Acton Commentary

The Ethical Challenge for Business


The year 2002 will be memorialized in MBA programs around the country as a year of corporate mendacity and corruption. Discussed in class after class will be the shocking market meltdowns of one-time high flyers like WorldCom, Enron, Global Crossing, and Adelphia. Also discussed will be the regulatory fines hitting Wall Street, for allegedly misleading investors, that could total $1 billion by the time it’s over.

Not only will the financial and technical management lapses be discussed, but all these cases, along with the famous case of IMClone and Martha Stewart, will be centerpieces of business ethics classes as well. What students learn from these cases will inform the next generation of business leaders about the right and wrong of commercial activity.

What ethical lessons will the students take from these class discussions? They will certainly understand the details of each case, and the range of opinion out there on how each case was treated by the press and by regulators. In fact, such case studies are the bread and butter of all business ethics classes. The case is presented, the ethical issues identified, and discussion ensues about corporate responsibility to stockholders and the community at large.

The conclusions produced by this mode of pedagogy will likely be murky. Yes, the students will be told that corporations must manage assets professionally and transparently, be fair to employees, and be environmentally conscious. Who doesn’t agree that corporations must not pursue profit at the expense of justice and must not attempt to defy regulations designed to protect the public? Corporations must be as attentive to the needs of the community as they are to the demands of the bottom line.

There is nothing inherently objectionable about this familiar litany, but it is lacking in an important respect: it deals with the ethics of a corporation as if they were a special mode of behavior rather than an extension of personal and individual ethics. In fact, the subject of individual ethics is so dicey in these days of relativism and positivism that the subject of personal morality is not likely to come up at all in discussions of business ethics.

The days leading up to Christmas—the main commercial period of the year—are also a season imbued with religious significance, an apt time of renewed fidelity to first principles and of how to conduct one’s life both privately and publicly. How do the above vague postulates help in the practical conduct of business life? What grounding do they have in a fixed standard of right and wrong?

Most discussions of business ethics these days are replete with political overtones. It is true that profits should not be pursued at the expense of justice, but what does that mean in practice? Does it mean that a corporation must make donations to guilt-inducing groups that favor political manipulation of business? Do the demands of justice require that the corporation employ a portion of its assets in pursuit of politically correct outcomes? Some say so.

Consider the work of the Aspen Institute and the World Resources Institute, with their report “Beyond Grey Pinstripes.” It is an effort to ensure that MBA programs incorporate social and environmental concerns in their ethics classes. The goal is to make “social impact management” central to ethics classes. Business schools can do this by “bringing consumer activists, institutional shareholders, socially responsible investors, and industry and NGO representatives into the classroom,” and “require students to make decisions in scenarios where the population is impoverished,” as well as “conduct research on different cultures and customs.”

Aside from the fact that bringing someone from Ralph Nader’s organization in to lecture is not likely to do much for the personal ethics of managers, the language of such programs show that they are not really about ethics and morality at all. They are not virtue-based programs, and thus will not prevent fraud, deception, or any other kind of dishonesty in business. Instead, this language is all about politics of a certain bent, the kind that favors curbing free enterprise through regulation and pressure-group agitation.

To confuse this political agenda with authentic ethics is not only an intellectual error. For students, it breeds a kind of cynicism that one’s moral obligations concerning business can be discharged by adhering, or pretending to adhere to, a certain brand of left-leaning politics. In business life, we are led to believe, one’s moral obligations can be discharged by donating to the correct causes. Indeed, the World Resources Institute/Aspen Institute effort itself is supported by large corporations such as American Express, AT&T, Citigroup, Prudential, and Alcoa, among others.

Students and the general public have the right to ask: “what does any of this have to do with the traditional idea of ethics, which is all about precise moral rules that bind individual behavior?” What is the fear of applying personal morals to the unique circumstances of commercial life? In the current cultural setting, ethical behavior requires no fixed rules concerning right and wrong.

Students are getting the message. A poll commissioned by the National Association of Scholars, and conducted by Zogby International, asked 400 college seniors what their professors have taught them concerning right and wrong. Only one quarter said that “there are clear and uniform standards of right and wrong by which everyone should be judged,” while three quarters said that right and wrong depends “on differences in individual values and cultural diversity.”

When the students were asked about the ethical priorities of business, the most common answer was that business should recruit “a diverse workforce in which women and minorities are advanced and promoted.” Next in line on the list of priorities chosen by students: “minimizing environmental pollution,” followed by “avoiding layoffs by not exporting jobs or moving plants from one area to another.” Meanwhile, only 23 percent thought that ethics had anything to do with accurate financial statements.

This poll and the current trends in publishing, combined with real-life business scandals this year, suggest that it is time for a return to first principles; principles not of political fads but of something more enduring. Business managers need a foundation in fundamental moral postulates, including the prohibitions against theft and fraud, the classical and Judeo-Christian table of vices and virtues, the Golden Rule to treat others as you wish to be treated, the Pauline Principle that “one may not do evil that good may come” (Romans 3:8), which applies even in a stock-market boom.

The reassertion and discussion of first principles, fostering a virtue-based business ethics approach, would provide far more of a moral education to future business leaders than all the case studies and rap sessions that define the current “business ethics” climate.

If we are to learn anything from the ethical lapses of business this year, it should be that the Judeo-Christian moral code needs to be retrieved, not reformulated, much less wholesale politicization. Old truths need to be spoken into new contexts, remembering that the basic principles of right and wrong are discovered, not invented. Nor do they change based on circumstance or popularity. If this lesson is not learned from the corporate scandals, we cannot expect the moral standing of business, that activity that most people spend much of their time occupied with, to achieve a level worthy of human beings and a civilized culture.