Tuesday, February 11, 2014

Teaching Business Ethics Beyond Skill and Tactic

At the end of March 2010, Warren Buffet spoke to business students at Columbia University.  One asked the billionaire whether being ethical in business comes from how a person is raised or out of a business ethics course.  Buffet quickly answered that it is learned in the home. I concur.

A business ethics course properly understood is not prescriptive; rather, knowledge of ethical principles is learned and applied to topics in business as well as to business systems (domestically and comparative). Although understanding itself can change behavior, academic study is not geared to making a student more ethical. The focus, in other words, of an instructor or professor of business ethics ought to be on imparting knowledge rather than skills that somehow turn people into ethical human beings.

Following bullet-points on how to make ethical decisions, for example, does not make one ethical, just as the manipulation of symbols according to rules does not constitute understanding. Rather, for a person who is inclined to consider the ethical dimension at work or more generally, knowing more about ethics can come into play.

It follows that business ethics is not a skill or a list of tactics; education is not vocation. Paradoxically, understanding ethical principles and explaining their relevance to business is of value not only academically in terms of a college education, but also practically in terms of a career. In other words, knowing more about something—being able to explain it—is best for one’s practice.

For example, explaining why (not just how) there is a the structural conflict of interest in the rating agencies getting paid by the issuers—indeed, knowing what a structural conflict of interest is—facilitates recognizing such conflicts when they occur. Such a recognition is essential for a business practitioner who wants to make sense of an uncomfortable situation that is in actuality an institutional or individual conflict of interest. Moreover, if more of a given electorate understand and can recognize conflicts of interest, it is more likely that the elected representatives will enact legislation that obviates such conflicts. A viable republic is predicated on an educated and virtuous electorate.

That the Dodd-Frank Act of financial reform retains the issuer-pays system—relying almost exclusively on the rating agencies’ internal controls to somehow counter the temptations from the system itself—may mean that neither the general public nor the members of Congress sufficiently understood the nature of a structural conflict of interest when the law was written and enacted. Had more constituents understood the structural depth of the conflict in the issuer-pays arrangement itself, perhaps Sen. Dodd and Rep. Frank would have been able to resist the pressure from Wall Street and the rating agencies in order to root out the underlying cause of the conflict of interest.

Obviating the conflict of interest involving the rating agencies may not be as easy as it seems; even an investor-pays arrangement could involve a conflict of interest in that rating agencies would have an interest in rating an issue such that enough investors purchase it that the agency can realize a profit. Analyzing various alternatives for indications of institutional conflicts of interest would be a good means for students of business ethics to gain a better understanding of the nature of an institutional conflict of interest.

In short, short-circuiting knowledge by reducing education to vocation is paradoxically not in the interest of business; a business school in a university is not a corporation’s training center. Therefore, business professors and instructors should not conflate what they are with what they are studying and teaching. Even in terms of consulting, coming from a vantage-point that does not duplicate a corporate perspective (yet can relate knowledge to it) can be particularly valuable to managers. Ethically speaking, the most expedient route is not always the best of all possible worlds.