn, although the ongoing economic problems and the dramatic failure of such banks as Lehman Brothers and Bear Stearns likely sped the process. The number of schools requiring a course in ethics, business in society, or a similar topic jumped from 34 percent in 2001—before the-Enron collapse—to 79 percent in 2011, according to the results of a semiannual survey of business schools, Beyond Grey Pinstripes, which was published in September by the Aspen Institute.

Ethics Trend Preceded Downturn

“The biggest jump happened before the downturn, but the trend is continuing,” said Judy Samuelson, executive director of the Aspen Institute business and society program. “We can talk about whether or not that’s effective, but in terms of schools responding to internal or external pressure, they have been responding.”

Detractors say schools have gotten smarter about deflecting criticism and marketing to prospective students. “That’s what people want to hear, so that’s what business schools tell people,” said Jonathan B. Berk, professor of finance at Stanford University Graduate School of Business. “We pat ourselves on the back that we do the right thing, but I don’t think we can teach people at age 30 what good ethics are. The way to get people to behave themselves in society is to set incentives so people behave.”

The changes prompt questions as to whether or not it’s even possible to teach moral and business ethics without undermining the competitive nature of business. Can the new crop of MBAs balance corporate realities while avoiding the ethical stumbling blocks that led to this mess? Radical changes make for deep differences within business schools and set off debate about the core methodology for integrating business ethics into courses that have long been regarded as being about simple black-and-white matters.

Pushing Back on Cynicism

“It’s not just a business school marketing tool,” said Angela K. Antony, 25, a second-year MBA student at Harvard. “It’s the same sort of cynicism when you go out and try to create social change. I think progress is happening, so I would push back on that.”

Business schools have often been unresponsive, even contemptuous, in the face of criticism that goes back at least as far as the 1920s corruption-and-bribery scandal known as Teapot Dome. That was when the dean of Columbia Business School went “wild with anger” over criticism of the school during the scandal, according to a biography of author Sinclair Lewis by Richard R. Lingeman. The school had been dubbed a “Babbitt Warren,” playing off the materialistic, conformist, spiritually bankrupt protagonist of Lewis’s novel, Babbitt.

Little changed at Columbia after Teapot Dome. Many scandals since then—from the 1980s savings-and-loan crisis to Enron’s post-millennial collapse—triggered cries that business schools should reform.

One response was the creation of the “MBA Oath” by students at the Harvard Business School in 2009, following the credit crisis and collapse of Lehman Brothers. More than 6,000 MBAs at dozens of schools have signed the oath, although the number of MBAs avowing it at Harvard has dropped annually, from more than 500 students at the start to 220 most recently.

Ethics Can’t Be Merely “Reactive”

“You can’t deal with this in a reactive way,” says Garth Saloner, dean of Stanford’s business school and a main architect of a 2007 curriculum overhaul, in a telephone interview. “It’s not about your response to a particular crisis. It’s a much broader issue. It’s about what you are trying to achieve in the education you are providing.”

The MBA Oath is testament to the fact that changes often fail to take hold unless they belong to a broader shift. The oath is now a part of an array of change at the schools. Says Max Anderson, the oath’s creator, who now works full-time promoting it: “I don’t claim that it’s a stand-alone answer. It needs to be augmented by a strong curriculum in schools.”

Curriculum changes that are taking place are often traced back to papers written in the early 2000s. They were written by various professors, including Sumantra Ghoshal, founding dean of the Indian School of Business in Hyderabad and an influential author on management. As Ghoshal put it in a paper published after his death in 2004: “By propagating ideologically inspired amoral theories, business schools have actively freed their students from any sense of moral responsibility.”

Ghoshal and his allies directly confronted a view that is most often ascribed to Milton Friedman. It excluded consideration of ethics, beyond so-called social responsibility, to make the maximum amount of money for stockholders. The current changes involve the integration of deeper ethical principles into curricula. As Samuelson put it, “We’re not teaching ethics over here as a sideshow and then—over there in the finance class—rape, pillage, and plunder.”

Stonington is a reporter for Businessweek.com.

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