In today’s Business Schools, ethics take centre stage

Business schools are stepping up efforts to equip future finance leaders with the skills they need to navigate ethical dilemmas. But recent research should give them pause. In 2018, more chief executives were ousted from the world’s largest companies for ethical lapses than for poor financial performance or boardroom battles, according to analysis by Strategy&, Pwc’s consulting division.

It was the first time in the report’s history that ethical reasons for leader exits outnumbered other business considerations.

The question for business schools is how they can help to reverse this trend.

Many are simulating real-life experiences for students to practise ethical decision-making, but some argue that schools need to go further and rethink their approach to teaching business.

As a minimum, finance leaders need to know the rules. “Understanding the regulatory and legal environments in which businesses are operating is critically important,” says Colin Mayer, professor of management studies at the University of Oxford’s Saïd Business School.

Yet students will face many complex questions for which the rule book will not provide an answer.

“Figuring out the ethical is

sues is pretty simple; what’s hard are all the collateral issues,” says Stephen Arbogast, professor of the practice of finance at the University of North Carolina’s Kenan-flagler business school.

He says these range from a boss giving instructions to do something unethical to a corporate culture that pushes for financial results without questioning how they are achieved.

Students need practical strategies they can use at work.

“In 2018, more CEOS were ousted from the largest companies for ethical lapses than other reasons

For this, many business schools look to the Giving Voice to Values curriculum developed by Mary Gentile, a professor at the University of Virginia’s Darden School of Business.

This approach argues that the key to making ethical decisions is practice and being well prepared for each scenario.

The GVV curriculum provides practical exercises, case studies, scripts and teaching plans on issues from conflicts of interest to gender bias.

At Kenan-flagler, students play ethics games based on reallife scandals, such as the 2007 Abacus transaction, over which the US Securities and Exchange Commission accused Goldman Sachs of committing fraud by selling clients a mortgage-based collateralised debt obligation the SEC alleged had been designed to fail.

The case was settled out of court without Goldman admitting liability.

Students play different roles and decide what their response would be if they were involved.

“There’s no script and every game goes differently,” says Prof Arbogast.

“You’re putting them in a realistic situation and having them work through it.”

In the Daniels Fund Ethics Consortium Case Competition, teams of business students from schools in New Mexico, Colorado, Wyoming and elsewhere play consultants hired by a fictional company to manage its ethical challenges and risks.

The winning team must correctly identify the ethical issues in the case and suggest solutions such as introducing a code of ethics, hiring a chief ethics officer or reducing the chief executive’s voting power.

Some say, however, that until broader changes are made to finance teaching, particularly the focus on maximising profit, ethics training will remain little more than window dressing.

“In most cases [ethics teaching] is on the periphery. Courses start from a presumption that the role of business is to pursue shareholder value,” says Prof Mayer, adding that business schools need to change their mindsets.

At New York University’s Stern School of Business, Jonathan Haidt, professor of ethical leadership, applies moral psychology to the way ethics is studied and integrated into the business curriculum.

He says if students are taught how to integrate social and environmental considerations into decisions, ethics will follow.

He argues against “the shareholder primacy view” and encourages students to think in the long term. “When you do that, ethics flows naturally,” he says.

Schools face many barriers to shifting to a more holistic teaching of the purpose of business, from the cost of redesigning courses to academic inertia.

Prof Mayer even says business school rankings that emphasise postgraduate salaries can influence student recruitment and the nature of what is taught.

“People pursuing social entrepreneurship won’t earn the same salaries, so it does to some degree discourage that focus [on ethics],” he says.

As a result, some schools are moving more slowly towards ethics than businesses themselves, says Judith Samuelson, founder of the Aspen Institute’s Business and Society Program.

Until 2012 it published a global ranking, Beyond Grey Pinstripes, that assessed the integration of social, environmental and economic business factors in MBA programmes.

The 2011-12 rankings found the number of schools requiring students to take a course focused on business and society had risen from 34 per cent in 2001 to 79 per cent in 2011.

Even so, Ms Samuelson believes some schools lag behind the corporate world in shifting views away from pure profitmaking.

“The world has moved,” she says. “And finance classrooms need to catch up. ”