How Do You Promote Ethical Behavior in the Workplace?

In my last post, I identified three contributors to unethical behavior in the workplace: the opportunity for gain, the desirability of the gain, and the lack of constraints on behavior.  Logically, if we are trying to promote ethical behavior, we will want to minimize the opportunities and desirability while maximizing the constraints.  However, practically speaking, opportunity and desirability are so difficult to control that the best approach usually relies on increasing the constraints.

To use the same example as my last post, it is difficult to minimize the opportunity to gain from insider trading because it would require us to minimize insider information, but managers make decisions all the time intended to increase the performance of their firms – and we want them to – so reducing available information hinders their effectiveness.  It is difficult to minimize desirability of the gain because it would require changing human behavior.  If interest in financial gain was not a feature of human psychology, then opportunities to make money would be irrelevant.  How likely is that?

The best tool we have is to create sufficiently powerful constraints to deter the unethical behavior.  In the U.S., we have built barriers to engaging in the unethical behavior: insider trading is difficult because strong laws prohibit it; we have increased the likelihood of being caught: regulators actively monitor patterns of trading surrounding major company events, keeping a particularly close eye on company executives and their associates; and we dole out serious penalties for infractions: prosecutors seek heavy fines and even jail.

Dr. Thomas Begley is dean of the Lally School of Management at Rensselaer Polytechnic Institute.

What Leads to Unethical Behavior in the Workplace?

As my last blog indicated, the assumption behind teaching about business ethics is that it will increase the likelihood of ethical behavior in the workplace.  That raises the question about how we can promote ethical behavior at work more generally. 

Essentially, unethical decisions arise when the opportunity for gain and the desirability of the gain are unhindered by constraints on behavior.  Let’s take each of the three separately.

An opportunity for gain exists when someone knows that certain activity will lead to a positive outcome.  For example, in insider trading, someone with ties to a company learns information about it that, when it becomes public, will produce a predictable change in its stock price.  He/she then buys or sells company stock before the information becomes public to profit from the information.

Desirability of a gain is the value an individual places on an outcome.  It is human nature to avoid thoughts that interfere with one’s ability to obtain the expected gain.  The inside trader rationalizes that the information won’t really affect the stock price or concentrates on the value obtained from the money in improving one’s life.

Unhindered constraints involve a lack of barriers to engaging in the unethical behavior, to being caught, or to being punished sufficiently to act as a deterrent.  Historically, Japan illustrates all three.  Insider trading laws have been so weak that they have not inhibited the activity.  Regulatory agencies have not carefully monitored such trading.  If caught, penalties delivered minimal adverse effects.

Dr. Thomas Begley is dean of the Lally School of Management at Rensselaer Polytechnic Institute.

Have Attempts to Teach Business Ethics Succeeded?

Business ethics as a field still has some rough edges.  Business schools mainly have included specialists in business ethics on their faculties rather than rely on philosophy departments.  Philosophers tend to fit uneasily in business schools because of how different their concerns are from their colleagues.  Management professors who venture in the other direction often encounter similar issues. 

The key challenge is to translate ethical principles to business practice.  Students do not need to understand the profundities of philosophy to benefit from consideration of ethical issues.  A management professor does not have to delve into the deepest areas of philosophical debate, nor someone grounded in philosophy to understand the intricacies of finance, accounting, or marketing, to to teach business ethics effectively.  In fact, beyond a modest point, depth of attention in either direction may serve more as a distraction. 

Regardless of the tensions, business students get significantly more exposure to ethics than they used to.  Does it change their later thinking in the face of ethical dilemmas?  Comparatively little research has tested this question and it is inconclusive.  Assessing the influence of an ethics course on an employee five years after he took it is very difficult.  That observation is much more prevalent in academics than one might think.  For example, we know as little about the effect of a course on international business on global orientation, or instruction in organizational behavior on interpersonal effectiveness, five years later.  Essentially, we think these topics are important enough in educating business students that we are willing to try without being sure of the answer.

Dr. Thomas Begley is dean of the Lally School of Management at Rensselaer Polytechnic Institute.

Where in the Curriculum Should Ethics Be Taught?

The answer is not as straightforward as it might seem.  The two main options for ethics curriculum are a stand-alone course or a component in many, if not all, business courses.  Arguments favor of each option.

Clearly, in a standalone course, the entire focus is on ethics so students can concentrate on it.  Material can delve more deeply into ethical challenges and cover a broad range of them.  An expert in ethics can teach it.  Administrators know that it is being covered in the curriculum.

On the other hand, a standalone course treats the topic in isolation from other business courses.  Students sometimes question its value.  An additional area of expertise has to be added to the faculty.  If the professor is a philosopher, his/her ability to teach other business courses is more limited than most colleagues.

If covered across a range of courses, there is less conflict over how to add it to an already crowded curriculum.  It co-exists alongside other topics so that, for example, marketing ethics can join branding, product positioning, and advertising, thus giving it more legitimacy as a relevant subject.

On the other hand, professors complain about having to add yet another topic to their overloaded syllabi.  They may resist having to learn how to teach ethics as the skills needed may be very different from those associated with their discipline.  Administratively, it is harder to insure the topic is being taught across courses.  There are questions about depth of learning.

Most have opted to include it in a course or as a significant chunk of a larger course that covers business-government-society relations.

Dr. Thomas Begley is dean of the Lally School of Management at Rensselaer Polytechnic Institute.

How Should We Teach Business Ethics?

If we agree that business schools should teach ethics, how should they approach it?  The question raises a basic dilemma.  Business school professors are not trained to teach business ethics, they are trained in marketing, finance, or accounting.  Even many who support its inclusion in the curriculum do not feel competent to cover it themselves.

Philosophers are the experts in teaching ethics, but few philosophers are familiar with business.  So we have business school academics who are unfamiliar with the foundations of ethical reasoning, and philosophy professors who are unfamiliar with the foundations of business.

As a case of necessity being the mother of invention, business schools needed to identify people who could teach business ethics in an informative and compelling way that could catch the attention of students. 

Early attempts to send business students to philosophy classes floundered because it was difficult to connect abstract philosophical reasoning to concrete business practice; although some classes included areas of applied ethics. On the other side, a field of management existed that focused on the relations of business within the larger society, including environmental pollution, employee rights, and the social responsibilities of business. 

The ideal would be academics who have had equal education in philosophy and business, but few people have these dual proclivities.  A field has emerged consisting of philosophers who have moved in the direction of business, and management professors who have moved in the direction of philosophy. So, the journey continues to emerge as academia tries to navigate a path in teaching business ethics.

Dr. Thomas Begley is dean of the Lally School of Management at Rensselaer Polytechnic Institute.

Faculty Guest Post: How Do Pro-Market Reforms Impact Firm Profitability?

Associate professor Murali Chari recently co-authored a study on the growing number of developing countries that are taking their economies from socialist to market economies via pro-market reforms.

Want to learn more? Check out the five-minute audio and slide presentation at bit.ly/1mh9eFn.

Can We Teach Ethics?

Scandals surface periodically that reveal highly unethical behavior in companies.  Michael Milken, the “junk bond king” of the late 1980s, was convicted of insider trading violations.  More recently, Enron purposely misled investors through financial manipulations that showed dazzling growth rates based on hiding critical information.  The “great recession” was replete with unethical behavior.

AACSB, the accrediting agency of business schools, requires that business schools teach ethics as part of the curriculum.  Many applaud the attempt to consider the ethical challenges that arise in the course of everyday business; others argue that we cannot teach college students ethics – they must learn it from parents and teachers early in life.

The debate focuses attention on the aim of teaching business ethics.  Are we attempting to teach students the difference between right and wrong?  If so, what grants us the authority to act as purveyors of morality?  If we cannot teach someone to be ethical, why address it in an educational setting?

To me, we do not teach what is ethical, instead we sensitize students to ethical issues that may arise in business.  Research indicates that people who engage in wrongdoing do not lack a sense of ethics, rather they do not stop to think about an ethical challenge when it arises, so they do not actively consider how to respond.  If they think before they act, they are less likely to act unethically. 

Also, discussing it in school legitimizes ethics as a valid issue when students enter the business world.  If their education has not addressed it, they may be more susceptible to co-worker claims that “everybody does it.”

Dr. Thomas Begley is dean of the Lally School of Management at Rensselaer Polytechnic Institute.

Faculty Guest Post: Reasons for New Product Failure: A Behavioral Perspective

Reducing the persistently high failure rates of new product introductions remains one of the greatest challenges of innovation literature. To make progress on this front, a number of scholars have sought to identify and organize factors that contribute to new product success or failure in the marketplace. Although these studies have greatly expanded our understanding of new product performance antecedents, they share a notable limitation in that they follow closely the content and structure of the seminal SAPPHO and NewProd studies that pioneered this stream of research some 40 years ago.

As a result, only a relatively constant subset of factors has been explored, albeit quite extensively. On the downside, existing new product performance frameworks have not considered entire classes of potentially important factors, most notably those that pertain to managers’ incentive structures and cognitive biases. For example, recent research in economics, finance, and management shows that manager limitations and personal characteristics, such as overconfidence, narcissism, and cognitive style may affect firm strategies and performance.

I explore (in collaboration with Will Tracy from Rensselaer Polytechnic Institute and three colleagues from New York University, HEC-Paris and IIT-Kanpur in India) whether decision makers’ overconfidence, or excessive belief in their own abilities to generate superior performance, is associated with flawed intermediate decision inputs in the new product development process. Our general rationale is that flawed intermediate inputs are likely associated with a higher likelihood of poor new product performance in the marketplace once the product is launched.

We study graduate business students making a range of decisions over four rounds of a software-based management simulation exercise. As might be expected from an optimistic bias, we find overconfidence to be associated with a higher likelihood of over-forecasting new product demand.

Over-forecasts are problematic on two levels. First, they often lead to heightened expectations for new product performance. When unrealistic expectations are not met, the firm may be more likely to brand a new product a failure and treat it accordingly, which may produce a self-fulfilling prophecy.

Second, over-forecasting directly leads to higher production volumes, with more capital tied up in product inventory. Cash constraints may put pressure on managers to reduce inventory by discounting products that do not sell well. This may lead to a new product’s subpar performance on profit benchmarks the firm sets for its new products.

Dmitri Markovitch and William Tracy are assistant professors at the Rensselaer Lally School of Management.

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Technological Breakthroughs and Ethics

It is a truism that technological developments have outpaced our ability to apply ethical reasoning to them.  The real challenge lies in how long it takes our systems of morality to catch up.  Many people would say too long.  Where is the disconnect?

Many technological advances emerge from engineers and scientists who aim to advance science and are funded by investors seeking a good return on their investments. The possible benefits that both parties may reap may prevent or distract them from asking the larger ethical questions. How many of us would also find ourselves in this predicament if in their shoes?

Imagine scientists who have labored for years to identify the effects of different combinations of chromosomes on genetic codes.  Achieving a breakthrough, most would be thrilled that they had generated new knowledge of great significance, the pinnacle of the scientific profession.  They may anticipate acclaim and prestige or simply feel immensely satisfied. 

Investors in technological companies risk large amounts of money for financial gains that often do not materialize.  Their challenge is to continue to find new technologies that generate a rich stream of commercial earnings.

As a result, the scientist and/or the investor may not be focused on ethics of a given new technology; and most parties are not necessarily trained to think in those terms.  Often when others stand back to consider the larger implications of a new technology do questions of morality surface. 

For example, a journalist exploring deeper into a story, a patient is deciding whether to find out if his body contains genetic markers for serious disease, or a doctor questioning her right to deliver life-altering news.  

For the most part, inventors invent and investors invest.  This leaves it up to others to evaluate the effects, intended or not, of their work.

Dr. Thomas Begley is dean of the Lally School of Management at Rensselaer Polytechnic Institute.

Faculty Guest Post: Using an Operations Management Focus to Improve Healthcare

The challenges facing our healthcare system are well documented.  Simply put, U.S. healthcare costs are too high, while providing performance at levels that are often lower than those in other countries.  The system is far from efficient.  While legislative efforts to tackle this problem continue to make headlines, there are additional approaches from the business world that can also offer significant benefits.

For decades, manufacturing firms around the world have worked hard to improve their efficiency and effectiveness.  Productivity has risen steadily through changes in technology and management techniques.  And so has the standard of living.  This march has its roots in the industrial revolution, and has continued through such techniques as Lean and Six Sigma improvement programs.  But what does a manufacturing plant have to do with running a hospital better?

Increasingly, attention has been paid to trying to transitioning decades of learning about processes and operations into this realm. I’ve recently led with a team as we translated and applied the core ideas of Lean and similar lessons from the acclaimed Toyota Production System into the management of Healthcare processes.  Obviously the environments are VERY different.  But when care is taken to examine the activities in healthcare like a process that can be managed and improved, there is a lot of low hanging fruit!

Similarly there are tremendous opportunities to transfer other frameworks and lessons from manufacturing decision making into hospital operations, providing insight and direction into how to most effectively manage the process of healthcare delivery.  The goal is not to impact the clinical procedures (i.e. how and when medical procedures should be administered), but rather, to methodically examine the processes and decisions surrounding these procedures with an eye on improving outcomes such as length of patient stay, costs, and mortality rates.

This examination of the operations of healthcare explores the impact of different structural and infrastructural decisions on performance.  What are the performance benefits (if any) of specialty – focused hospitals?  When investing in healthcare IT systems, what type of technology is most beneficial?  Should some system types be implemented before others to achieve the most benefits?  The field of healthcare is in need of help, and there is a great opportunity to provide solutions to real problems by using an operations view to examine the challenges we face in this important and exciting field. 

Christopher M. McDermott is an associate professor at the Rensselaer Lally School of Management

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