Ethics: The Importance Of Graduating MBAs Who Consider More Than Shareholder Return

Cornell’s Dana Radcliffe says there is a pressing need for leaders who are committed building strong ethical cultures

From Uber’s sexual harassment to Volkswagen’s emissions cheating, recent corporate scandals have brought into the limelight the need for leaders who consider more than profit, but how their decisions impact society and the environment too.

There is nothing new about ethics in business, of course; companies have been aware of the need for changing some of their practices for some time. But business schools are placing a greater emphasis on ethics in the MBA curriculum. They say there is a pressing need for leaders who are committed to mitigating risks by building and maintaining strong ethical cultures.

Below, we speak to Dana Radcliffe, senior lecturer in business ethics at Cornell’s Johnson Graduate School of Management, who teaches two courses on the subject to MBAs at the leading US business school.

Q. Why is it important that businesses are run ethically at all levels, rather than sidelined as CSR projects?

In businesses, everyone has legal and ethical obligations to others, both within the company and outside it. In general, the health of the company depends on employees’ exercising sound judgment in fulfilling those obligations. Similarly, markets, dependent on the public’s trust that they are fair, require that most participants “play by the rules”. Otherwise, they would collapse — just as the financial markets did in 2008.

Because, at all levels of the corporation, employees exercise power in ways that affect the welfare of the company and its stakeholders, it is critical — to the company and its stakeholders — that employees pursue their work within the legal and ethical limits on that power.Of course, too often, corporate employees — at all levels — violate their obligations, due either to motives like self-interest, bias, and misplaced loyalty, or to “ethical blindness”, where they fail to see the ethical nature of their choices.

In some cases, pressures and temptations to act unethically arise from corporate culture that prioritizes achieving financial goals over compliance with relevant obligations. Prudent leaders recognize these dangers and act to make sure that the operative norms of their company align with both their firm’s publicly espoused values and common ethical norms of fairness, honesty, etc. They understand the need for their employees, at every level of the organization, to appreciate the power they exert in their daily tasks and to recognize that “with power comes responsibility”. (This maxim, which I call the “Spider Man principle”, is an apt summary of ethics itself.)

Q. Have recent scandals, such as Uber, brought ethics to the limelight?

They have, in the sense that they are fresh reminders that, in business, intense competition creates incentives to cut corners and competitive success creates temptations and opportunities to abuse the power that success brings. Driven by the goal of becoming the world’s largest automaker, Volkswagen installed in millions of cars software that enabled them to thwart emissions tests and discharge up to 40 times the allowable level of effluents into the environment. Uber’s leadership fostered a “Wild West” culture that encouraged cut-throat competition among employees and permitted the most successful to engage in lawless behavior, most notably sexual harassment.

At the same time, we have always known that competition invites cheating and, as Lord Acton put it, “power tends to corrupt”. What is new, however, is that the scale of potential harm from unethical corporate behavior is greater than ever. The unprecedented power of business means there is a pressing need for corporate leaders who perceive the high stakes of unethical behavior — for the company and all its stakeholders — and are committed to mitigating those risks by building and maintaining strong ethical cultures.        

Q. Do business schools have a responsibility to educate future leaders who consider ethics, more than just shareholder return.

Absolutely. Since the purpose of MBA programs is to prepare future leaders to exercise power, we must make them aware of the importance of using that power responsibly and foster in them the habit and skills of ethical reflection necessary for responsible leadership.

It is sometimes said that managers must make creating shareholder value their sole objective. I find this idea puzzling. First, because I don’t think it makes sense to say that an organization has just one objective — just as it doesn’t make sense to say that an organism has just one biological function. Second, is the suggestion that pursuing shareholder value should be unconstrained by obligations to other stakeholders? If so, then it sanctions, when the deals are profitable, disregarding the law and countenancing human rights violations, among other types of unethical actions.

  But corporate leaders are individual human beings and, as such, have the same basic ethical obligations — of honesty, fairness, respect, etc — that we all do. I see no reason to think that being a director or an executive of a corporation somehow exempts a person from those obligations. Indeed, because they have more power than most people, their responsibility is that much greater. Internalizing the Spider Man principle should be part of every MBA’s education.

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