Schools must lead the way on ethics

News stories about business scandals are an all-too-frequent occurrence. S&P, the giant ratings agency, recently agreed to pay a $1.37 billion fine for allegedly inflating its assessment of mortgage investments, a contributing factor to the Great Recession.

Additional scandals involved other corporate giants, including Countrywide Mortgage, Lehman Brothers and Bear & Stearns, all out of business. And Enron and then Arthur Andersen. And Bernie Madoff's $65 billion Ponzi scheme. And in Minnesota, Tom Petters' $3.65 billion scheme to rip off investors. The list goes on and, unfortunately, on.

These scandals can be divided into two categories: decisions that benefit the shareholders and managers in the short term by inflating share prices by overreporting profits, or decisions that benefit the executive personally at the cost of shareholder profits and employee security. In both cases, executive decisionmaking is the key issue.

A consequence of these scandals is increased public awareness that something isn't right in some business circles. As a result, the public is paying more attention to the responsibility of business schools to better prepare their students to make ethically responsible decisions in the workplace.

Business schools are often criticized for emphasizing the maximization of shareholder wealth as the primary responsibility of executives. Further, business schools are criticized for not doing enough to educate students about morally correct behavior that hopefully would prevent the egregious behavior of some executives.

As educators, we need to go beyond examining histories of positive and negative ethical behavior in business. We need to address behavior from a more micro perspective and focus on the fundamental issues of moral awareness, moral imagination, moral reasoning and moral will.

Moral awareness is the ability to recognize that a situation contains an ethical dimension. Moral imagination is the ability to generate alternatives beyond two dimensions; i.e., the capacity to see that there are alternatives beyond lie and keep a job or don't lie and lose a job. Moral reasoning involves thinking through the alternatives generated by moral imagination. Moral will is the capability to choose the ethically correct action even when it conflicts with self-interest.

Students can also look to the positive efforts in the business community to examine ethical issues and promote ethical conduct. For example, the Caux Roundtable, which for 25 years has been a leader in this field, sees its role this way: "The CRT Principles for Business are a worldwide vision for ethical and responsible corporate behavior and serve as a foundation for action for business leaders worldwide."

Similarly, the Aspen Institute's Business and Society program published "Beyond Grey Pinstripes," for a decade ranking MBA programs by the extent to which they incorporate sustainability and ethics into their academic programs.

It found that "between 2001 and 2011, the percentage of MBA programs that require students to take courses dedicated to business and society themes increased from 34 percent to 79 percent."

Plus, there are business leaders who provide a positive example for students. Bill George, the former CEO and chairman of Medtronic, has written and lectured extensively on business ethics. He says: "To be worthy of trust, leaders must have a clear sense of their True North — the purpose of their leadership and the essence of their beliefs, their values and the principles by which they lead. If they stay on course of their True North and do not deviate under pressure, then they can build trust among colleagues and legitimacy among all their constituencies."

But sometimes businesspeople see what is wrong, yet do not have the will to do the right thing. In some of the recent scandals it appears that the corporate officials knew they were doing wrong since they went to elaborate efforts to cover their trail.

I believe they can to some extent by building on the foundation laid over a lifetime by families, religious organizations and youth programs. Moral will is the result of character building that happens early for some people and throughout life for others. But business schools can show by example how people of strong moral will end up making the ethical decision. And business schools can, and should, teach the other three fundamental skills.