Does business have a problem with ethics?

Recent corporate scandals and cases of corporate espionage have focused attention on business ethics. Are these instances of a few unscrupulous individuals or are business managers less ethical? The quest for answers to questions such as this has led to internal scrutiny within the academic community about the way qualifications such as the Masters of Business Administration (MBA) are being taught in business schools.

The late Professor Sumantra Ghoshal of the Advanced Institute of Management Research (AIM) and London Business School argued that the roots of business misconduct may be traced to ideas expounded by business schools over the last three decades. He suggested that “by propagating ideologically inspired amoral theories, business schools have actively freed their students from any sense of moral responsibility”. This was because attempts to make management a science meant denying any moral or ethical considerations. Creative Commons Image Walmart Stores under CC-BY licence To balance shareholders and employee interests, WalMart bring the two groups together at their 2011 shareholder's conferences

For example, Ghoshal asserted that few managers would question the economist Milton Friedman’s assertion that a business organisation’s only responsibility was to its shareholders. Yet Thomas Kochan, Professor of Management at MIT’s Sloan School of Management, attributed corporate scandals in the United States to widespread overemphasis on shareholder value at the expense of other constituencies. Ghoshal challenged the priority given to shareholder value, reasoning that other constituencies such as employees, including managers, produce the value created by a company. Furthermore, he argued that employees bear more risk, because it is generally more difficult for them to find alternative employment than for shareholders to sell their stocks.

Robert Cooke, who was the Director of the Institute of Business Ethics at DePaul University, has identified fourteen danger signs that an organization that is at risk of unethical behaviour. These are if it:

• normally emphasizes short-term revenues over long-long considerations
• routinely ignores or violates internal or professional codes of ethics
• always looks for simple solutions to ethical problems and is satisfied with ‘quick fixes’
• is unwilling to take an ethical stand when there is a financial cost to the decision
• creates an internal environment that either discourages ethical behaviour or encourages unethical behaviour
• usually sends ethical problems to the legal department
• looks at ethics solely as a public relations tool to enhance its image
• treats its employees differently than its customers
• is unfair or arbitrary in its performance-appraisal standards
• has no procedures or policies for handling ethical problems
• provides no mechanisms for internal whistle blowing
• lacks clear lines of communication within the organization
• is only sensitive to the needs and demands of the shareholders
• encourages people to leave their personal ethical values at the office door

There are signs that things are changing. Ethics are increasingly being woven into the curriculum of business schools. Recognition of the need for attention to ethics is evident in the Association of MBAs’ (AMBA) requirement that a business school’s curriculum pay attention to ethical and social issues to meet its accreditation criteria. Finally, Ghoshal concluded that the situation be rectified by encouraging a diversity of ideologies and positive perspectives on behaviour.

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Corporate Accountability and Ethics - a disregard for ethics can lead to trouble: remember the Enron saga

‘Danger signs of unethical behaviour: how to determine if your firm is at ethical risk’ by Robert Cooke, in the Journal of Business Ethics, volume 10, (April 1991)

'Bad management theories are destroying good management practices' by Sumantra Ghoshal, in the Academy of Management Learning & Education,  volume 4 (2005)

'Addressing the crisis in confidence in corporations: Root causes, victims and strategies for reform' by Thomas Kochan, in the Academy of Management Executive, Volume 16 (2002)