A professor of Philosophy and Executive Director of the Hoffman Center for Business Ethics at Bentley University, our next guest for season 2 of The BIS Podcast is Jeffrey Moriarty.
Dr. Cindy Moehring and Jeffrey Moriarty discuss his research on the ethical aspect of compensation arrangements including CEO compensation
How much have business ethics changed over the last 25 years? Where have we seen sufficient growth and where are we still lacking? Tune in to find out the answer to these questions and many more!
Podcast:
Episode Transcript:
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00:00 Cindy Moehring: Hi everybody. I'm Cindy Moehring, the Founder and Executive Chair of the Business Integrity Leadership Initiative at the Sam M. Walton College of Business, and this is The BIS, The Business Integrity School podcast. Here we talk about applying ethics, integrity and courageous leadership in business, education, and most importantly, your life today. I've had nearly 30 years of real world experience as a senior executive, so if you're looking for practical tips from a business pro who's actually been there, then this is the podcast for you. Welcome. Let's get started.
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00:38 Cindy Moehring: I have with me today, Professor Jeff Moriarty, a professor in the Philosophy Department at Bentley University. He's also the Executive Director of the Hoffman Center for Business Ethics, and he's the immediate past Chair of the Society for Business Ethics. In addition, Jeff is an associate editor of the Business Ethics Quarterly. Jeff works mainly in the field of business ethics. He also does research in political philosophy. And the intersection of these two fields has caused him to do a lot of research and to write about something I find quite interesting, the ethical aspects of compensation arrangements, including CEO compensation. And we're gonna get into that a bit more in the podcast as we get rolling here. So Jeff, welcome. We're really glad to have you be a part of this is.
01:28 Jeff Moriarty: Hi Cindy, good to be here.
01:29 Cindy Moehring: Good to be with you too. So today, we're gonna continue our series that we've been talking about for the future of business ethics and risk management and governance and what that looks like from a higher-education perspective now as compared to what it used to look like in the past, and then really spend a lot of time talking about where we think it needs to go into the future to best prepare students, I'd say, to deal with this evolving world of risk that we find ourselves in now. So let's jump into that, but Jeff first, I really would like for you to just talk a little bit about Bentley, Bentley University, and for those who may not know the importance of Bentley and the center there to the ethics education field.
02:22 Jeff Moriarty: So at Bentley University, we have something called the Hoffman Center for Business Ethics, and it was named after my predecessor, Mike Hoffman, who's unfortunately no longer with us. He died a couple of years ago. We think of ourselves as the very first center for the study of business ethics in the United States. We're not totally sure about that, but we were established back in 1976. And one of the things we've tried to do is always link up what we're doing in the academy with what's happening on the ground in corporations. So we were the founding institution of the Ethics Officer Association, which became the Ethics Compliance Officer Association, which became the Ethics and Compliance Initiative. And we still retain a connection with that organization today. So we really try to bridge theory and practice, but we also do do some theory here as well.
03:15 Cindy Moehring: So let's talk for a minute about where business ethics education has been in the past and where we think it is now and then we'll talk about where we see it going into the future. But there was an article written by Andy Stark in Harvard Business Review, where he, 25 years ago criticized business ethics education for being too theoretical, too general and too philosophical. So let's start with what your views are on that criticism for where business ethics used to be.
03:52 Jeff Moriarty: Yeah, so there's a lot to say about that. So one of the things I would say is, if that's true, and that's still an "if" at this point, it's true of a lot of business research. So if you were to look at a journal of management studies, the Academy of Management Review or Administrative Science Quarterly, some of the premier journals of business scholarship, you would find a lot of stuff that is simply irrelevant to the day-to-day experiences of actual business people. So business people will not pick up an issue of the Academy of Management Review or Administrative Science Quarterly and really get anything out of it. And that's not just because it's full of the jargon that us academics love, but it's simply not relevant to their experience. And to some extent, that's fine because academics are interested in learning the truth about things, the truth about the world, and this is going out in those business journals. So that's what's going on in business ethics journals.
04:50 Jeff Moriarty: So we're trying to understand the moral contours of business activity, both the organizations that are businesses that sell things and also the activity of business itself, which is an activity of exchange for valuable consideration. And some of that's going to be relevant to people who are engaged in business, and some of that is not gonna be so immediately relevant. And again, I think that's all fine. It is the case, however, that academics do and ought to be producing at least some of their research that is relevant to actual business people. And I think it's true, the business ethics in the early days was not as relevant to business people as it is now. I think some of the criticisms that Andy's making in that article seem right, especially the focus on intention being very important to business ethics. I think that's not so important, and I think it's also the case that we've more or less moved on from that claim.
05:49 Cindy Moehring: So you started to mention there a bit about some of the advancements that you've seen in the field, some that you thought were positive and some that you thought weren't positive. So let's spend a few minutes and just give me your views on where you think business ethics, risk management governance, those topics in business schools have advanced to today.
06:14 Jeff Moriarty: Right, so I think the biggest difference is that business schools are hiring people who are doing descriptive or behavioral ethics, as opposed to normative ethics. Business ethics can be understood as the study of what one ought to do in the context of business, either in a business organization or in the activity of business. And that's how I approach it as a foster. What is morally the right thing to do? But other people... And this is a very important issue as well, is what makes people do the wrong thing? How do you structure an organization so you get more right-doing and less wrongdoing? Why is it the case that people, even people who are no morally intrinsically better or worse than you or me, why is it the case if you put them in a certain sort of situation, they end up doing something really bad? The people working in Enron or WorldCom, were they worse than us, morally? I'm not so sure, but they were caught up in this culture which really put on them a lot of pressure to do the wrong thing, and they did.
07:20 Jeff Moriarty: So, business schools have brought in more people who are thinking about, why do people do the wrong thing, and how do we design institutions of business or just a business environment where people are gonna do fewer wrong things? That's not a philosophical matter. Philosophers have little to say about that. That's a matter for social scientists who are studying cause and effect. There's a lot more of that in business schools than there used to be.
07:47 Cindy Moehring: And do you think that's a positive? Would you describe that as one of the positive changes?
07:52 Jeff Moriarty: That is a positive change. I think it's a mistake for business schools to go all-in on that, to the exclusion of, in effect, old-school moral philosophy. So, the question of why do people do the wrong thing and how do we get them to not do the wrong thing presumes that we know what the wrong thing is. And the people who are going to shed light on that question are philosophers. Those are the people who are trained to ask those normative questions about what is the right thing, the wrong thing in the first place. So, we must absolutely have the people telling us how to actualize or operationalize judgements about what is right or this ideal governing structure for a firm or a business environment, but then you... And that's gonna be a social scientist telling us that. But the philosopher's gonna tell us what is the right thing to do in the first place. And so, you don't wanna exclude that and just say, "Well, it's quite obvious what the right thing is to do." And sometimes it is. Accounting fraud is wrong. And then, the real interesting questions are, why did it happen and how do we prevent it?
08:57 Jeff Moriarty: But sometimes, there are grey issues, where we generally don't know what the right answer is, and then we need moral reflection. And I think you need somebody... It doesn't have to be a Philosophy PhD, but you need someone who's thinking theoretically, who's sensitive to these moral concerns to help students work through those issues for themselves. There are certainly some schools that stand out to me as exemplar schools that are really doing it right, schools like Wharton and Georgetown, University of Virginia, where you have people with different backgrounds interested in normative theory, but also the empirical social science, talking to each other and trying to figure out how to put it all together in a way that's really impactful for students.
09:43 Cindy Moehring: So, let's talk a little bit about your research area in particular, which is the ethics behind compensation arrangements, and particularly CEO compensation arrangements. Tell us a little bit about that particular area and some of your findings and your thinking about how that compensation plays out from an ethical perspective.
10:06 Jeff Moriarty: Absolutely. Compensation is such a difficult issue. The first thing that I try to do is say, "Well, there's a certain set of questions that we ask about compensation. And then, there's a different set of questions that we ask about income. And questions about compensation might belong to business, and questions about income might belong to political philosophy." So, if you think, for example, a CEO gets paid too much money... Some people say, "Well, this a wrong thing, they should get paid less money." And another thing you might say is, "It doesn't matter how much the CEO gets paid. If you're worried that this person has too much money, then the right solution is to increase marginal tax rates. And if some people, if you're worried that they have too little money, just don't worry about how much they get paid, just make sure that there is a robust social safety net to support people who don't get paid enough, or that there's a tax and transfer scheme in place where people at the top are taxed more heavily to support the people at the bottom."
11:11 Jeff Moriarty: We can have a conversation about what the tax code should be, and some of my research speaks to that question. But I think we need to talk about compensation itself, because people do think about their pay in moral terms. They don't just say, "Well, I get paid too little." They say things like, "I get paid too little, and that is wrong. This is unfair."
11:30 Cindy Moehring: [chuckle] Yes.
11:31 Jeff Moriarty: And maybe they point out someone else in their firm who's doing work of equal quality, or even lesser quality, to themselves and say, "Well, that person gets paid more," and so, this is a kind of unfairness. So, when we think of pay as a reward, that intuition, that idea of, "I need to get paid that's commensurate with the value of my work compared to others in my firm," that becomes really important. And sometimes, we compare ourselves to others in our firm, but maybe others higher up in the firm, maybe even the CEO, though those comparisons are harder to make. One thing that I think gets a lot of attention... Maybe two things about CEO pay, in particular, that gets a lot of attention, I think, rightly so, and this brings out other aspects of wages, is that, ideally, the CEO's pay should be a bargain between the board who's representing the firm and its shareholders and the CEO, who might be just representing themselves. The idea is that the CEO can ask for what they want, maybe it's a large number, and the board should be saying, "Well, let's see how little we can pay you, in such a way that still respects what you do and gets you to do what we want for the firm."
12:35 Jeff Moriarty: Because the board is representing us as shareholders of the firm and the firm itself. So, some people worry that the relationship between the board and the CEO is too cozy, and that the CEOs have a lot of power over who gets appointed to the board, and then, when it comes time to pay the CEO, the board is too willing to give them outsized compensation package.
13:00 Jeff Moriarty: That issue has been explored in a really good book by Bebchuk and Fried back in 2004. One of the things that I think is even maybe more timely when we're talking about CEO pay is this idea of incentives. So everyone thinks that pay, of course, has an incentive aspect to it. Your pay and my pay being much less than a CEO pay, it still gets us to show up and do our work, do things that we don't wanna do, like grade things. So our pay has this incentive effect, but the CEO it's thought to be very important to design their compensation package so that it really incentivizes them very precisely to do things that are positive for the firm, to not take excessive risks. And in the financial crisis about 10 years ago, one of the causes of it, at least according to some smart observers, people like Ben Bernanke, Tim Geithner, was that CEOs and other executives in the financial industry, their compensation packages incentivized them to take huge risks, knowing that if the risk panned out then they would make lots of money, but if the risk didn't pan out then it wouldn't be so bad for them.
14:11 Jeff Moriarty: And these observers thought that that was one of the cause of the financial crisis. So when we think about pay, we can think about a lot of facets of pay, it's an agreement, but is the agreement fair or is there some self-dealing? Is it fair when we compare people at different levels, and also we need to think about this incentive effect. Are CEOs being incentivized to take gambles that may damage the entire economy? And depending on how you think about pay, you may come up with very different ideas of how people should be paid, so I feel like we're just now starting to think about pay itself as a society I think, I wish more people would think about pay. It can be awkward to talk about pay, and I sometimes I wonder that this is the reason there's not a ton of research on it. But I think it's just really important for all kinds of reasons.
15:04 Cindy Moehring: So with the advancements that you think that we've made in the field of business ethics and risk management governance, kind of education at the college level and at the university level, what do you think needs to be the next chapter? And how do you think that ought to play out over the next 20-25 years? Do you have three words that you think or three phrases that you would rely on to define the path forward?
15:37 Jeff Moriarty: I'll try. It's going to be complicated, but if we focus on technology is one word, work, that's the second, and then politics, there's your third. I'll say a little bit about each of them.
15:56 Cindy Moehring: Yeah, please.
15:56 Jeff Moriarty: So let's start with technology, so it's silly to say technology is always advancing, but I'll say it anyway. Technology is always advancing. Corporations have more and more tools at their disposal to learn more and more information about consumers, about employees, and there's gonna be real ethical questions about which technologies should they help themselves to and which technologies should they not help themselves to. Corporations, if they want, could find out a lot of information about you and me as consumers or you and me as employees, but maybe they shouldn't help themselves to all that information. So one of the things that I'm thinking about these days is personalized pricing. So companies will deny it, but there is evidence that... Well, they won't deny this. Companies are tracking us on the internet. That's clear to everyone, but what they will deny is that they use that information to try to target the price of things we look at, to how much we think we'll pay for it.
17:00 Jeff Moriarty: So if they think you will only pay $10 for something, they might offer it for you for $10, but if they think I'll pay $12, they might offer it for me for $12. How do they figure that out? Well, they're using some sophisticated technologies that they prefer not to talk about, but it's an interesting ethical question about whether they should be using those technologies. I'll talk about work as the second thing. So work is changing. It used to be the case that you might work for one employer for 40 years, for 30 years, and then maybe it was two employers and then maybe it was a bunch and now maybe it's not an employer at all. Maybe it's a project, and maybe you rotate off a project every six months or eight months. So what we owe to people with whom we are in these deep and lasting relationships is different, and I think everyone would tell you it's different than what we owe to people who we engage in these more transitory relationships. So what I owe to somebody who sells me something is going to be different, maybe it's a kind of respect than what I owe to somebody in my family or a person I've known for 30 years, so that might be more of this idea of a care ethic.
18:16 Jeff Moriarty: So people are changing how they relate to employers and employees, and this is gonna be reflected in what the standards for ethical treatment of people are. The final thing I'll say is politics. So businesses are large, and some of them... Well, some businesses are very large and very powerful, and the power just comes along with being large. What they say carries tremendous weight, and what they do, just the mere exercise of their property rights can have enormous influence.
18:45 Jeff Moriarty: So if Walmart doesn't like what's happening in Bentonville and says, "Boy, I'm not sure that Bentonville is the right fit for us anymore." That's going to cause alarm. It's hard to imagine, given that Walmart's history with Bentonville. But a large corporation setting up in a small town, if the large corporation decides that it doesn't like what the small town is doing, it doesn't have to threaten anything, it just has to just sort of mention on Twitter, "We don't like this very much." You better believe the small town is going to adjust and come up with policies and rules and regulations that better fit that corporation's needs and wants, and maybe it's in ways that we think are good, and maybe it's in ways that we think are bad.
19:32 Cindy Moehring: Yeah, so just to be clear, Walmart's made no announcements or Twitters or suggestions that it's moving out of Bentonville, but it was a good example, given that I am here in Bentonville and from Walmart. But you're right, and I think what you're getting to is the larger question of the power that corporations do have, and whether they use it for good or potentially could use that power for reasons that some may describe as not good, and with social media...
20:01 Jeff Moriarty: There's lots of disagreement.
20:02 Cindy Moehring: And there's lots of disagreement, but with social media at everyone's fingertips, that's something that in terms of business ethics, education, we have to talk about with the students so that they understand, as future business leaders, that that power and influence, that being associated with particularly large corporations can wield. So yeah, I would agree. Those are good. Alright, so it's been great to have you here today, and I've got some fun questions that I wanna wrap up on, ask you about a few things that maybe you've been watching, or reading, or listening to as of late that maybe had an ethical dilemma included within it. So, what have you been reading in the last few months that you've enjoyed that has had an ethical dilemma?
20:49 Jeff Moriarty: What I read, unfortunately, is... I read some journal articles as editor of the journal that you mentioned, Business Ethics Quarterly, and there are ethical dilemmas by design in them, not encased in a story which is compelling, like you might find in a novel. But there's some really good work coming out around risk and employment in Business Ethics Quarterly, which I've been fascinated to read. Workplace safety is something that Business Ethics has talked about for a long time, but it's almost always in the context of blue-collar jobs, factory work, commercial fishermen, loggers. And we think about, what are the trade-offs between safety and pay at work? And are there some risks that we shouldn't allow people to take? But now, with COVID, those are trade-offs for you and me, people who are talking to students, those are trade-offs for our students. And so, now we're taking... It used to be the commercial fishermen, loggers, they have dangerous workplaces, but now we're beginning to bring that into the white-collar world, and I think that's really fascinating.
21:57 Cindy Moehring: It is. You're right. What about anything...
22:00 Jeff Moriarty: That's not a novel, but...
22:01 Cindy Moehring: No, that's okay, it's good to have variety. Are you watching anything fun that has an ethical dilemma?
22:08 Jeff Moriarty: So, my wife and I, we binge shows as I guess everyone does these days, so one show we watched was a BBC production called Versailles, which is about Louis, I think, the 14th, and so there's, of course, lots of horrible wrongdoing that's happening in the palace. But a lot of... And another thing we're doing is The Ozarks, and I'll pull these together. So many of these issues involve... Here's something that involves the greater good, and then on the other hand, there's questions about personal sacrifice. So, to what extent is it incumbent upon the individual to sacrifice their own welfare to bring about a greater good for someone else? And this pops up in both these shows, both Versailles and The Ozarks. It pops up in business too, and as a businessperson, you can do a lot of good for a lot of people, but at some point you're allowed to promote your own interests, promote the interests of your firm, and there's always a balancing act in trying to figure out at what point is it time for yourself and at what point is it time for other people. You can't...
23:25 Jeff Moriarty: There are people who devote themselves entirely to other people, people in religious orders, say, and there are people who devote themselves entirely to themselves, and that's maybe not so praiseworthy. But most of us think that there are times when we need to sacrifice a bit for others' welfare, and there are times when we can prioritize the welfare of ourselves and our families over other people, including strangers, even if we might do some good for them. But trying to figure out where the balance lies in both Versailles and The Ozarks, these questions are answered in different ways, but it brings this idea of personal prerogative versus social welfare to the fore in ways that are pretty tense.
24:12 Cindy Moehring: Yeah, definitely, Ozark is a good one. That's familiar territory for those of us who live here in the Midwest. That's a fun show. What about podcasts? Are you a podcaster? Do you listen to anything fun?
24:25 Jeff Moriarty: I'm very behind the times. I'm just now watching, or listening, to the podcast... It's called Fake Doctor's Real Friends. It's about the people who made Scrubs, which seems to me a show which was just recently off the air, but apparently it started 20 years ago. So, I'm kind of behind the times when it comes to that, but it's a story about the making of the show, and it's mostly just... I'm not sure how far I'm going to get through it, they're doing one podcast per episode, and there are hundreds of episodes. So, I'm not sure how interesting it's going to be, but so far it's been quite interesting. And it's just a story of people making a show, and it's interesting to see what's happening in their lives and how this translates into the show, and trying to make the show a comedy, but also somewhat real, so there's some interest. In medicine, of course, there's all kinds of ethical dilemmas that arise. Just part of medical ethics tells us all about them, but they pop up in the show too.
25:26 Cindy Moehring: Yeah, how fun! Well, Jeff, it's been great to have you here today. Thank you so much for taking the time to visit with us, I appreciate it.
25:34 Jeff Moriarty: Absolutely, thank you Cindy. It was a pleasure to be here.
25:37 Cindy Moehring: Thanks for listening to today's episode of TheBIS, the Business Integrity school. You can find us on YouTube, Google, SoundCloud, iTunes, or wherever you find your podcasts. Be sure to subscribe and rate us, and you can find us by searching The BIS. That's one word, T-H-E-B-I-S. Tune in next time for more practical tips from a pro.
