Managers Have No Professional Ethics

After my interesting lunch with Rakesh Khurana (which has also been blogged by Justin Fox), I asked him by email whether business ethics have really declined over the past 30 years, or whether they're merely perceived to have declined. Next thing I know, I got back a fascinating email.

Khurana's note fits with my own experience: managers I talk to frequently say that good ethics is good business, and that if everybody acts according to a high standard, then the trust which makes any market economy possible is maximized and thereby profits are maximized too. What I have not heard is any suggestion that those who join the profession of management have a professional and ethical obligation to society as a whole, in the way that lawyers and doctors do. But Rakesh's email is worth reading in full, so here it is:

There are several citations in the book which I point to that suggest that trust in business as an institution has declined, including a Pew survey on occupational status rankings. Insofar as "business ethics", I think the question is more complicated because of the problem of unobservables. That is, as you rightly point out in your column, it is not clear whether the "discovery" rate of unethical behavior (options backdating, managing earnings, etc.) has increased or the underlying rate has increased. To get at the exact numbers, one would need some type of longitudinal data. The Aspen Institute did a longitudinal study examining MBA student attitudes and how they've changed over time. MBA students come into business schools thinking the purpose of business is a multi-plex set of goals and serves a variety of constituencies. They leave business schools thinking that the only purpose of the corporation is to maximize shareholder value (and, consequently, the only legitimate role for managers). If we believe the effort to "maximize shareholder value" leads to certain actions that are "unethical", I think a case can be made of a decline in ethics. Robert Frank also has some experimental data suggesting that the dominant economic model taught in business schools actually results in a decline in student behavior (altruism, attitudes toward cheating, etc.). But none of these studies are fully convincing.

My book however is not motivated by making a claim in a decline in business ethics in practice. Rather, it is focused on the restraints. I am not saying that "business ethics" have deteriorated per se. However natural it might be to ask how so many executives--not to mention the accountants, lawyers, money managers, and members of other such groups that have been implicated in recent corporate malfeasance--could have become so depraved, this is probably the wrong question. Since human nature does not change much from age to age, the real issue is the effectiveness of the constraints that society places on the purely selfish impulses of individuals. In response to the recent scandals, politicians and government officials have stepped in to pass new laws and create new regulations, while prominent persons on Wall Street and elsewhere in the business community have issued their own calls for reform in areas such as accounting practices and executive compensation. In this case, the focus is on the weakening of restraints that temper such behavior. My argument is that the dominant logic in business schools has changed that weaken such restraints or constraints. In particular, the loss of the professional narrative which is an identity component of constraint has been abandoned.

Let me elaborate. In the wake of the corporate scandals, several business schools have made efforts to strengthen the ethics elements of their curriculum. These efforts generally take one of three forms: consequentialist, deontological, and virtue approaches. The consequentialist approach focused on the costs and benefits of managerial decision-making. The deontological approach encourages the incorporation of notions like duties, justice, and rights into managerial decision making. Virtue approaches encourage students to focus on character and personal integrity in managerial decision making. The pedagogical method underlying these approaches encourages students to reflect on their own personal values and then decide on a framework of ethical decision-making consistent with these personal values. Without intending to demean these approaches to what is a complex issue, such an approach to ethics is qualitatively different from professional ethics. Unlike ethical issues that deal with individual decision-making and individual conscience, professional ethics operate at an institutional level. Professional ethics are animated by a moral concern for the specific discipline and the set of obligations that practitioners owe to the larger society and to their fellow practitioners. The ideology underlying professional ethics is that the behavior of the professional must be guided by a devotion of using his or her knowledge and skills to further the public good. It is against this public good that the professional’s actions and decisions must be evaluated. It is at an institutional level that I think one can claim a deterioration in values.