A New School Year

In academics, we have an opportunity not available to people in most other professions.  Each Fall, we start out fresh, with renewed spirit and energy.  The academic cycle is annual, which has its benefits and drawbacks, but one of the main benefits is that each Fall we take in a cohort of new students at undergraduate, masters, and Ph.D. levels.  These cohorts arrive excited, nervous, and eager to get started.  Their energy is contagious. 

For those of us who are administrators, after exams end for the Spring semester, the halls turn much quieter as most students go off to engage in summer jobs, trips, and other non-university activities.  For the first few weeks, I enjoy the relative peace and quiet.  Summer is often a time when we attack projects that we did not have time for during the school year.  However, after a few weeks, I start missing the buzz in the hallways and the activities of faculty members as they engage with their teaching.  It gets too quiet.  By the time new students arrive and current ones return, I welcome the change.

The Fall brings a period of renewal, a new beginning, a time when horizons for the coming school year look broad and filled with possibilities.  Orientations for new students, the start of classes, initial meetings of dormant committees, and social events to greet new and returning students reinforce the feeling of new beginnings.  I have experienced this phenomenon for well over three decades now, but I never cease to feel its powerful tug.

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

Ethics and Shareholder Value

Ethics and shareholder value can maintain an uneasy co-existence.  The general impression in business is that it is difficult to maintain high ethical standards and succeed.  The “everybody does it” attitude is used as a justification for unethical behavior in the workplace.  If ethical behavior clashes regularly with firm performance, then employees are forced to choose between acting ethically versus making money for their companies.  The power of financial gain at the expense of ethics creates a strong dynamic toward unethical choices.

The question is so central to discussion of business ethics that it has been studied frequently.  The results are equivocal.  Overall, the findings indicate a small positive relationship between ethics and financial performance.  This conclusion results mainly from “meta-analyses.” 

A meta-analysis statistically analyses the combined results of many individual studies on a topic, attempting to summarize their general tendencies.  The basic principle is that an individual study may be biased by a large number of factors, but when you combine the results of many studies, the results should be much more valid.  However, many individual studies have had difficulties in their methodology and a number have not found a positive ethics-performance relationship.

In addition, in academic research, most studies that do not find relationships predicted are not deemed worthy for publication, so we do not know whether there are such studies nor how numerous they may be.  So our ability to predict any kind of relationship with confidence is limited.  The implications of this status deserve further consideration.

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

A Morality Tale on Business Ethics Education

I once was a faculty affiliate of a center for business ethics and its interim co-director for a year.  The center was funded by a large gift from executives of a seventy-year old, publicly-traded, family-owned and run company.  Each of the four generations of family members had added to its success. 

An attempted hostile takeover had driven the company into the arms of a prominent private equity firm, where this supposed white knight had yanked it from under the family’s feet.  Bitter at actions they considered duplicitous and immoral, the executives decided that business schools needed to focus more on educating young students on business ethics.  Thus, they funded a center.

The center sponsored case writing and seed research on business ethics and brought in executives from industry as guest speakers.  It led the school to offer its first ever course on business ethics.

The center also offered an annual award to an individual or company that had been exemplary in advocating for business ethics.  One year, a very worthy recipient emerged.  At the time, business schools were struggling to promote ethics because faculty were new to the topic and felt unsure of how to teach it.  So the firm held weeklong sessions multiple times a year to educate business faculty in teaching ethics and financed the attendance of two academics per school per year.  It would be hard to find a greater contributor to ethics teaching in business schools.

That company was Arthur Anderson.  Two years later, complicit as its auditor in Enron’s falsifications, it was out of business.                                      

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

The Influence of Pressure to Perform on Ethical Violations

One type of unethical behavior strikes me as arising from a very powerful motivator: the pressure to perform.  It is quite high in many organizations and the consequences of not performing are serious. 

Recent research finds that a supervisor’s ethical practices exert the strongest influence on employee ethical behavior.  Temptation to act unethically is strong when the supervisor is not monitoring behavior.  It is stronger when the pervading ethos is, “I don’t care how you do it, just do it.”  As a variation on a saying goes, the boss does not care about the storms you encountered at sea, but did you bring in the ship?  That position is usually accompanied by, “In fact, I don’t want to know how you did it.”  It is strongest when the supervisor actively advocates the unethical behavior.

The need to meet sales targets is a classic case where pressure is strong.  Sales organizations often measure sales over a particular period of time, say quarterly, and offer incentives to those meeting their targets and/or penalties to those who do not.  So salespeople may offer illegal inducements to a customer to push an order he planned to make next month ahead into this one or they hold back an order received until next quarter because they already have reached this quarter’s target or they record sales that were not completed as if they were.  The supervisor may even encourage the behavior because her own targets are based on those of subordinates. The temptation is natural, so companies need strong counter-measures to prevent it.

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

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.