WSJ- Study of Ethics

By BETH GARDINER - Wall Street Journal 4-14-10

The study of ethics, once an academic orphan, is grabbing a more central role at many business schools since the financial crisis shone a spotlight on the damage that can be done by irresponsible business practices and an exclusive focus on the bottom line.


Critics have suggested that B-schools bear some responsibility for the culture of excessive risk-taking that helped trigger the credit crunch, saying they failed to teach students that there is more to business than just making money. Many schools have responded by re-examining their priorities, and giving ethics more classroom time, either in modules of its own or incorporated into key classes like strategy, finance and accounting.

Faculty are defining the subject broadly, arguing that ethical business practice is not just about refraining from cheating and corruption, but recognizing that a company has responsibilities beyond its shareholders' wallets—to employees, community, customers and the environment.

Schools may have erred in the past by assuming students were sufficiently aware of the importance of responsible behavior and failing to give it enough emphasis in the classroom, says Caroline Wang, who teaches a new, mandatory course on responsible leadership and ethics at the Hong Kong University of Science and Technology Business School.

By focusing on profit without talking enough about a company's wider responsibilities, "we gave people the impression that only profit counts," she says. "We must bring out the other elements."

Ms. Wang, whose course is required of both M.B.A. and executive M.B.A. students, takes a novel approach, using examples from outside the business world to demonstrate the power of strong leadership. She sees good leaders as the linchpin of ethical businesses, and holds up Antarctic explorer Ernest Shackleton and Anne Sullivan, who taught Helen Keller, as models.

Although Shackleton's 1914-1916 mission failed when his ship the Endurance became trapped in ice, his success in keeping his crew safe and undivided by infighting holds valuable lessons in responsibility for everyone who manages people, Ms. Wang tells students. At the heart of Shackleton's approach was his honesty in warning potential crew members of the hardships of their mission before it began, she says.

"He set the right expectations, and that really helped him to manage the morale when they did encounter difficulty," she says. "The majority of entrepreneurs fail, but if they are good leaders people follow them again, and eventually I think they will succeed with a group of passionate people."

Many B-schools boosted their offerings on ethics and responsible business practice several years before the financial crisis, after the scandals at companies like Enron and WorldCom, says Huw Morris, chairman of the Association of Business Schools in London.

Businesses have let schools know it matters.

"Companies, when they used to come to the school, they used to start with 'We want talented people,' but now they start their speech with 'We need people with very good ethics,' and after that they talk about" skills, says Pascal Krupka, M.B.A. director at Rouen Business School in France.

In a survey by the London-based Association of M.B.A.s and northern England's Durham Business School, B-school administrators rated ethics the most important subject for students in the current business climate. Seventy-nine percent of schools and 59% of alumni questioned said M.B.A. programs should teach what's called a stakeholder approach—focusing on companies' responsibilities to communities, customers, employers and society at large—rather than encouraging students to think only of their obligations to shareholders.

Despite the increase in interest, there are pressures on schools to produce students who make money their top priority, particularly from school rankings that are based partly on how much salaries increase after graduation, Dr. Morris says.

"Built into those structures are incentives to behave unethically," he argues.

The increased focus on ethics is not just happening in the West.

Students in China are more interested than ever in issues like social responsibility and sustainability, says Charles Chen, director of executive M.B.A. programs at the China Europe International Business School, or CEIBS.

"Although the economy has been in a boom, pollution is terrible, and people can see that if we don't do anything about it, we will be hurt," he says. "If the corporations do not act responsibly, there's no way the economy can keep on growing."

Dr. Chen says he talked to students in one recent executive M.B.A. class about what happens when powerful companies push their suppliers too hard in an effort to maximize profits, citing as examples Toyota's recent quality problems and the toxin-tainted milk that sickened about 300,000 babies in China in 2008 and 2009.

"If you have a dominant position in a supply chain, you could squeeze upstream and downstream to the limit, but there is a point beyond which it will break up," he says.

At Rouen, Mr. Krupka has found an unusual way to engage students in the subject. He regularly invites Benedictine monk Didier Le Gal, who comes in traditional robe and sandals from a nearby monastery, to his classes. Dom Le Gal, whose abbey operates a successful document-scanning business—an outgrowth of the monks' ancient skill at copying books by hand—talks about ethical ways to manage people and make money.

Dom Le Gal brought a book by St. Benedict about "how to manage a monastery, how to manage people, how to make decisions," Mr. Krupka recalls. "He said in this book, you can replace brothers with colleagues, you can replace the word priest with leader," and its lessons are relevant for modern executives.

Dr. Morris noted that the teaching of ethics often comes into fashion during economic downturns and after scandals like the junk bonds of the 1980s. "This has happened before," he says. "I suppose we'll have to wait and see how long our collective and corporate memories will be" this time.