The Challenge of Teaching Ethical Decision-Making to Current and Future Managers

Despite the numerous high-visibility examples of ethical lapses in business and industry over the past decade, when someone raises the topic of teaching ethical decision-making, or even the idea of business ethics in general, it often “tends to bring up cynicism, righteousness, paranoia, and laughter (McDonald & Zepp, “What Should Be Done? A Practical Approach to Business Ethics”, Management Decision, 28, 1). This assertion generally remains true today, despite years of varied research that shows even if catastrophic public events in the mold of Enron, WorldCom, Global Crossing, and TYCO do not occur, the impact of poor ethical standards significantly impact day-to-day business operations and long-term success

; for example, in a number of studies reported in a Josephson Institute report:

• In a 2003 study by Wirthlin Worldwide, 80% of people indicated the decide to buy a firm’s goods or services at least partly based on their perception of that firm’s ethics;
• Long & Rao found that investments in firms judged as unethical earn abnormally negative returns for prolonged periods (“The Wealth Effects of Unethical Business Behavior”, Journal of Economics & Finance, Vol. 19, #2);
• The Association of Certified Fraud Examiners, in a 2002 report, found that employee fraud costs American firms about $600 billion a year, or 6% of the GDP, while Ernst & Young reported in their CPA letter that same year that employee fraud would drop if managers were better role models, ethically speaking;
• Webly & More (“Does Business Ethics Pay?:Ethics and Financial Performance”, Institute of Business Ethics, London) found that companies operating in the absence of a code of ethics generate significantly less in Economic Value-Added (EVA), Market Value-Added (MVA) than comparative firms of the same type with an active code, as well as reflecting more volatility in their P/E than those with a code;
• The Online Ethics Center for Engineering and Science at Case Western Reserve University reported that when unethical behavior is common, sabotaging behaviors among employees (such as under-delivering on commitments, budget-twisting, fact-hiding, goal-lowering, and scapegoating) are more likely to worsen.

Typically, one would think that with these kinds of consequences, effective training of supervisors, middle- and upper-level managers in the corporate world would abound. And this conclusion would be generally incorrect. Many of our students in our Engineering Management program who complete our course in Ethical Decision-Making indicate that they experienced ‘Ethics Training’ in their current or past firms, and that it was poor, or worse than worthless, in that it was laughable. They cite having to review business scenario after business scenario, followed by having to select the ‘correct action’ among a series of multiple choices, with the obvious choice requiring little thought or consideration. In fact, in many of these scenarios, the choices arise from decisions as to whether to commit an illegal act; which teaches nothing valuable about ethical decision-making.

Perhaps the dearth of training in making ethical decisions in business and industry is because our managers have already had this type of education in their business or management programs during their college or university experiences. Doubtful. Even if students in business or management programs are fortunate enough to experience an ethics course, it is often in the nature of a philosophy class, woefully and “conspicuously missing the ‘how to’ in actually putting ethical goals and theories into practical action” (Wong & Beckman, Journal of Business Ethics, V11, 173-178). This is a significant failure, because, as suggested by Cynthia Finelli in the Michigan Engineer in Fall, 2007 (www.engin.umich.edu), our students, especially “engineers … need a moral center, …so it’s up to educators to incorporate the development of ethical decision-making skills into curricula. That, in great part, will determine the course of business and commerce”.

The natural questions arising from these observations is: ‘If unethical behavior in business and industry can lead to poor financial performance at best, and bankruptcy at worst, why is there such little training for managers in ethical decision-making? And where training exists, why is it so ineffective?’. The answer to these questions generally apply to some variation of one of three categories:

1. Firms rely on existing Codes of Conduct/Programs to assure ethical behavior, and as a result provide virtually no training at all. This is unfortunate, since research is not definitive on whether codes of conduct are effective; that if and when they are effective, it is in indirectly versus directly affecting employee behavior; and that while effective Codes and Programs can make a positive difference, “where employees perceived that the ethics/compliance program was oriented toward protecting top management from blame, all of the outcomes were significantly more negative” (Trevino et. al. “Managing Ethics and Legal Compliance: What Works and What Hurts”, California Management Review, V14, #2; emphasis mine).
2. Firms as well as institutions of higher education, notably schools of business, often provide little or no focused education in ethical decision-making because they believe it is unnecessary, having fallen into the trap of believing one or more of the Myths about business ethics as suggested by Carter McNamara (Complete Guide to Ethics Management: An Ethics Toolkit for Managers). These include
   • “Business ethics is a discipline best led by philosophers, academics, and theologians”;
   • “Business ethics is superfluous – it only asserts the obvious: ‘do good!”;
   • “Business ethics can’t be managed”;
   • “Business ethics and social responsibility are the same thing”;
   • “Our organization is not in trouble with the law, so we’re ethical”; and
   • “Managing ethics in the workplace has little practical relevance”.
3. Training in business and industry, and in higher education, is typically ineffective because the focus is wrong-headed. Specifically, they focus on ethical issues associated with managerial mischief (Madsen & Shafritz, in Essentials of Business Ethics, define this as “illegal, unethical, or questionable practices of individual managers or organizations), which plays into the myth of simply telling people to do the ‘right thing’. This training is, arguably, too late. Rather, training in this area should relate to the ethical dilemmas associated with the moral mazes managers will face; the ‘grey zone of decision-making, where there is no clear ‘right and wrong’, and all the choices are legal. These decisions can relate to interactions with suppliers, customers, employees and subordinates, regulatory bodies, and governmental agencies, where Human Resource issues, privacy issues, customer confidence issues, and conflict of interest issue abound. Studying the ethical nature of a decision such as: ‘Should I engage in insider trading?’ (managerial mischief) is not nearly as useful as:

‘I own a consulting company, and have recently discovered that one of my professional consultants is having a personal intimate relationship with an employee of my client; a client who currently accounts for 1/3^rd of our gross billings. Further, the client’s employee is the site manager who determines how much of my consultant’s time is required by my client from year to year. I understand that there is a conflict of interest here, but is it mine? Do I have any ethical dilemma at all? Should I notify the President of my client’s firm? What are my ethical responsibilities? Would I come to the same decision and action whether my consultant is a man or a woman?’

This (an actual case study from business – ask me how I know) is representative of the type of moral maze issues managers are likely to face, which have no ‘just do the right thing’ answer.

In our Ethical Decision-Making course in the EMP (which is also offered to business and industry as a focused seminar through the Center for Statistical Solutions), we work with moral maze case studies such as the example above; teaching students to utilize step-by-step methods to address ethical dilemmas, such as the process suggested by Laura Nash (‘Ethics Without the Sermon’, Harvard Business Review, 59) as presented below:

1. Have you defined the problem accurately?
2. If you stood on the other side of the fence, how would you have defined the problem?
3. How did this situation occur in the first place?
4. To whom and to what do you give your loyalty as a person, and as a member of the corporation
5. What is the intention of this decision
6. How does your intention compare with the probable results?
7. Whom could your decision or action injure?
8. Can you discuss the problem with affected parties before you make your decision?
9. Are you confident that your position will be as valid over a long period of time as it seems now?
10. Could you disclose without qualm your decision or action to your boss, your CEO, the board of directors, your family, society as a whole (the ‘60 Minutes Test’);
11. What is the symbolic potential of your action if understood? Misunderstood?
12. Under what conditions would you allow for an exception to your position?

In our course and seminar, we employ a combination of real-world case studies from business and industry related to ethical dilemmas from the moral maze, with tested procedures designed to assist managers in making ethical decisions. These case studies are accompanied by providing an understanding of (but not a focus on) prescriptive approaches to ethical decision-making such as consequentialism / utilitarianism, rights-based, and virtue-based theories; but the primary focus is real-world decisions associated with moral maze issues. In this way, we can provide our students, and current and future managers, with those real-world tools that can be employed in making ethical and effective decisions on a day-to-day basis.