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Can Business Schools Make Companies Ethical?

In the third part of its “The Business of Change” series, Capital & Main looks at how business schools are teaching ethics and corporate social responsibility.

Can Business Schools Make Companies Ethical?
[Photo: U.S. Air Force Staff Sgt. D. Myles Cullen/Wikimedia Commons]

Capital & Main is an award-winning publication that reports from California on economic, political, and social issues.

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Corporate misanthropes are nothing new, but Martin Shkreli is a special case. He became one of the most hated men in America for awhile when he gained the rights to a lifesaving drug and then boosted the price by 5,000%, basically because he could. That wasn’t illegal, just casually cruel.

Shkreli got an undergraduate business degree at Baruch College and some see him as a model for millennials to learn what not to do in business. But what lessons do business students learn from the “Pharma Bro” or corporations that behave badly?

Will in-depth analysis of Uber’s hiding a massive data breach teach newly minted MBAs to stand up for what’s right in their first jobs? If they’re faced with pressure to produce sales at all costs, will they succumb to temptation to follow the path of Wells Fargo and create false customer accounts?

Questions about what business students are learning usually emerge after egregious examples of malfeasance. In 2008 and 2009, people wondered whether business schools should have borne some of the blame for ethical lapses at collapsing firms. Similar questions arose around the bankruptcies of Enron and WorldCom earlier that decade, and a recent book looks back at the role Harvard Business School played in the growth of corporate greed in the 1980s.

Business students today are definitely more likely to at least hear discussions about corporate social responsibility and ethics mixed in with classes on finance and management. Corporate social responsibility generally means actions taken by companies to measure, and take responsibility for, their effects on the wellbeing of the environment and the larger society.

This shift is being driven in part by the students themselves. A survey by Deloitte found millennials are generally pro-business, but think big corporations could be doing more to address society’s ills.

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“It’s become a foundational expectation for what schools do,” says Dan LeClair, an executive vice president with the Association to Advance Collegiate Schools of Business, the main accrediting organization for business schools. “Business schools are starting to realize that their purpose in education is not just to solve problems for business, but to solve problems for business in the context of society.”

In its accreditation standards, LeClair’s organization notes business schools must “demonstrate a commitment to address, engage and respond to current and emerging corporate social responsibility issues.” Those include “diversity, sustainable development, environmental sustainability and globalization of economic activity across cultures.”

Paul Adler, however, rejects the idea that this generation is more socially conscious than previous ones. A professor of management and organization at the University of Southern California’s Marshall School of Business, Adler sees several forces at work, including a challenging labor market that makes it more difficult for college graduates to find a path in this world.

“They’re bringing some degree of frustration and some eagerness to find a way to do good through the vehicle of business,” he says.

Also, the MBA has become the de facto training ground for those who want to manage anything, he says, and that’s brought people into business schools who in the past might have pursued something like a public administration degree.

“In many ways, this reflects the rise of the market as an ideology in our society today,” Adler says. “The legitimacy of the nonprofit sector or public sector as a vehicle for social change is much less today than it was 40 years ago, so people are desperately looking for ways for the business sector to become a vehicle for positive change.”

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Adler is extremely skeptical of that possibility.

“There are very, very few of these for-profit corporations that really have made of their [corporate responsibility] functions anything more than window dressing,” he says.

Teaching What It Means To Be A Responsible Leader

And yet top schools have moved heavily into this space. The University of Pennsylvania’s famed Wharton School (graduates include Elon Musk and J.D. Power III, and it boasts a long list of accomplished business leaders) is typical. There, all MBA students must take either Responsibility in Business or Responsibility in Global Management — courses that explore, among other things, students’ personal conceptions of what it means to be a responsible leader through negotiation simulations, group projects and discussions designed to help them reflect on their own values and behavior. Undergrad business majors must take one of two courses on legal studies and business ethics, and the school’s social impact initiative offers courses, fellowships and research on impact investing (the idea of “doing well by doing good”).

For their part, Columbia University’s MBA students have three class sessions on ethics as part of their orientations. They focus on value-based leadership, corporate social responsibility and corporate governance, says Bruce Kogut, director of the school’s Sanford C. Bernstein & Co. Center For Leadership and Ethics. And at Harvard University, all MBA students must take the Leadership and Corporate Accountability course in their second semester, to learn about the systems that leaders use to promote responsible conduct by companies and their employees. They use case studies to explore ethical issues at actual companies.

“Rather than presenting the students with clear-cut, black and white issues, the course focuses on the sort of gray issues that come across the transom of decision-making executives on a regular basis,'” says a Harvard spokesman.
Perhaps not surprisingly, given its liberal Bay Area location and Silicon Valley connection, Stanford University has been ahead of the curve on corporate social responsibility and environmental sustainability (practices and decisions designed to protect, rather than harm the natural world).

“We’ve basically been doing it since the 1960s,” says Neil Malhotra, director of Stanford’s Center for Social Innovation.

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The center began as the Public Management Program, launched by Dean Arjay Miller, to develop business leaders who could address social challenges. There are now over 30 classes related to social innovation, Malhotra says, and a required class on business ethics.

“There Wasn’t Any Discussion Of These Issues At All”

It’s all a big shift from the 1980s, when Harry Van Buren was getting his undergraduate degree. Today he holds the Rust Professorship in Business Ethics in the Anderson School of Management at the University of New Mexico.

“There wasn’t any discussion of these issues at all,” Van Buren says. “I took the very first business ethics course Syracuse University ever offered in 1989.”
An ethics course has been required for UNM undergraduates and graduates for more than 20 years, he adds, incorporating issues around social responsibility, sustainability, ethics and diversity. Students must write analyses of business decisions that address the processes and outcomes from those decisions in ethical terms.

The Anderson School also houses the Daniels Fund Ethics Initiative, which serves as a resource on business ethics education for higher education institutions across New Mexico.

“I think students gain an appreciation of how the decisions they make have implications, positive and negative, for stakeholders,” Van Buren says, referring to customers, employees, government and society at large, as opposed to only focusing on shareholders with a financial stake in a company.

At the University of Colorado, Boulder, the Leeds School of Business has an entire Center for Education on Social Responsibility. Much of the growth toward a social responsibility focus was driven by the Leeds family, says Mark Meaney, the center’s executive director.

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“They wrote into the agreement that all business students – undergraduates and graduates – enjoy an immersive experience in ethics, social responsibility, diversity and sustainability,” he says.

Each freshman must take a course called the World of Business that incorporates those four pillars, and as sophomores they must take courses in ethics and social responsibility.

About 10 percent of the students pursue a certificate in socially responsible enterprise; MBA students can graduate with an emphasis in sustainable operations. Meaney is also the North American chair of the Principles of Responsible Management Education — an initiative involving the United Nations and about 650 business schools worldwide designed to create more responsible managers. All signatories must submit a report every two years outlining their progress on those principles; the organization has delisted schools from PRME membership for not following that requirement.

A survey of students at schools that are signatories to the PRME principles found many students want more emphasis on issues like ethics and corporate responsibility. About 45 percent felt their schools were not doing enough in this area and 28 percent wanted more coursework on topics such as ethics and environmental sustainability.

The study’s author, Debbie Haski-Leventhal of Australia’s Maquarie University, found that 19 percent of responding students were willing to sacrifice future salary to work for an employer who cares about employees, the community, the environment and ethics.

“Students are saying clearly and loudly that their business schools should be doing more in this space,” she says. The question is what happens after graduation? The skeptical Paul Adler recalls how a former student went to work in supply chain management for a large corporation. After the 2012 Tazreen Fashions factory fire in Bangladesh, her company first denied any of its products were manufactured there, but eventually it came out they were.

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“So there was a big discussion in the organization — ‘We have to do something about this,'” Adler says. “She assumed there would be some kind of action.”

There wasn’t, and when the Rana Plaza building collapsed a year later, killing more than 1,000 workers, it became clear the company’s suppliers were still involved in unsafe factories in the country. So, disgusted and demoralized, she left.

“She was with a whole group whose mission was to ensure suppliers were behaving according to the company’s code of conduct, and [was] constantly overruled by the finance guys. I don’t think that’s an unusual experience.”

Adler adds that unless you have funders like the Leeds family who want it, or companies demanding it when they come recruiting graduates, or lawmakers pushing for it at public schools, then fundamental change won’t happen. But can business schools make someone ethical? Henry Mintzberg, Cleghorn Professor of Management Studies at McGill University in Montreal, has argued that the very idea of the MBA is flawed. He contends getting a degree from a prestigious school actually fosters a certain hubris that’s unjustified and often causes managers to be disconnected from what they’re managing, and that can be destructive. He also doubts that debating ethics in a classroom prepares students to face real ethical quandaries in the work world.

If Not Ethical Behavior, At Least Awareness

The University of New Mexico’s Van Buren says business schools can’t make someone ethical, but they can expose them to important ideas.

“They can help students be aware there are social expectations facing businesses, and indeed all organizations,” he says. “And this sort of teaching challenges the shareholder-centric paradigm that typifies a lot of business school coursework.”

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One recent graduate from UNM’s business school, Ronak Bhatt, is working as a controller for a health company and says his education served him well.
“What I’m carrying forward into my profession and every interaction I’m having is the ability to think [things] through: How is my decision going to impact all stakeholders and what are the negative external consequences we didn’t see?”

Some graduates find the sweet spot of social responsibility by simply doing their own thing.

When she was at the Harvard Business School, Sarah Endline was involved with Net Impact, which brings together students interested in how to make positive impacts on society. She graduated in 2001 and went to work for Yahoo, but eventually launched her own company, Sweetriot, which promises to fix the world through chocolate with a commitment to fair trade and supporting nonprofits.

“The ideals of Net Impact apply to any industry – being a great team player, impacting the community, caring about the world around you,” she says. “I don’t consider that just one industry.”

Debbie Haski-Leventhal remains optimistic about change in business schools and in business.

“I don’t know of any perfect company,” she says. “But I see more and more companies taking some of these issues very seriously.”

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Change, she adds, tends to happen slowly.