Research

The hidden costs of dishonesty: Ethics is vital to business education

The hidden costs of dishonesty can fundamentally derail organizations, creating an imperative for business leaders to have clear and meaningful codes of conduct, according to a W. P. Carey School of Business researcher. A recent survey shows both encouraging and troubling trends: 22 percent of respondents believe one has to bend the rules or act unethically to get ahead ... and that's the good news. The bad news? More than 40 percent said they would act unethically if directed by their boss.

2017-11-29

The hidden costs of dishonesty can fundamentally derail organizations, creating an imperative for business leaders to have clear and meaningful codes of conduct, especially for young, emerging leaders, according to a professor at W. P. Carey School of Business.

Management Professor Barbara Keats says a recent survey from Junior Achievement and Deloitte & Touche USA LLP shows both encouraging and troubling trends. On the one hand, in 2003, about 20 per cent of respondents believed one had to "bend the rules" or act unethically to get ahead, and would do so if they believed they would not get caught. In 2004, that increased to about 33 per cent. In 2005 — the recent survey — the number dropped back to 22 per cent. That's the good news.

However, more than 40 per cent still said they would act unethically if directed from their boss, and would lie to their boss to cover a mistake.

"In general I think the data show some positive trends," says Keats. But it also suggests "that young people get very mixed messages about ethical conduct. Education is critical to address some of these issues, because it can provide for experience in context and for reflection."

To avoid mixed messages and to find the best way to change the future face of business, says Keats, the best approach is to get to students when they are in university, forming their adult boundaries of what is and is not acceptable.

Keats was instrumental in the integration of service learning into the undergraduate management major at the W. P. Carey School by designing the responsible leadership course, which is required of all management majors. Keats says there are many reasons to want to establish a strong culture in an organization, and this is done through having clear and concise ethical conduct codes that employees can buy into.

The key question is: "Is it (the culture) real or is it for show?" Keats says. Employees must understand the answer to this question clearly, she says, so they don't even think of bending the rules — for self-gain or for the firm.

It starts with a good grounding in ethics at school, says Keats, while future business leaders are still identifying who they are.

The service learning program, for instance, engages teams of business students with nonprofit and public sector organizations. Through this experience, students learn that businesses are part of the community, and that business people can benefit through the formation of relationships with community organizations.

The responsible leadership class is designed to get students thinking about what they value in life, Keats explains. "Through some relatively simple exercises early on, they examine their own values and how those values might conflict with [those of] an organization."

"They must reflect on the degree of separation from their personal core values they could accept in an organization in which they are employed. They also explore how wide that separation would be before they would feel compelled to be a whistleblower, and under what circumstances they would choose to do that" over simply leaving the organization, says Keats.

Keats says students begin to understand the consequences of organizational misconduct for a variety of stakeholders, and the trade-offs involved in short-term versus long-term outcomes.

Ethics on the job

Dale Kalika, a W. P. Carey School faculty associate who teaches service learning, cautions that "although educational awareness of work-related ethical issues is necessary," education alone does not necessarily guarantee that a person will apply high ethical standards on the job. Employees form their ethical behavior patterns in the workplace, where the sacrificing of certain values may occur to meet business and "professional objectives, peer pressure, and the illusion of job security."

Kalika cites the book MakingGood: How Young People Cope with Moral Dilemmas at Work, by Wendy Fishman, Becca Solomon, Deborah Greenspan and Howard Gardner. The authors found that young people were willing "to compromise their values, or hold them in abeyance, in order to gain a temporary advantage on their way to professional success."

Young adults feel that, at their core, their character and integrity will not change, Kalika notes, even when they make unethical choices. This is particular challenge for educators. "They believe that their moral compass remains stable, blocked from any interference from conflicting actions that are value-laden," she says.

But Kalika is impressed with a few trends she sees in the responsible leadership class. First, instead of focusing solely on jobs that pay lots of money, increasing numbers of business students are talking about meaningful work — work that can satisfy them by using their skills and engaging their interests. Balancing professional and personal lives is also a priority for them.

Students are also seeing that they must set boundaries, says Kalika — a phenomenon that may be a result of the service learning approach. Kalika notes that the class requires students to reflect on managerial and employee actions and organizational culture, for example. Students are asking questions of themselves like: "Will this action impact my health? Should I tell this supervisor that an employee is sexually harassing me? Is it ethical to take leftover food from a food bank? Where does the buck stop?" she said.

As a result of the service learning experience, many students begin to see the relationship of business to society, eventually understanding that it is an open system, not a closed one.

Understanding that connectivity to the wider community is the key to success, according to David Batsone, author of "Saving the Corporate Soul" and a leading voice in business ethics. He is troubled to realize that there are many people in business right now who would violate their own principles if their boss asked this of them, mirroring the findings of the Junior Achievement survey.

"This same dynamic is happening in companies right now. These people are not realizing that what they do not only affects themselves, but the wider community. We need to be able to reward and encourage acts of honesty," he says.

Batstone says that, so far, America as a whole has not done a good job in teaching ethical behavior at the school level, before students enter the work force. "It starts with encouraging kids — that's the best way to make the changes we wish to see."

Encouraging a stakeholder approach to corporate behavior is also part of this equation, according to Kalika. "Where profit maximization is constrained by social justice, then ethical employees are simply good business," she says.

"In the responsible leadership class we present both stockholder and shareholder perspectives so that students can see where social responsibility comes into play at all levels: personal, professional, organizational and societal."

Students also see companies that conscientiously incorporate social responsibility actions as part of their business mission, or as an essential part of their business mission, can be profitable, Kalika says. Most importantly, students see that the leaders of a business are role models for ethical behavior and that every individual in the organization has an important role to play in establishing an ethical culture.

That's the kind of attitude Kalika, Keats and many others hope to see more of, rather than the "make the numbers" approach of the business executives who have been on trial in recent years.

"Many of them believed upper management did not care how they did it, just that they did," Keats says. "Even in an organization that has a written code of conduct, employees may function in the context of a culture that encourages deceit and discourages the reporting of misconduct. While some whistleblowers have been hailed as heroes in the press, most suffer terribly for their decision."

The short-term gains realized as a result of misconduct are often alluring. And, Keats points out, the focus on quarterly earnings and short-term profitability that drives many organizations exacerbates the temptation to let standards slip. Keats, who was a speaker and panelist at a recent conference on teaching business ethics organized by AACSB International, The Association to Advance Collegiate Schools of Business, says many of her colleagues from other schools are voicing the need for education to help forestall these types of behaviors.

"Many people have said that you can't teach someone ethics — that if they don't know it 'by now' (in college) they won't ever know it," she says. "But most educators would disagree with that characterization."

Keats says many professions, including engineering and medicine, have codes of ethics, including oaths that members must take in order to practice. "Our students don't necessarily have that structure to rely on."

She points out that business ethics are not taught the same way at each school of business and in fact, discussions at the conference revealed that most schools are struggling with the issue. The AACSB allows for what is called an infusion approach, meaning that ethical "content" may be addressed in various ways in various courses, relying upon students to integrate it all on their own. Many schools have opted for this approach.

"However, more than 95 per cent of the attendees at the conference do not believe this is a sound or effective way to approach the subject," says Keats.

They advocate, instead, a stand-alone course, such as the responsible leadership class at the W. P. Carey School, which provides a conceptual framework and set of experiences. This gives the student the structure within which they can integrate ethical issues more personally, and develop their own lens through which to interpret the information in the other courses and in their personal world.

Kalika, who was also a panelist at the AACSB conference, says it is important for any business ethics course to:

• Provide experiential learning, where students are confronted face-to-face with issues in organizations. Unique to this service learning experience are reflections which provide the opportunities for checks and balances. In addition, service learning illustrates the connection between business, non-profits and society.
• Show documentaries or fictional movies in which business actions are discussed by the players. Visuals are important to young adults. Seeing events unroll is often more powerful than just reading.
• Invite speakers from business, government and nonprofit organizations who can discuss a wide array of business ethics issues.
• Emphasize critical thinking skills and the ambiguity of decision-making. Undergraduate students are used to being fed information and learning there is one right answer. But that is not the real world. Focusing on situations that are "grey" is fundamental to handling moral dilemmas.

The approach of inviting business leaders to speak with students is something that Batstone, too, recommends. In Saving the Corporate Soul, the author points out that although there are a lot of negative examples in the world about unethical business practices, there are also a lot of positive ones that need to be mined.

"There are truly great role models of people who are running companies — leaders who can give others a sense of what people can be and the potential they can reach. I think we need real-world examples, in front of young people, to show them what leadership looks like when it's done the right way," he says.

After graduation, when young adults enter the business world and become agents of an organization, they must find a way to reconcile and assimilate their own beliefs and actions with that of the mission, vision and values of the organization they have chosen, Kalika adds. That includes coming to terms with the personal beliefs of the organization's leaders.

"Whatever personal values, ethics and beliefs students have will be challenged," Kalika says, "because in entering the business world full-time, they will be in a different context, where there are new goals, tasks, rewards and punishments."

Management