Pillars of Virtue

How much can an ethics professor realistically do to turn out graduates who will bring strong moral values into the corporate world?
Pillars of Virtue

The ongoing rapid-fire eruptions of atrocities in financial systems, from subprime mortgages to leveraged derivatives, make the misdeeds of Ken Lay and the Enron era seem faraway and quaint. Throughout the entire period from Enron’s collapse in 2001 through the market’s turmoil in 2009, the talking heads on the networks and cable channels have been issuing solemn calls for business schools to place a greater emphasis on ethics in the curriculum.

One might think that, as a professor of philosophy who teaches business ethics in an MBA program, I would welcome these calls. After all, they result in greater prominence for the discipline and those who teach it. But my response is more conflicted and more complex. Are ethics professors the right people to ensure that future business executives operate out of a sense of virtue instead of a habit of vice?

Our cultural attitudes about professors, I believe, are deeply ambivalent. In the popular media, professors are typically portrayed as intelligent and likeable, in a bumbling sort of way. Picture first Fred MacMurray and then Robin Williams as “The Absent-Minded Professor.” Picture first Jerry Lewis and then Eddie Murphy as “The Nutty Professor.” Sometimes the cultural attitude gets edgier. Recall Governor George Wallace’s reference to “pointy-headed intellectuals who can’t park their bicycles straight.” Remember former vice president Spiro Agnew channeling Pat Buchanan as he derided intellectuals as “nattering nabobs of negativism.” This was uttered, of course, before he was compelled to resign for failing to pay income tax—on bribes that he had extorted.

And yet, when pundits call on professors to place a greater emphasis on ethics, it’s clear that they believe the professoriate is so powerful that it can prevent corruption in business. Not only that, when business executives behave badly, these critics claim that business schools—and particularly their ethics professors—have failed. That’s quite a harsh sentence to pronounce on supposedly amiable, bumbling academics.

As a professor of business ethics, I’d like to make it clear what I cannot do, as well as what I can do. I’d also like to explain what prevents me from doing even more.

What I Cannot Do

Let us first agree that individuals’ actions arise from their values. Perhaps my role as ethics professor is to instill values.

And perhaps not. My MBA students have already earned undergraduate degrees and typically have years of experience in the workforce; even my undergraduates tend to be in their twenties. These adults arrive on the first day of class with a well-entrenched set of values that were instilled long ago by parents and siblings, teachers and religious figures, Scout leaders and athletic coaches, peers and heroes. The timeframe for instilling values has passed.

Perhaps my role as ethics professor is to reform student values. But such a goal presumes that students have acquired the wrong values from their parents and their other role models, and that I am just the one to judge those values as flawed and to correct them.

This approach is doubly problematical. First, the presumption often will be false. Although not formally educated in moral decision making, most of my students have acquired a quite admirable set of values. Second, if I were to begin a course with the announcement that students’ values are in need of reform, or even to evince that attitude, I would guarantee the failure of the course. My efforts would be met with resentment and stony resistance.

Then, if my job is neither to instill nor reform student values, what am I to do?

I can tell you what I cannot do. I cannot make bad people good. If an entering student is vicious, I cannot—after a single semester of weekly classes—deliver a person who has become virtuous. If the sight of malefactors being led from their offices in handcuffs does not deter a young executive from choosing a life of greed and dishonesty, then I have little hope of achieving that goal by presenting the sound arguments of Immanuel Kant or threatening to give a failing grade. And really—if I had indeed figured out how to transform bad people into good people, I would be in a much more lucrative profession.

What I Can Do

What I can do is create an intellectual environment that encourages students to reflect on their own values, understand what actions could arise from those values, and realize how those actions will form their characters. Therefore, one element of my course could be called “values clarification.”

But my course would be feeble indeed if it did no more than reveal to individuals their current values. As my students readily will acknowledge, they have come to their current values quite uncritically. In general, they have merely absorbed their beliefs in an early childhood environment. While this environment might have been morally upright, it might alternatively have been idiosyncratic in some ways, or prejudiced, or even anti-social. A critical examination seems to be in order.

I believe the most effective way to proceed is to have students compare their unexamined values with the values advocated in powerful philosophical texts. Those that I have found both accessible and applicable are from Aristotle, Immanuel Kant, and J.S. Mill.

I begin with Aristotle, who claims that a person’s happiness depends on choosing virtuous actions. Such actions fall within the “Golden Mean,” which is found between two vices that exist at the extreme ends of any character trait: excess and deficiency. For instance, Aristotle argues that people ought to be generous—neither wasteful nor ungenerous. They should aim to be temperate and avoid having their lives ruled by irrational appetites such as lust and envy. Happiness requires that they be even-tempered. To be sure, they might feel angry when appropriate, but avoid irascibility or wrath. They should take proper pride in their achievements without becoming boastful. Aristotle believes the golden mean can be found for other human character traits as well.

Next I have my students read Immanuel Kant. He argues that if we justify our actions through a moral principle, we have to accept that other people might justify their actions on the basis of those principles as well. Kant also believes it is morally impermissible to treat a person merely as a means to an end—as a tool, an instrument, or an object. Reading Kant encourages students to reflect on their own reactions to such treatment, perhaps in situations where they cried, “You used me!” Alternatively, students can envision what it means to treat people in morally permissible ways—that is, as ends in themselves, dignified beings worthy of respect.

“No company has a mission statement that claims, ‘Ruthlessness, unbridled ambition, and deception are rewarded here.’”

Finally, I have students read J.S. Mill, who urges individuals to calculate the impact of their actions on the happiness of all affected individuals—or stakeholders, in modern parlance. They then should select the action that maximizes, or creates the greatest amount of happiness. This theory of Utilitarianism also encourages students to reflect on how their attempts to advance their narrow self-interests undermines the happiness of others.

I point out to students that these three moral traditions look quite different from one another and operate in different ways. But the resolutions people make while thinking as Aristotelians are unlikely to conflict with resolutions they make while thinking as Kantians or Utilitarians. Typically, these resolutions do not diverge, but rather converge. The action that is most virtuous, the action that treats all people as ends in themselves, and the action that maximizes happiness, very often turn out to be one and the same.

Instead of recommending different paths and different destinations, these traditions tend to guide students to three components of the morally upright life: one that develops virtuous character, evidences deep respect for others, and concerns itself with the welfare of all.

What I Achieve

What happens after I have led my classes through a semester’s study of these philosophical texts?

Some students acquire a deeper understanding and more precise articulation of their pre-existing values. Some students modify or reject a number of their pre-existing values—typically their thoughtlessly acquired prejudices—and replace them with rationally chosen values.

In rare instances, some students repudiate fundamental values and adopt different ones. But even in these cases, I have not made bad people good, nor have I imposed new values on them. In these cases, the students are the change agents; the students have effected the transformation.

I have merely created an environment that enables students to make a reasoned assessment of their values, and I have effectively taught a number of texts that compellingly promote alternative values. I have exposed students to insightful philosophical resources that will encourage them to develop a lifelong habit of reflecting on their values.

Upon further thought, that’s no small matter.

My Competition

When considering how much I can influence my students’ values, I always have to be aware of my fiercest competitor: the broadly construed corporate culture, within which my students will choose their actions.

Virtually every company has a mission statement. Virtually every mission statement is some variation of “Integrity is not one of our values—it is our only value.” No company has a mission statement that claims, “We promote dishonesty and the employees who increase profits by practicing it,” or “Ruthlessness, unbridled ambition, and deception are rewarded here.” But don’t senior executives sometimes act as if those were their mission statements?

In any corporate culture, the words in the mission statement matter less than the deeds of senior management. The only way to judge a corporate culture is to note which employees and which actions get rewarded—with salary raises, stock options, coveted office space, and adulation in company publications.

A genuine business scandal arises when executives are showered with desirables even though they spend their entire careers behaving in ways that are contrary to the mission statement. As an example, Enron’s mission statement included four values—respect, integrity, communication, and excellence—and it stated that all business dealings were to be “open and fair.” But the corruption at the core of Enron could not have continued for so long if its top executives were living up to these values. Instead, numerous individuals were rewarded with promotions and bonuses for participating in secretive, deceptive, and viciously unfair practices.

In his book Winning, retired GE CEO Jack Welch quotes with approval a colleague’s maxim: “Show me a company’s various compensation plans, and I’ll show you how its people behave.” The truth of this is evident throughout the ongoing turmoil in the financial markets. As proof, let us examine the recent meltdown of subprime mortgages.

A Prime Example

In the beginning, the savings and loan business plan was perfectly straightforward. S&Ls accepted money from depositors, paying them interest. They then made loans to home buyers, in the form of mortgages, charging homeowners a higher rate of interest than they paid to their depositors. Thus they earned a modest but dependable profit. The S&Ls did not need to engage in any marketing activities; customers came to them. And the S&Ls could afford to be very selective. They provided prime mortgages only to well-qualified buyers who could prove they had steady incomes, had accumulated substantial down payments, and were prepared for the challenges of home ownership.

“I can provide students with insightful texts and sweet reason. But when corporations offer people vast wealth for behaving badly, it’s tough for me to compete.”

To understand what happened in the subprime market, it’s important to first look at how the primary market works. Whenever a housing transaction is consummated, commissions go to both the real estate agent for the seller and the agent for the purchaser. A commission also is paid to the bank’s loan officer. The seller’s attorney, the buyer’s attorney, and the bank’s attorney all collect fees. The lending institution collects an array of fees. Municipalities collect taxes and filing fees. So large sums of money are on the move.

If the deal falls through, however, none of this happens. Two real estate firms, three sets of lawyers, the lending institution, the municipalities, and the seller all walk away empty-handed—or more precisely, they never gather at all.

The creation of the secondary mortgage market was transformative. No longer did S&Ls and other mortgage initiators wait for prospective homeowners to appear at their counters; now they were powerfully motivated to seek out potential buyers. The entire secondary mortgage market—which was created in the absence of governmental regulations—depended upon consummated primary mortgage transactions.

Some of these mortgages were kept intact, but most were bundled and sliced and sold as “tranches.” Bond rating firms—which were paid by investment funds and also were vying with one another for market share—were thereby powerfully motivated to rate those tranches as investment-grade instruments.

From beginning to end, from subprime originations to hedge fund investments, people were paid only if they consummated transactions. And so they did. No one was paid to thwart bad bargains; after all, the risks were not their own, but were passed along. When mortgages fell into default, and the actual market value of tranches was revealed, it fed the ongoing turmoil in the global financial system.

These events proved Jack Welch right. At all levels, the compensation systems rewarded people for deal making, so that was what they spent their time doing.

My Inevitable Conclusion

I am proved right, too. In today’s subprime mortgage market, the three great ethics traditions clearly converge.

A system that compensates businesspeople for unethical activities is decidedly anti-Aristotelian. It nurtures not virtue, but vice—especially “acquisitive ungenerosity,” a shameful love of gain. Rewarding bad behavior is also anti-Utilitarian, because it induces people to focus on maximizing their own welfare at the expense of the welfare of all stakeholders.

Finally, unethical business behavior is anti-Kantian because it violates the moral rights of others. It treats them simply as means to an end. Corrupt executives defy Kantian principles when they manipulate, deceive, and treat other people as if they were not worthy of respect.

As a professor teaching business ethics, I can provide students with insightful texts and sweet reason. But when corporate compensation packages offer people vast wealth for behaving badly—well, it’s tough for me to compete.

Indeed, I can almost hear senior executives uttering the following soliloquy: “Let’s hire people who aggressively pursue profits. We’ll turn a blind eye to their tactics and promote them when they succeed. We’ll be indifferent to the effects of our compensation program on their respective characters, and we’ll be studiously ignorant about the actions that arise from these ‘values.’ We’ll even pay our executives bonuses out of government payouts meant to keep us afloat when our bad actions threaten to destroy us. And when a scandal blows up—why, we’ll go on TV and blame the ethics professors!”

What’s a professor to do?

I tender the following offer. I will continue to work at effective teaching; I will diligently advocate a prominent role for ethics in the business curriculum. In exchange, I challenge legislators and senior managers to consider how unregulated compensation schemes foster the various vices of character that lead to disreputable actions by people in business.

I believe that ethics professors are coming to terms with their roles in regard to business behavior. I have this to say to senior managers and legislators: It’s time for you to do likewise. Stow the faux piety. Take ownership of your portions of the problems—and resolve them.

Jonathan Schonsheck is professor of philosophy at Le Moyne College in Syracuse, New York. As part of his dual appointment to the Division of Management and the Division of Arts and Sciences, he teaches business ethics in Le Moyne’s MBA program. In 2005, he was a recipient of the MBA Award for Excellence in Teaching.