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Why teach ethics? in business schools?


Why teach ethics? in business schools? W. Guth New York University Enron, WorldCom, Global Crossing, Kmart, Polaroid, Arthur Andersen, Xerox, Quest Increasingly ... – PowerPoint PPT presentation

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Title: Why teach ethics? in business schools?

Why teach ethics?in business schools?
  • W. Guth
  • New York University

Enron, WorldCom, Global Crossing, Kmart,
Polaroid, Arthur Andersen, Xerox, Quest
  • Increasingly frequent images of disgraced and
    sometimes handcuffed corporate executives appear
    on television screens and in major newspapers
  • Whos to blame? Check one!
  • Mom and Dad?
  • Priests, Rabbis, Mullahs?
  • Primary and secondary school systems?
  • Business schools?
  • The business system in the U.S.?
  • Materialistic culture in the U.S.?
  • Self-interested human nature?
  • All of the above?

Market Failure!
  • According to economic theory, resources in any
    economy will be allocated fairly and efficiently
    by markets
  • SO LONG as those markets function PROPERLY i.e.,
    transparently, competitively, non-coercively,
    with price as the measure of the exchangeable
    value of goods
  • Principal causes of market failure
  • Monopoly power
  • Public goods
  • External effects
  • Information asymmetry
  • High transaction costs in confronting abusers
  • High costs of monitoring behavior under
    conditions of moral hazard in contracts

When markets fail
  • Managers still have to make decisions about how
    to use the resources of their companies
  • To protect the interests of the larger society,
    laws may be passed to guide/punish managerial
  • In the absence of relevant laws, managers can
    attempt to apply ethical analysis to guide
    decision-making towards integrating the interests
    of the larger society with the interests of the
  • In the absence of relevant law and/or ethical
    analysis, managers will be guided by their
    self-interested human nature

Self-interest and economic liberalism
  • It is not from the benevolence of the butcher,
    the brewer, or the baker that we expect out
    dinner, but from their regard to their own
    interest. We address ourselves not to their
    humanity, but to their self-love, and never talk
    to them of our own necessities, but of their
  • Adam Smith, The Wealth of Nations, 1776

But, must self-interest be constrained?
  • One individual must never prefer himself so much
    even to any other individual, as to hurt or
    injure that other, in order to benefit himself,
    though the benefit to the one should be much
    greater than the hurt to the otherthe man within
    immediately calls to himthat he is no better
    than his neighbor, and that byunjust preference
    he renders himself the proper object of contempt
    and indignation (and he deserves punishment) for
    having violated one of those sacred rules, on the
    tolerable observation of which depend the whole
    security and peach output of human society
  • Adam Smith, The Theory of Moral Sentiments, 1759

The Corporation flawed institutional character?
  • Corporate social responsibility is the new creed
    of business leaders today, a self-conscious
    corrective to earlier greed-inspired visions of
    the corporation. Despite this shift, the
    corporation itself has not changed. It remains,
    as it was at the time of its origins....,a
    legally designated person designed to valorize
    self-interest and invalidate moral concern. Most
    people would find its personality abhorrent,
    even psychopathic, in a human being, yet
    curiously we accept it in societys most powerful
    institution. The troubles on Wall Street today,
    beginning with Enron..., can be blamed in part on
    the corporations flawed institutional character,
    but the company was not unique for having that
    character. Indeed, all public companies have
  • Balkan, Joel, The Corporation The Pathological
    Pursuit of Power and Profit, (Free Press, 2004,
    p. 28)

Business Prudence and Business Ethics
  • The prudent manager seeks to maximize the
    long-run risk-adjusted value of the firm to its
  • The ethical manager avoids violating the rights
    of other parties in the economy.
  • Any decision will be prudent, ethical, both, or
    neither, as follows

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Ethics/Prudence Decision Types
  • Bad Decision Violates a partys rights (e.g.,
    fraud) and the firm is found out and punished
    (e.g., Prudential Securities 1.4 billion
  • Good Ethics is Good Business Honoring rights
    can be linked to longer run shareholder value
    (e.g., building reputation and loyalty).
    Sometimes rhetorically embellished as
    enlightened self-interest.

Ethics/Prudence Decision Types (Contd)
  • Exploit Market Failure Violates a partys
    rights, but there is little risk of retaliation
    (e.g., aggressive billing hours, churning
    accounts, skimping on workplace safety), so on a
    risk-adjusted basis shareholders interests are
    served, but at the expense of someones rights
  • Exercise Moral Restraint the market fails, but
    instead of exploiting it (even with low risk of
    getting caught), the decision respects the rights
    of affected parties, thereby lowering returns to
    shareholders Often confronts, all our
    competitors are doing it, so we have to do it
    e.g., bribery in foreign countries)

Applying ethical theory Can it help?
  • Ethical relativism
  • Individual
  • Cultural
  • Normative ethics
  • Teleological
  • Evaluates outcomes for individuals or groups,
    rather than the moral quality of the actions
  • Deontological
  • Defines moral duties that restrain certain
    actions irrespective of the value of the

Teleological theories of ethics
  • Egoism a person (corporation) ought to do
    whatever is in his/her (the corporations) best
    interest (which is also the best interest of
    its shareholders)
  • Utilitarianism one ought to seek to produce the
    greatest possible balance of good over evil, or
    the least possible balance of evil over good, for
    all who will be affected by ones actions the
    stakeholder versus stockholder approach to
    management decision-making

Deontological theories of ethics
  • Kantianism moral behavior is a matter of
    holding, without exception, to certain principles
  • Categorical imperatives
  • A person should be willing to live in a world in
    which the action they chose to take would be
    repeated for the same reasons whenever the same
    situation arose, even if he/she happened to be on
    the receiving end of such action
  • A person may not use other human beings as means
    to achieve his/her own purposes
  • The Mirror Test at GE an application of Kants
    categorical imperatives?
  • Contractarianism (Hobbes) social exchange
    contracts are morally binding, even if not
    formally discussed and signed (Japanese approach
    to business contracts)

Modern Normative Ethics
  • NORM neutral, omni-partial rule-making-an
    attempt to integrate teleological and
    deontological ethical theory
  • Ronald Greene 1994
  • Integrative Social Contracts Theory
    differentiates between macro and micro social
    contracts and proposes a method for integrating
  • Thomas Donaldson, Thomas Dunfee 1998
  • Normative vs empirical research in ethics

Purposes of Teaching Ethics in Business Schools
  • To introduce students to a broad range of
    contemporary non-market issues encountered by
    business professionals
  • To develop a set of analytical perspectives for
    making judgments when such issues arise
  • To illustrate how the legal system is used to
    redress market failures
  • To examine the role of ethical norms and
    reasoning in resolving non-market managerial
    issues, and in establishing standards of
    professional responsibility

One Approach
  • Session 1 Market Failure, Law and Ethical
  • Session 2 - Truth and Disclosure
  • Session 3 - Gifts, Side Deals, and Payoffs
  • Session 4 - Whistle Blowing and Loyalty
  • Session 5 Agency and Fiduciary Duty
  • Session 6 Trade Secrets
  • Session 7 Control by Law
  • Session 8 Moral Standards Across Borders
  • Session 9 Product Liability
  • Session 10- Sales and Marketing
  • Session 11- Insider Trading
  • Session 12- Workplace Rights
  • Session 13- Right to Privacy
  • Session 14- Responsibility to Stakeholders
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