Archive for the ‘education’ Category

Three takes on business ethics: Young academics hold court.

I recently spent a day acting as a Faculty Advisor at an event held by the Canadian Business Ethics Research Network (CBERN). The day involved listening to presentations by young PhD students in the field of Business Ethics and offering constructive comments on their research projects. The students presented on very different scholarly questions within Business Ethics, each drawing on his Doctoral research. It was interesting enough that a summary bears repeating.

The first presentation was by Sean Geobey from the Waterloo Institute for Social Innovation and Resilience. Geobey’s presentation was about a broad cluster of financial mechanisms known as “social finance” (which includes, for example, microfinance, social banking, and crowd-funding). The focus was on the degree, if at all, to which such innovations can serve as remedies to failures on the part of more traditional market- and government-based mechanisms.

When, for example, can microfinance remedy failures of traditional banking, and to what kinds of failure is microfinance in turn subject? The significance of this work is plain: it is increasingly clear that there is value to be found in open-minded innovation about the institutional mechanisms we use to supply goods and services, including finance. If social finance is to make good on its promise, we need sophisticated understandings of just what it can and cannot do.

Second up was Abraham Singer from the University of Toronto. His presentation was an exploration of the relevance of the political philosophy of John Rawls — the most important in his field of the 20th Century — to corporate governance. Singer’s conclusion was to cautiously assert that Rawls probably has relatively little to tell us about corporate governance. Rawls was primarily concerned with justice in what he called the “basic structure” of society, the key institutional mechanisms that make society what it is. That basic structure, according to Rawls, must be subject to principles of justice that would be acceptable to essentially everyone, regardless of their own particular vision of ‘the good life.’ And Rawls was clear in stating that beyond that basic structure, all of us must be permitted the freedom to live our lives as we see fit.

Singer argued convincingly that where the Rawlsian framework is concerned corporate governance is essentially a private matter, and so the specific principles of justice that Rawls advocated just aren’t relevant within corporations. That’s not to say that justice within corporations isn’t a concern; it’s just to say that the principles that apply there will be specific to the kind of institutions that corporations are, rather than being the principles that apply to how we organize society more generally.

And finally was a presentation by Hamish van der Ven, also from the University of Toronto. His work is on the factors that affect companies’ decision to “go green.” The standard assumption is that companies that take an environmentally-sensitive turn are likely to do so because they’ve become convinced of the business case for doing so. They may, for example, have realized that there are significant bottom-line benefits to energy conservation, and positive reputational benefits to being seen as sensitive to environmental concerns.

Van der Ven’s hypothesis—supported by limited but provocative data—suggests that what is much more important is whether a company’s senior executives have or have not had opportunities to associate with, and absorb values from, environmentalists and environmental organizations. What matters, in other words, is the processes of socialization that senior executives have been through.

Van der Ven argued that you can understand a lot more, for example, about Walmart’s relatively strong environmental performance (compared, say, to Costco’s) by looking at the experiences of certain key decision-makers, and by looking at the number of points of interaction (or lack thereof) between the companies and various environmental groups.

Interestingly, none of these three young scholars is from my own home discipline, namely philosophy, which is the traditional ‘home’ of academic business ethics. Singer and van der Ven are political scientists, and Geobey’s background is in economics and environmental studies. Small sample, to be sure, but this kind of diversity is as it should be. Business ethics is and must be a broad discipline. It needs to draw upon both theoretical and practical insights, and on scholarly methods from a whole range of humanist and social-scientific disciplines. Business ethics, in other words, is everybody’s business.

Business Ethics Journal Review: Month 1 Summary

A month ago, we launched the Business Ethics Journal Review (ISSN: 2326-7526), a venture in 21st century academic publishing, which I co-edit along with Alexei Marcoux (Loyola University Chicago).

The goal of BEJR is to publish short, peer-reviewed commentaries on recent business ethics articles published in the standard scholarly journals.

Since our launch, we’ve published the following six peer-reviewed Commentaries:

“Moving Beyond Market Failure: When the Failure is Government’s” by Peter Jaworski Bus Ethics J Rev 1(1) (2013): 1–6
“Corporate Human Rights Obligations: Moral or Political?” by Jeffery Smith Bus Ethics J Rev 1(2) (2013): 7–13
“Toward a Political Theory of the Business Firm? A Comment on ‘Political CSR’” by Pierre-Yves Néron Bus Ethics J Rev 1(3) (2013): 14–21
“Are Usurious? Another New Argument For the Prohibition of High Interest Loans?” by Matt Zwolinski Bus Ethics J Rev 1(4) (2013): 22–27
“The Unification Challenge” by Dominic Martin Bus Ethics J Rev 1(5) (2013): 28–35
“Proposition: Shared Value as an Incomplete Mental Model” by Laura P Hartman and Patricia H Werhane Bus Ethics J Rev 1(6) (2013): 36–43

We’ve also published the following three Responses, from the authors of the works at which some of the above Commentaries were aimed:

“The Cost of Usury” by Robert Mayer (a response to Zwolinski) Bus Ethics J Rev 1(7) (2013): 44–49
“Market Failure or Government Failure? A Response to Jaworski” by Joseph Heath Bus Ethics J Rev 1(8) (2013): 50–56
“Morality Meet Politics, Politics Meet Morality: Exploring the Political in Political Responsibility” by Florian Wettstein (a response to Smith) Bus Ethics J Rev 1(9) (2013): 57–62

You can see abstracts, and get free access to the full PDFs for each piece, by clicking on the links above.

For more information about BEJR, please see our instructions for authors.

Update: You can also follow the BEJR’s Facebook page, here: http://www.facebook.com/BusinessEthicsJournalReview

An Innovation in Business Ethics Scholarship

As of a couple of weeks ago, I’m now co-editor and co-publisher of an innovative new publication that aims to shake up the somewhat stodgy world of academic business-ethics publishing. The Business Ethics Journal Review (BEJR) is a cutting-edge online publication: it’s a free, open-access journal that publishes peer-reviewed commentaries on scholarly articles published in mainstream academic journals.

That may not sound all that exciting to those not firmly ensconced in the ivory tower, so let me explain why it’s worthy of note.

The business model of standard academic journals hasn’t changed in decades, perhaps centuries. The process goes like this. Scholars submit their research; editors vet it for basic adequacy, and then anonymize it and send it to other scholars for “blind review.” If the work passes muster (often after a round or two of revisions) it eventually gets published. If another scholar spots errors or confusions, he or she repeats the process, submitting a rebuttal that goes to an editor, then through the process of peer review, revision, and so on. It’s hardly a process that fosters discussion. A single back-and-forth can literally take years.

BEJR aims to change that formula radically, by leveraging the power of the internet and social media. We’re publishing online, and we’ve streamlined the review process so that we promise authors submission to publication in under 30 days. We also provide a “Comments” function on our website, so that literally anyone with an internet connection can participate in the discussion.

(An interesting aside: my co-Editor Alexei Marcoux and I have started BEJR using two laptops, some off-the-shelf software, and a consumer-grade web-hosting service. It’s taken plenty of work, but we’ve hardly broken the bank. A couple of decades ago, starting your own scholarly journal would have required taking out a second mortgage on your house.)

Broadening discussion in the realm of business ethics is no small feat. A lot of different people have an interest in business ethics, including business executives and other corporate employees, as well as consultants, activists, and academics. The problem is that although there is plenty of conversation about the topic, the conversation tends to be fragmented. Executives talk to executives and to their own employees. Activists chat amongst themselves and try to get the public interested. And academics most typically carry on isolated debates about esoteric considerations in scholarly journals that the uninitiated never dare to read. Bringing business ethics scholarship into a much more public forum holds the potential to foster real dialogue.

Of course, like anything really innovative, there’s a chance that the Business Ethics Journal Review will fall flat on its face. We’ve published half a dozen peer-reviewed commentaries so far, and our website has already seen some lively discussion, but it’s entirely possible that our initial momentum will wither, that the novelty will wear off, and that those who have expressed enthusiasm for this new format will go back to old, familiar ways.

And you know what? That’s OK. That’s what entrepreneurship is about: trying something cool, and living with the chance of failure. But for now, it’s great to be part of something that has other people saying, “Wow, what a great idea!” That’s something everyone should get the chance to experience, at least once in their lives.

Can Business Schools Teach Ethics?

It’s that time of year again. Fresh young faces are flooding onto campus, and lineups are long at the university bookstores. Once again, there is a rush of new faces past the door of my office at the Ted Rogers School of Management. And once again, editorials are being written about whether business schools can do anything effective in the realm of ethics. Far better than most, in this regard, is a recent piece by Professors Ray Fisman and Adam Galinsky, of the Columbia Business School and Kellogg School of Management, respectively. Is it possible, they ask, for business schools to train students to be ethical?

Fisman and Galinsky’s piece has a lot going for it. The view they put forward is realistic, but not cynical. Nor does it make the all-too-common mistake of assuming that the goal of an ethics course is to “make students ethical.” And it rightly, to my mind, focuses on the psychology of wrongdoing — on looking for ways to counter the psychological forces that result in decent folks doing bad things.

Beyond recommending their article, I’ll only add the following comments:

Echoing a suggestion I made nearly two years ago, Fisman and Galinsky suggest that business students need to be taught to become “Moral Architects” (their term, not mine). That is, business students need to be taught skills relevant to shaping the environment in which they, and others, work in order to push behaviour in the right direction.

This is exactly right, but if anything Fisman and Galinsky underplay the question of design. A great many business school graduates will go on not just to work in business, but to be managers, and managers are tasked with designing and managing work environments. So even if ethics classes aren’t capable of changing students’ behaviour, it is important to ask whether they can give students the skills to help shape other people’s behaviour in the future.

My final point is about the focus on business students. Why focus on them? Fisman, Galinsky and I all teach at business schools, so for us the answer is obvious. But from a broader point of view, it may be a mistake. If we are concerned with ethical conduct in business, we need to look at all of the training grounds for business, and that goes far beyond the business school.

I often ask my own students, do you know what the difference is between a Business major and an Arts major? The answer is that a Business major already knows she’s going to work in the world of business. The Arts major is almost certainly going to end up doing something in the world of business; she just hasn’t realized it yet.

But of course, it’s highly unlikely that anyone is going to make a business ethics course mandatory for arts majors, based on the simple fact that many arts majors will end up in business. So the burden, for all intents and purposes, is likely to stay with those of us who teach at business schools. As I watch the fresh young faces flow past my office door, I can only hope that we are up to the task.

Top 5 Business Ethics Movies

There are lots of ways you can learn about ethical issues in business. You can do some reading. You can take a course. But hey, it’s summer, so let’s talk movies. Here’s a list of my 5 favourite business ethics documentaries. Granted, these aren’t exactly great date movies. Nor are they action-packed blockbusters. But trust me you could do a lot worse.

So grab a bag of popcorn. Here they are, in no particular order:

Let’s start with one you’ve likely heard of, namely The Corporation (2003). This one was popular out of all proportion to either educational or entertainment quality. It’s full of half-truths and bizarre omissions. And its central theme, namely that the corporation is in some sense a psychopath, simply cannot withstand even cursory critical examination. But it’s still useful to watch — if only to understand the source and shape of so much anti-capitalist sentiment. (The Corporation is freely available online here.)

Next on my list is another what we might call ‘anti-business’ documentary, namely Walmart: The High Cost of Low Price (2005). This is one of my favourite videos for classroom use, because it’s a good test of students’ critical thinking skills. Some of the criticisms levelled at Walmart in the movie are entirely on-target: labour code violations, racist HR practices, etc. Other criticisms point to things that are in some sense sad, perhaps — the loss of so many mom-and-pop stores, for example — but far from evil. Others are downright ludicrous, such as blaming Walmart for random murders in their parking lots. Watching this one is a great way to see what is right, and what is wrong, with so many criticisms of business today.

The most recent of my top 5 is already a couple of years old. And while Food, Inc. isn’t about business per se, it is about the production of food, something that is increasingly industrialized and dominated by big business. And as businesses go, none could be more important to us than the food business. The movie does a good job of pointing out problems, but is regrettably short on solutions. A not-unrelated criticism is that the documentary makes too little use of relevant experts. How could a film make concrete recommendations about the future of food without bothering to interview, say, a food economist or two? At any rate, it’s a thought-provoking hour and a half.

Next on my list is a movie you probably haven’t heard of, namely The Take (2004). This one isn’t really a criticism of any particular company, or of any particular industry. At heart, it’s a plea for a different economic model — though the details here are a bit vague. The Take tells the true story of a group of Argentinian factory workers who, when their cruel capitalist boss shut down operations for obscure reasons, seize the factory, start up the machines, and try to make a go of it. The workers’ motto — “Occupy, Resist, Produce” — is in spirit awfully close to “Workers of the world, unite!” It’s a good story. Unfortunately, the movie ends before the story does. As the film closes, the workers have seized the factory and started up the machines and are full of optimism that they can do better without a boss. Can they really do it? Can they beat their little workers’ paradise beat the odds? The film leaves us with lots of idealistic hopes, but few answers.

My next recommendation is admittedly the dullest of the bunch, but still worth considering. A Decent Factory is a story about audits. Not financial audits, but supply-chain audits carried out by Nokia at the factories of one of its Chinese subcontractors. There are two striking aspects of this quiet film. The first is how the auditors seem to struggle with just how much to push their Chinese subcontractors on various issues. The auditors’ job is not an easy one. They are there to evaluate, but also to insist on improvements, or sometimes just to suggest, encourage, and cajole. The path forward is far from clear. This is related to the second striking aspect of the film, which is that the conditions at the Chinese factory are, well, mediocre. They’re not the kind of awful sweatshop that would make for a gripping exposé. Remember what your grade-school English teacher told you about the adjective “nice”? It’s a weak word, one that tells the reader little. That’s the sense in which the makers of this film use the word “decent” in their title. The Chinese factory is a…decent…factory. Not great. But not awful. And just what to think about that is left to the viewer.

Last but certainly not least is Enron: The Smartest Guys in the Room (2005). This one is arguably the best of the bunch. Based on the book by journalists Bethany McLean and Peter Elkind, the movie is a fun, accessible, and best of all plausible telling of the story of what is still the biggest and most complex business-ethics scandal of the century so far. Perhaps the thing that most attracts me to this documentary is its refusal to resort to easy answers. There’s no attempt to say it was “all about greed” or that “capitalism is evil.” The truth about Enron, and about capitalism more generally, is much more complex, and much more interesting, than that.

5 Business Ethics Must-Reads

Business Ethics is an academic discipline, as well as a field of practical expertise and increasingly a central business function.

There are many ways to educate yourself about Business Ethics as a field of study and understanding. But if your interest in the topic is sufficiently deep, you could do worse than to read a handful of papers by some of the leading scholars in the field.

So here are five of what I regard as essential readings in business ethics, along with an explanation of their significance.

The List

In order to say anything useful about ethical issues in the marketplace, you first need to understand something about how markets work, how they fail, and what the ethical argument for their existence is. And simply being in business doesn’t guarantee that you understand markets, any more than being an athlete guarantees that you understand physiology. You need to go to someone who has a deep understanding just of one particular market — the market for mobile phones, say, or for cars — but of markets in general.

So the first bit of essential reading is a decent chunk of…

1. Adam Smith’s The Wealth of Nations. (It’s freely available online, and I recommend reading at least the first three chapters of Book 1, Volume 1.) Smith, one of the great philosophers of the Scottish Enlightenment, wasn’t the first to speculate about how economies work, but he’s generally thought of as the guy who more or less got it right. Smith is to economics what Darwin is to biology. In The Wealth of Nations, Smith outlines the basic way in which trade produces mutual advantages, the way those advantages encourage specialization, and — importantly — the way self-interest is sufficient to get the whole process started. (But a word of caution: Smith is often wrongly thought to have encouraged greed. Nothing could be further from the truth. For useful correctives, read Nobel-prizewinning economists Ronald Coase and Amartya Sen.)

#2. My next suggestion is to read something by Edward Freeman on what’s known in academic circles as “Stakeholder Theory.” His co-authored piece called “Stakeholder Capitalism” would do, as would any of a number of papers he’s authored or co-authored over the last 3 decades. The basic idea that Freeman defends is that corporate managers shouldn’t see themselves as beholden primarily to shareholders, but rather as ethically obligated to balance the interests of a wide range of stakeholders. The idea is attractive, but also deeply flawed, for reasons that the next two readings explain. One way or the other, the stakeholder idea forms an important part of the debate over how we should think about the central obligations of managers. (For my review of one of Freeman’s recent books on the notion, see here: Review of Managing for Stakeholders.)

#3. The best antidote to Stakeholder Theory is to read Joseph Heath’s “Business Ethics Without Stakeholders”. Heath argues that the stakeholder idea, however evocative, only muddies the water without providing managers with any useful direction. Heath’s paper basically outlines the fundamental debate over shareholders-vs-stakeholders in business ethics. In that regard, it’s a useful summary of the field. Heath argues that shareholder-driven and stakeholder-driven theories of business ethics both have virtues, but that both are also subject to fatal flaws. Heath argues for an alternative, which he calls the Market Failures theory. According to the Market Failures theory, the guiding ethical notions for businesses ought to be to honour the preconditions for market efficiency. In other words, they shouldn’t engage in the kinds of behaviours that make markets fail: they shouldn’t seek to profit from information asymmetries, or from externalities, or from exercising monopoly power.

#4. A bit of middle ground can be found in the work of John Boatright, including especially his article “What’s Wrong—and What’s Right—with Stakeholder Management”. In previous writings, Boatright has generally not been a fan of stakeholder theory. But in this paper, he says that the stakeholder idea can play a legitimate role in the corporation, if used properly. In particular, Boatright says that the stakeholder idea should only be held up as an ideal, a source of a sense of mission, a motivator reminding corporate insiders that all participants need to find long-term benefit. He says that the stakeholder idea is much less likely to serve the role that Freeman and his fans think it ought to play, namely that of a principle for corporate governance.

#5. All of the above is aimed at helping frame the question of how businesses (or people in business) ought to behave. But sometimes the problem isn’t with knowing the answer, but with putting it into action. And that seems to be a problem. After all, there’s a good deal of wrongdoing in the world of business. And yet look around you: most of the people you know (starting with yourself!) are pretty decent, honest folks. How do so many good people end up doing bad things.

In this regard, I have to recommend another paper by Joseph Heath, namely his “Business Ethics and Moral Motivation”. Heath points out that, when asked about what motivates wrongdoing, most people say it has a lot to do with greed, or with other deep character flaws. The trouble with this, he says, is that the scholars who study wrongdoing in the most depth — namely, criminologists — long ago considered and rejected those as key factors in wrongdoing. The real source of trouble, says Heath, lies in the ability people have to offer themselves excuses, and in particular to redescribe their behaviour their behaviour in ways that lets them rationalize it. “Sure, I took the money. But I wasn’t stealing — I was just taking what I was owed.” To get people to behave better, you need to help them see that such rationalizations are unsupportable, and we need to work to avoid institutional cultures that actually encourage thinking in those ways.

So that’s my list. It’s admittedly a particular take on the field — all of the authors cited above are philosophers. But hey, I’m a philosopher by training, and so I’m committed to the idea that an understanding of fundamental principles always helps. As someone once said, there’s nothing so practical as a good theory. Reading these won’t guarantee excellence in ethical decision-making, but they will help you understand what is fundamentally at stake in our ongoing exploration of what behaviour is right, and what behaviour is wrong, in the world of business.

A Business Ethics Syllabus

Here is a reading list that is typical of the one I use for my 1-term undergraduate Business Ethics courses. In some cases, there are hyperlinks directly to the work in question. In other cases, unfortunately, the link just leads to an abstract. Note that for the last decade, most of my teaching has been in a Philosophy department, and so this list includes more philosophical readings, and fewer case studies, than would be the case for a course at a business school.

Section 1: The Market

In order to say anything sensible about ethics in the marketplace, you need first to understand at least a bit about the marketplace itself, and the basic underlying mechanisms. So…

But a lot of people misunderstand Smith, especially his view on the role of self-interest in the marketplace. So I recommend reading these two Nobel-prizewinning economists, both of whom believe that Smith is far too important to get wrong:

  • Ronald Coase, “Adam Smith’s View of Man” (Coase explores Smith’s moral psychology, and points out that Smith neither thought people are entirely selfish, nor thought they should be).
  • Amartya Sen, “Does Business Ethics Make Economic Sense?” (Sen points out that, on Smith’s account, self interest merely explains what motivates people to engage in exchange. That’s important, but it leaves lots to be explained. And, Sen argues, much of what remains to be explained requires a richer set of values than the popular, cartoonish version of Smith usually includes.)

Section 2: For Whose Benefit?

In this section, we read about “stakeholder theory,” along with modifications of, and objections to, that idea.

  • R. Edward Freeman, et al., “Stakeholder Capitalism” (In this and many other papers published over the last quarter century, Freeman defends the idea that corporate managers have strong, positive obligations not just to corporate shareholders, but to a wide range of stakeholders.)
  • Kenneth Goodpaster, “Business Ethics and Stakeholder Analysis” (Goodpaster offers a friendly amendment to Freeman’s theory. He says we should understand stakeholder theory as implying that managers have strong fiduciary duties to shareholders, and regular non-fiduciary duties to other stakeholders — such as the duty not to lie, not to steal, etc.)
  • John Boatright, “What’s Wrong—and What’s Right—with Stakeholder Management” (Boatright says that the stakeholder idea can play a legitimate role in the corporation, but only as a motivator, giving corporate insiders a sense of mission. He says that the stakeholder idea is unlikely to serve as a good principle for corporate governance.)
  • Alexei M. Marcoux, “A Fiduciary Argument against Stakeholder Theory” (Marcoux argues that the relationship between corporate managers and their shareholders is in important ways very similar to that between doctors and their patients or lawyers and their clients. As a result, he says, shareholders — and shareholders alone — have a strong claim to managers’ loyalty as fiduciaries.)
  • Joseph Heath, “Business Ethics Without Stakeholders” (Heath argues that shareholder-driven and stakeholder-driven theories of business ethics both have virtues, but that both also have fatal flaws. He argues for an alternative, which he calls the Market Failure theory, according to which the ethical compass of a corporation should be to avoid behaviours that tend rob the market of its promise as a mechanism for mutual benefit.)

Section 3: Decision-Making

The last section of the course deals with individual decision-making, and barriers to making good decisions.

  • Aviva Geva, “A Typology of Moral Problems in Business” (Geva argues that not all problems in business ethica are of a single kind. She presents a framework for categorizing such problems, and argues that diagnosis is the first step towards effective resolution.)
  • Caroline Whitbeck, “Ethics as Design: Doing Justice to Moral Problems” (Whitbeck says that ethics classes too often treat ethical dilemmas as if they were multiple-choice problems, in which the decision-maker merely needs to choose from the available alternatives. Instead, Whitbeck suggests that we think of ethics in a more active way as a design process, involving seeking a best available solution given a set of objectives and a range of constraints.)
  • Joseph Heath, “Business Ethics and Moral Motivation: A Criminological Perspective” (Heath says that the “folk” theories regarding why people do bad things are generally deeply flawed, rejected long ago by thorough criminological studies. He says the key to wrongdoing is the process of rationalization or “neutralization,” according to which the wrongdoer finds ways of redescribing their own behaviour in order to soothe their own conscience.)
  • Nina Mazar, On Amir, and Dan Ariely, “The Dishonesty of Honest People: A Theory of Self-Concept Maintenance” (Ariely and colleagues ask why it is that so many honest people engage in dishonesty. They propose a theory according to which people frequently find ways to be just a bit dishonest, but not so dishonest as to stop them from thinking of themselves as decent people.)

Here are a few other items I have sometimes included:

It’s important to note what this list leaves out. Absent are direct discussion of workplace health and safety, honesty in advertising, product safety, environmental issues, and so on (though the readings above do of course draw examples from those sorts of topics). A different sort of course would deal with those, one by one, in some depth. The hope in my course is to provide students with the philosophical grounding to think about those sorts of practical issues in a well-informed way.

MBA’s, Ethics, and the Facebook IPO

I’m an educator, so my natural bias is always to assume that yes, education matters. But it is in part because of this bias that it pains me when I see someone who is plainly overstating the case. And that’s the feeling I got when I read the Washington Post‘s Vivek Wadhwa asking, “Would the Facebook IPO have bombed if Mark Zuckerberg had an MBA?”

The answer — contrary to what Wadhwa argues — is “well, probably, yes!” The IPO almost certainly still would have bombed even if Facebook’s CEO had had an MBA. The fate of the company’s IPO depended a great deal on the way it was handled by Morgan Stanley, and on the appetite of institutional investors for the company’s stock. And that appetite depended a great deal on investors’ thinking on a lot of different questions, including things like whether Facebook still has room to grow or not. But there’s little readon to think that the educational pedigree of the CEO would have made much difference on its own.

It’s also worth pointing out that while Zuckerberg doesn’t have an MBA, he presumably has more than a few MBA’s working for him, and he certainly could afford to hire more. It’s pretty hard to make the case that the man himself having an MBA was utterly essential. So, while Wadhwa may well be right that having an MBA would mean that “Zuckerberg would have better understood the rules of corporate finance and capital markets,” it can hardly be argued that there was no one around with the relevant training to advise Zuckerberg on such matters.

Interestingly, Wadhwa twice mentions the importance of ethics in business, and rightly points to the ethics as being of central importance in an MBA education. But it’s far from clear just how Wadhwa thinks that is connected to the Facebook IPO having “bombed.”

Hopefully no one really thinks that getting an MBA is going to make you more ethical. If the ethics course you take during your MBA is a good one, it may do something to enrich and deepen the way you think about ethics, and to help you design and manage the kinds of systems that will help your employees act ethically. But even on the broadest and most inclusive understanding of the word “ethics,” there’s little reason to think that learning about ethics is going to make you better able to shepherd a company through an IPO. Nor is training in ethics any guarantee that individuals won’t engage in the kind of selective disclosure of information that is at the heart of the company’s post-IPO legal woes. The kind of ethics education that goes along with an MBA may well teach you more than you already knew about the nature of fiduciary duties and the importance of fostering trust, but an MBA-level ethics course is neither necessary, not sufficient, to make a business leader ethical.

The True Cost of Conflict of Interest

What does conflict of interest cost?

It was recently reported that certain employees of the Chicago Public Schools food services department were going to be required to undergo ethics training, after it was revealed that they had accepted improper gifts from contractors.

The worry, naturally, is that accepting gifts put those CPS employees into a conflict of interest, a situation in which they were trusted to make good decisions on behalf of CPS, but in which they had an ‘outside’ interest — in this case, gratitude to the gift-givers — that might reasonably be thought likely to warp their judgment. The behaviour here was more specifically a violation of the section of the CPS Code of Ethics that specifically forbids accepting gifts, but the moral root of the problem is conflict of interest.

Now, in addition to the trouble the employees are in, it’s been reported that Chicago Mayor Rahm Emanuel wants to go after two food services companies that had given improper gifts.

Just what have those companies done wrong? What’s wrong with putting someone else in a conflict of interest? I’ve argued before that we might think of this as analogous to suborning perjury. When you intentionally put someone else in a conflict of interest, it means that even if you’re not violating any duties yourself, you’re encouraging other people to violate their duties.

And the companies’ bad behaviour, here, is going to cost them. It may well cost them future contracts, but it may cost them (and other companies that want to compete for CPS contracts) more than that. It’s been reported that they may be required to provide ethics training for their employees, and hire an independent auditor to make sure they’re complying with CPS ethics standards. Neither of those things is likely to be cheap. In an industry with narrow profit margins, such additional costs could well mean the difference between black ink and red.

But the most important “cost” in this case is, of course, the loss of confidence in the CPS and its purchasing procedures. That is always the risk with conflict of interest, namely that when conflicts are accepted and fostered, rather avoided or remedied, they erode confidence in the judgment not just of individuals, but of entire institutions.

Should Penn State’s Board Resign?

In the wake of the Sandusky sex-abuse scandal the question has arisen whether Penn State University’s Board of Trustees should tender its collective resignation. And now, following the death of Coach Joe Paterno on Sunday, the question has taken on additional emotional resonance. The university’s Faculty Senate is scheduled to discuss a motion to strike an independent committee to investigate the Board’s role in the whole affair, and indeed has seen at least one motion calling for the entire Board’s resignation.

So, should the members of the Board be asked to resign? And if not, should they do so of their own volition?

To answer these questions, here are some questions that need to be considered:

Fist, did indeed the Board fail in its fiduciary (‘trust-based’) duties? It’s worth noting that the Board has been under fire from two different directions, here. Some think the Board failed in not staying sufficiently ‘on top of’ the Sandusky situation, and in resting satisfied with whatever dribbles of information the university administration saw fit to feed them. (The only detailed account I’ve read so far paints the Board in a rather sympathetic light, in this regard.)

Others think the Board failed in firing — in their eyes, scapegoating — the beloved Paterno. Both sides think the Board screwed up, but for very different reasons. Of course, both can be right at the same time. Perhaps the Board has just generally done a bad job, first by letting the situation get out of hand and then second by botching the task of responding to it. Rather than cancelling each other out, maybe these two sets of complaints just compound each other.

Next, we need to ask, if the Board failed, was it a failure of people or a failure of structure? A board, after all, is both an institutional structure and a set of people occupying that structure.

If it was a failure of structure (and, as governance expert Richard Leblanc wrote back in November, there are serious problems with how Penn State’s board is configured) then there’s little reason to think that a change of personnel on the Board is either necessary or sufficient to fix the problem. And if instead it was a failure of people, then getting rid of them all is a blunt, but perhaps effective, way to solve the problem — providing, of course, that the new people brought in to replace them are better.

Of course, the problem is that it’s difficult to distinguish between a failure of people and a failure of structure, in a case like this. Perhaps people better-suited to the job would have risen above the confines of a poorly-structured board, or lobbied to have its structure revised. Human behaviour and institutional structure shape each other.

And finally, regardless of the above questions about the sources of failure, it might be the case that the removal or resignation of the Board is necessary in order to restore public confidence. That is, even if the individuals currently on the Board are not in any way to blame, the fact that key stakeholders have lost faith in the Board might be sufficient grounds for calling for the entire Board to go. Without the confidence of key stakeholders, any Board is going to find it hard to do its job.

But then, while the current Board certainly faces challenges, so would an entirely new Board. The loss of continuity that would result from a 100% change in membership could seriously impair the Board’s functioning, and make it even more reliant on — and susceptible to control by — university administrators. There’s a good reason why well-governed boards have careful plans in place to make sure that new blood is brought in regularly, rather than en masse. In the end, it seems to me that the best prescription is this. The Board of Trustess at Penn State needs to see substantial structural change. It also needs enough new blood to restore confidence, while retaining enough of the old guard to ensure continuity. Beyond that, the Board is just going to have to do its best to muddle through whatever challenges lie ahead, with whatever strengths and limits it possesses, just like any other board.

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