Business ethics: split the myth from the hard reality

BLOOMBERG NEWS

Canadian Cindy Klassen races in the Ladies' 1500 meter speed skating event at the 2006 Winter Olympics in Turin, Italy, Wednesday, February 22, 2006. Klassen would win a gold medal for the event. Photographer: Adam Berry/Bloomberg News

The London interbank offered rate (Libor) scandal that has seen Barclays bank hit with a £290 million (R4 billion) fine – and another 15 institutions investigated – for manipulating the key benchmark borrowing rate is another in a long line of cautionary tales on bad business ethics. But will anything really change as a result?

Wall Street, so far, shows no sign of having learnt all that much from Enron, wrote Judith Samuelson, the executive director of the Aspen Institute Business and Society Program, in a Huffington Post blog. Is there any reason to expect that Libor will be different? As long as earnings per share are the guiding principle, money will trump ethics, Samuelson argues. What is needed is a better “alignment of the incentives with the values to which we aspire”.

Al Gini, a professor of business ethics at the School of Business Administration at Loyola University in Chicago, has a different perspective. He argues that business is not inherently bad, it just happens to offer many temptations – to counter this he says business needs moral leadership: individuals who are prepared to do things right.

Both perspectives boil down to what business leaders are learning: what incentives are we as teachers giving them; what questions are they being challenged to grapple with? How can we encourage them to do the right thing? What does that even look like?

The issue of ethics is more fashionable now than ever. Since the 1980s ethics has righteously been given a place of prominence in the curriculum at most good business schools, where it’s taught alongside courses on social responsibility, social enterprise, and social impact. According to Wikipedia, by the mid-1980s at least 500 courses in business ethics reached 40 000 students and numbers have proliferated since then. And yet, the results of four decades of training are not that evident.

This may be because many of these courses fail to recognise that it is not just about content, but also about the learning method. As one of the working groups of the UN’s Principles for Responsible Management Education (PRME) first academic conference in 2008 stated: if we want people to incorporate values, we will need to use much more active learning methods, like action learning, community learning and so on.

But at the end of the day, it is also about the paradigm. If business is, as Al Gini characterises it – a game – then maybe it is time to change the rules. If the existing rules of the game seem to be saying profit and shareholder value are the reason business exists in the first place, we need to turn that around. Yes, business needs profit and shareholder value, but these should be an outcome – a very necessary one – but not a driver. What then are the drivers that will change behaviour?

Questioning the rules of the game is precisely what PRME is all about. And at its third academic conference, which took place in Rio de Janeiro in June, some interesting ideas were floated. For example, corporate delegates came up with the idea that the economic system is a subsystem of the world and the environment, and not the other way round.

They urged MBA curricula to focus less on finance and much more on integration and systems thinking. In this way, risks are treated as systemic, and in order to deal with them, we need to understand systemic thinking and decision-making.

There was also a lot of attention for microfinance, development finance, inclusive business models and local relevance of business schools. What can we learn, for instance, from tribal leadership when we want to be a relevant business school in Africa? What is leadership in an African (tribal) culture? What else could be interesting to learn about from indigenous wisdom? An increasing number of PRME schools invite their students to become much more active during their course in inclusive development and learning.

Finally, business schools could pay more attention to different forms of organisations, like co-operatives, NGOs, small and medium enterprises, and so on. We still teach predominantly corporate business management theories.

Responsible management education is not only about sustainability or corporate social responsibility, or the green economy. Responsible management means developing inclusive ways of using business management for improving the wealth of people, the quality of life of those people and to create a healthy world, where everyone gets a fair chance to be part of it.

The idea is to make this planet viable for all, not just to be the smartest for oneself. This is easier said than done. In a recent editorial in The Guardian, Sir Mervyn King said bankers should take a leaf out of the book of Olympian gold medalists and realise that success follows years of hard work. There are no more quick wins.

“Motivation is more than mere money. Bankers should concentrate on laying a solid foundation for customers, not focusing on making quick cash,” he said.

Or to put it another way, it is about value. The reason for existing must be that you add value in some way to your customers. And value is linked to action – what you do. Al Gini says “ethics is a verb” and he is right. You cannot just talk or teach ethics, you also need to act and behave differently.

There are examples of people in business who exemplify ethical actions. In fact, the new chairman of Barclays – David Walker – is showing signs of, at the very least, trying to do things differently.

Walker said last week that he would undertake a top-to-bottom review of the embattled business and that he was not committed to anything but to “getting it right”.

Walker is known to have strong views on how the banking industry should be reformed. In a report commissioned by former Labour Prime Minister Gordon Brown a few years back, he urged radical action to change working practices in the industry including an overhaul of pay structures.

This is changing the rules of the game at its best. It is perhaps not surprising that he is already starting to pick up criticism for his reform ideas in the press. However, if we want to learn the lessons of Barclays, Enron and countless others, we – as individuals or as business schools – need to be prepared to ask the uncomfortable questions and make the difficult choices: to, if necessary, stand things on their heads and change.

Walter Baets is the director of the UCT Graduate School of Business and a member of the Principles for Responsible Management Education Global Forum