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On the matter of business ethics

by Robert Teitelman | Published July 19, 2012 at 1:46 PM

Felix Salmon has a post up Thursday cheering on a Bloomberg op-ed by the University of Chicago's Booth School of Business' Luigi Zingales, who argues that business schools a) teach a kind of ethics that's useless in the real world and b) that what students are really taught is a kind of amorality, driven by a costs-and-benefits approach to life. Zingales undoubtedly has a point -- though what field of study, including journalism (if that's really a field of study), does much better? Salmon uses Zingales' op-ed, in turn, to argue for so-called B-corporations, which he's written about before, and which allow a company to escape from the narrow demands of the orthodox shareholder-centric corporation and embrace a stakeholder model. Though I'm less confident that B-corporations are about to sweep America than Salmon, just as I've been skeptical about the effectiveness of business students taking oaths to do good, I do agree with what I think is his underlying point: that some of the problems in corporate performance, including an amorality that often slides into something uglier, stem from the hegemony of the shareholder, including an increasing short-term fixation.

But there's something off-putting about tub-thumping for "ethics" without really bothering to define what you're getting at. And there's something even odder about business school professors attempting to tackle the subject. It's too easy a target. It raises the obvious question: What have you been doing with your students? And the answer is nearly always simplistic, like the ethics oath or a graduation exhortation. Whether it's Harvard's Clayton Christensen, who recently published "How Will You Measure Your Life?" (which I had a few comments on here), the recently deceased and incredibly successful Stephen Covey (who Lucy Kellaway in today's Financial Times had a characteristically tart, and smart, piece about) or Zingales, the response always is, well, the prescriptions might seem simplistic and even cartoonish, but it's better than nothing. Well, not necessarily. The message of Christensen's book, for instance, or Covey's "Seven Habits" resembles the distillation of nostrums that float about churches and synagogues and cable movies. So many folks who blithely toss about the need for "ethics" are really suggesting the need for "my" ethics, rooted in my social, political or religious beliefs -- or pabulum devoid of content. But Judeo-Christian (or Mormon) ethics may be quite a bit different from epicurean ethics or Marxist ethics or the cost-benefit "ethics" of the Darwinian free market. Even worse: We've been arguing about the content of Judeo-Christian ethics for thousands of years. The biblical Jesus, I gather, had a few sharp things to say about wealth that most folks manage to put aside.

I'm not saying that ethics shouldn't, or can't be taught in business schools. I just don't think it will be effective. There is a sort of myth around that folks used to be more ethical in some golden age. When Zingales reels off the various scandals -- Libor, JPMorgan Chase & Co., Goldman, Sachs & Co., the McKinsey & Co. insider-trading cases -- he's suggesting that we live in a debased age, in which ethics is at a nadir. (He's also blurring the line between "scandal," suggesting an ethical misstep, and a blunder, that is, a mistake. Is a trading loss an ethical lapse? That, of course, is part of the problem: We struggle to separate out immorality, criminality and screw-ups.) I'm not convinced that's entirely true. Businessmen, financiers and traders, not to say politicians and men of power, have always practiced a kind of ruthless "practical" ethics that Plato was familiar with (and critical of, as he was of democracy) in "The Republic," and which closely resembles the artful calculation of costs and benefits. Jesus was not happy with the moneychangers or the rich. Machiavelli offered his practical advice in the Renaissance. Were the Medici bankers saints? Was the 19th-century Wall Street or London's City any more upstanding than today? Not if you read Trollope or Dickens.

The difference today is one of scale and ideology. Finance has mushroomed in size and importance. And, more importantly, graduate business education has grown not only in size over the past generation or so, but in prestige. In a commercial civilization -- and that's what we are folks -- business schools help shape the popular culture. An M.B.A. is one increasingly well-trod path to power and riches; these days it's a credential to run for president, and it's an increasingly necessary ticket into the higher reaches of both finance and corporate life. But a business school is, for all its pretensions, a trade school. It teaches technique. It instructs, in theory at least, how to make money. The utilitarian impulse shapes it, as it shapes other trade schools, from those that teach HVAC to engineering to law and medical school. (Yes, the latter pair tries to hammer ethics home -- medicine has the Hippocratic oath -- and sometimes it works and sometimes it doesn't.) But ethics is not a matter of technique; it's a matter of belief, conscience, a feel for right or wrong. We tend to believe far more in incentives these days than belief. How can business schools, in good conscience, charge vast sums for tuition and not expect their students to enter careers intent upon maximizing their compensation in a utilitarian fashion? Can any business school professor look out upon his indebted graduates and confidently say, "Go out and you'll do well by doing good." (Yeah, after I pay the bank.) Will any of his students believe him?

No, the implicit message is: Maximize your own self-interest, and the rest of the world will do just fine. Or, more bluntly: Play the game. Do what needs to be done. It's no coincidence, I think, that the M.B.A. has grown to be such a powerful credential in an age that saw the ascendancy of the omniscient free market. All that's not meant as a knock on business education. It is, however, to say, that talking ethics is easy. Actually doing something about it may require a saint. And there's not much of a market in sainthood these days. - Robert Teitelman

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