Welcome to Season 2 of The BIS!
In this season, We're talking about the future of business ethics, pulling forward the conclusions drawn in the 1993 Harvard Business Review article “What's the Matter with Business Ethics?” by Andrew Stark, and also exploring the future and purpose of the corporation and business overall.
"Medicine is to Health as Law is to Justice as Business is to what?"
In the new season of The BIS: Business Integrity School Podcast, Cindy Moehring's first guest is Professor Tom Donaldson, Mark O. Winkelman Professor at the Wharton School of Business, University of Pennsylvania.
Dr. Moehring and Professor Donaldson answer the question above and make their predictions for what they believe the future of business ethics is going to look like.
According to Andrew Stark's 1993 HBR article, the approach to business ethics has been too theoretical, too philosophical, and too general. Has much changed in the academic field when it comes to the practice and teaching of business ethics? Watch to find out!
If you haven't already, be sure to subscribe to our channel or subscribe to our podcast to not miss an episode!
#TheBISPodcast #BusinessIntegrity #WaltonBILI #Leadership
Podcast:
Episode Transcript:
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00:01 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. So I have the great fortune of having with me today, Professor Tom Donaldson, he's the Mark O. Winkelman professor at Wharton at the University of Pennsylvania. Hi, Tom, I'm glad to have you here today.
00:48 Tom Donaldson: Great to be here.
00:50 Cindy Moehring: Tom is a professor of Legal Studies and Business Ethics, his research is in the areas of business ethics, corporate compliance, corporate governance and leadership. He, in addition to teaching at Wharton for many years now, has also taught at Georgetown, at the University of Virginia, at Darden, and at Loyola University of Chicago. Tom has received numerous teaching awards over the years, and he has also held many professional and public sector leadership roles including co-founder and past president of the Society for Business Ethics.
01:23 Cindy Moehring: Tom has been the chair of the Social Issues in Management Division of the Academy of Management. Tom was also a trustee for the Carnegie Council on Ethics in International Affairs, and he was also chair of the FTSE4Good US Committee, and that is an index. The FTSE4Good is an index with a series of ethical investment stock market indices that was launched in about 2001. Tom, you'll find out here shortly as we get into the conversation, is a true pioneer in the field of business ethics, and we are so fortunate to have him here today. I'm fortunate to be able to call him also a great friend and mentor, and we're gonna talk today about where the field of business ethics has been, where it is and where it's headed. So once again, welcome Tom. So let me start Tom by asking you first your opinion on what Andy said was wrong with business ethics in business schools 25 years ago, and he said then that the approach was too theoretical, too philosophical and too general. So I wanna know whether or not you agree with him and whether or not you think that we've made advancements since then.
02:33 Tom Donaldson: Yeah, Andy's remarks still have a lot of life in them. But we've learned a lot in those years, and I think even Andy would re-write some of them today. When asking whether the approach to business ethics is too theoretical, we should hit the pause button. This approaches goal, using the words from Sesame Street, some of these things are not like the others. There's a world of difference between two kinds of approach, research demands a different approach from teaching and communicating, they are two worlds, although connected by a necessary red thread of relevance. When Andy wrote, "What is important is not so much the analyses offered as it is finding a language relevant to the real world managers inhabit," he was spot on for the world of teaching and communicating, but he was off the mark when it comes to research, the same is true in all fields of knowledge. The medical researcher speaks the language of DNA genomes, that's foreign to patients, and for that matter, to most doctors, but thank goodness, she knows that specialized language because doctors can discover a drug that will save a life precisely because of what the researcher learned in her specialized cocoon.
03:48 Tom Donaldson: Business schools are in the same boat, just as the DNA genome researcher must speak to the small collection of other researchers in the know, the collection that has years of training and years of focus research in a particular area in order to make the next big medical advance, so to economists and specialists in finance speak a language of microeconomics that looks like inside baseball to outsiders, but their knowledge of inside baseball leads to discoveries such as the Black-Scholes or the capital asset pricing model. These gifts to the world of practice can then be taught in the classroom and communicated to business executives and financial services firms. Now, bring this picture up-to-date with business ethics, academics who work in the area of behavioral economics known as behavioral ethics, speak a language of statistics and research different from most business executives, ditto for academics who work on the normative side of ethics whose long studies and moral and political philosophy ground many of their findings. In short, business ethics, like other areas of knowledge, requires two kinds of people, the library savant and the classroom wizard. A difficulty emerges when we realize that inside the university, these two people are often the same person. Most good teachers are good scholars and vice versa, but not always.
05:11 Cindy Moehring: So when Andy wrote the article, he thought that the path forward, his recommended path forward, was centered around three concepts and they were moderation, pragmatism and minimalism, and he actually cited you and Tom Dunfee on the minimalist point. So I wondered if you might be able to explain that one a bit and also then share with us your thoughts on the other two points that were moderation and pragmatism, what did he mean by those three concepts?
05:45 Tom Donaldson: Well, I am not sure what Professor Stark exactly meant by minimalism, but Tom Dunfee and I believe that there exists a certain amount of moral free space, that business communities can fill at their discretion. The social contract as we understood it permits variations that help fit norms, practices and policies in business to existing interpretations by cultures, religions, industries. Of course, some values are non-negotiable, the owner of rental properties does not have moral free space to discriminate against Asians or African-Americans, but not every nation's understanding of insider trading has to be the same, not every industry's definition of transparency has to be the same. Not every company's definition of permitted gifts from suppliers has to be the same.
06:32 Cindy Moehring: So today, what do you see as the most predominant method of teaching business ethics in business schools? Does it harken back to any of the three kind of concepts that Andy mentioned in his article?
06:46 Tom Donaldson: Well, modes of teaching ethics vary dramatically, and this is probably healthy. I know professors who use wildly different styles, but who are dynamite instructors. However, one successful mode of teaching has become more and more popular over the years, and for good reason, that is the method of mixing theory with serious case study analysis. Some business school courses can do without case studies, but in my opinion, teaching business ethics without cases is like trying to make meringue pie without the meringue. Maybe it can be done, but the guests won't come back, the reason dates to the history, the origins of moral philosophy, at least in the West. Socrates pioneered the Socratic method for the teaching of virtue, and he was rabidly committed to the importance of learning about virtue. Noting, however, that the lessons look different from those in say, biology.
07:45 Tom Donaldson: In biology, the student can learn a lot by memorizing and understanding principles of genetics, but when it comes to virtue, the method shifts and students learn not by memorizing rules of Good Conduct, but by engaging in a process of disciplined reflection that ripens best in the context of discussion. It's little wonder that the Harvard Business School often cites the Socratic method as the one that underpins their approach to case studies. Tell me what you want about the importance of honesty, but if you want me to learn about honesty in the context of what to tell customers when I suspect our medicine has flaws put me to the task of trying to decide what to do with this medicine in this context, to some extent, the same is true as far as business strategy, but the need is even greater, I think for case studies for having case studies in their business ethics.
08:32 Cindy Moehring: Where are we today? If it was in the past described as theoretical and general, and perhaps impractical, where would you describe the field of teaching business ethics today?
08:45 Tom Donaldson: Well, I'll say all in all, I think businesses ethics professors are doing a good job, and I think Andy's general advice still holds. A few business ethics professors still claim to teaching what they learned in their philosophy, PhD programs, ethics and applications, but Kant, Mill, and Rawls are like spice in a good meal, the meal is lousy without the spice, but all spice makes for a bad dish. [laughter] So a lot of what Andy said still holds true today, but I can't resist taking a jab at my friend. Andy writes that far too many business ethicists have occupied a rarified moral high ground removed from the real concerns and real world problems of the vast majority of managers but who are the principal sources, who's better advice Professor Stark cites in his article, they are in fact the leading lights of business ethics at the time. Bob Solomon, Tom Dunfee, Norman Bowie, Joe and Sheila, Greg Dees, and Laura Nash.
09:47 Cindy Moehring: So we're gonna be talking to Andy on this podcast as well, so it'll be interesting to see what he has to say in response to that, I'm sure it will be great. [chuckle] So let me ask you another question, if we were thinking then about not where we've just been and where we are today, but as you look out over the long-term horizon for Business Ethics in the next 25 years, what I would almost call ethics 3.0, what do you think are the three topics, the three concepts that come to your mind that are gonna be important in the future?
10:27 Tom Donaldson: My three words for, I think 3.0 would be rigor, variety, and integration. Rigor and research, because without rigorous research, the knowledge we give to students can't be created. Variety in the kinds of teachers, because without help from Philosophy, Psychology, Sociology, not to mention strategy, marketing and the other disciplines, practical challenges become even harder. And then finally, I choose the word integration, integration rounds off classroom success. Ethics needs to be integrated in the classroom where the challenges of decision-making from the other functional disciplines in business school such as accounting, marketing, finance, management, operations, and technology. Without such an integration, ethics becomes an orphan child, without it students cannot insert ethics into their bigger picture of their business school experience.
11:26 Cindy Moehring: I do agree, and in many respects, people seem to talk about integration as almost... It's the Holy Grail, it's what makes the topic live as opposed to being seen as just kind of a course that's off on the side, which isn't really helpful to business students when they get out in the business world, regardless of what their chosen business discipline may be, so I think that does sum it up really well. Those are good choices for words, so let me ask you one other thing about an area of your current research with Professor Walsh from the University of Michigan, which relates to the theory of business and defining the purpose of business. And as I read your research there, it made me think a little bit about the tie that it also has to the statement that the Business Roundtable released last year and what they finally put down on paper as their view of the purpose of a corporation going forward, which is to serve all stakeholders and not just the shareholders. And so I was wondering if you could share with us what you think the purpose of business is and how you think it relates, if at all, your new research to the Business Roundtable's recent statement.
12:41 Tom Donaldson: Well, no question, Cindy, the Roundtable's statement was a watershed event, but it can be understood outside the backdrop of other rising currents over the past couple of decades. Larry Fink's now famous letters from BlackRock about the social importance of investment decisions come to mind as do revolutions and economic thinking about the purpose of the for-profits corporations. I'm thinking, for example, of the work done by the Nobel Prize-winning economist, Oliver Hart and the prominent finance theorist, Luigi Zingales and their evolution of the Milton Friedman model of corporate governance. In it they recognize that the interests of investors often extend beyond simple maximal return on investment. Most investors don't want the firm who's shares they own to use hazardous technology that kills employees in developing countries, even when the country's laws permit it. The Roundtable statement has been a long time coming, but this battle is far from over. In my opinion, it's one of the two or three most important questions facing the planet, today. Jim Walsh and I are trying to reset the debate on the purpose of the corporation. We think the wrong questions are being asked, everybody asks, "What's the best model for the governance structure of the modern for-profit corporation?"
14:05 Tom Donaldson: We debate endlessly whether it should be the stakeholder model or the shareholder model, but to us, this gets the question wrong. While most agree that business minimally involves a creation of value, there's a blurred double image of value that haunts our discussion of purpose. The image of what counts as value for a single firm is laid atop an image of what counts as value for business in general. These two images cannot match, indeed, the resulting conceptual blurriness is a classic example of what we identify as a composition fallacy. We should never mistake the properties of a part for the properties of the whole. We should ask rather, "What is the purpose of business?" And then work backward to determine what the purpose of the individual corporation should be, it may turn out, as I suspect likely that not all firms should define their purpose in the same way. An ecology of firms, perhaps some with more narrow Friedman like purposes and others who may even define their purposes like Mother Teresa would. And here think not only of social impact firms, but many tech firms such as Google, Apple and LinkedIn, such a wide ecology of firms can serve the purpose of business and society better than a cookie cutter collection of same purpose firms, the ones that are meeting a prominent academic business school strategies.
15:35 Tom Donaldson: Jim Walsh and I asked this question, "Medicine is to health as law is to justice, as business is to what?" Fill in the blank. The silence was deafening. We simply don't have a confident answer to that question among the usually confident professors of modern business schools. Jim Walsh and I have argued that the purpose of business is to enhance collective value, where collective value is defined as the satisfaction of intrinsic values, such as economic security health and fairness, but again, from what I just said, you can see that Jim and I do not believe that this means every company marches to the same tune. Each company, and for that matter, each industry enjoys a moral free space in which to write some of their own music.
16:24 Cindy Moehring: So how did you guys fill in that blank?
16:29 Tom Donaldson: We think there are some key questions that any business has to ask itself about how it fits into the ecology of the broader purpose of business, so if I'm a commodity-style business, mining bauxite in a far part of the world, my strategy and the way I define my purpose may be different from other companies or on the other end, consider Health Care firms. Now, you may disagree, but it seems to me that when you're in an industry, that enshrines a key intrinsic value such as health, and that's what business should be there to satisfy intrinsic values broadly. When you're in an industry that enshrines a key intrinsic value such as health in addition to return on investment for your shareholders, you better put health somewhere in that picture.
17:34 Cindy Moehring: Well, I really liked at the end of the piece that I read, that was some of your research, where it said that, "The purpose of business is if you were to fill in the blank, prosperity."
17:47 Tom Donaldson: Prosperity sums up the fact that we're not only talking about higher numbers when we get our statement from a brokerage firm, we're talking about real prosperity, which includes so many other human elements.
18:04 Cindy Moehring: Yeah, yeah, that was a nice way to sum it up, and then it sort of rolls off the tongue a bit better and fills that deafening silence in the room when you ask the question about what is the purpose of business? So good work done on that, so as we sum up here, I always like to ask just a couple of other questions to help provide some additional resources for good books or fun shows that bring up some ethical dilemmas that my guests have been reading or watching. So let me ask you, what are some of the best books, one or two that you've read in the last few months?
18:40 Tom Donaldson: I'd have to pick the book that I just finished a couple of weeks ago, it's entitled Out of China, How the Chinese Ended the Year of Western Domination and it's by a very well-known historian, Bickers. I think that book for me opened my understanding of how there's plenty of blame to go around in the history of China and how hard it is for the Chinese to see it from our point of view. And that is our meaning the West, and maybe especially the United States and vice versa. It was really helpful to learn about the way in which the colonial powers made mistakes such that today, every Chinese child reads about that history and wants to avoid it. I just think it casts a light on an area that is so important now as we... In a period of rising tension, which...
19:47 Cindy Moehring: Yeah, it is. That's a great recommendation. I'm gonna add that one to my list, and so what about shows, have you watched any fun shows just to relax, but yet while you're watching them think, "Oh my goodness, that's just got all kinds of ethical issues in it."
20:01 Tom Donaldson: Well, you know, I've talked about Ozark which is...
20:05 Cindy Moehring: I love that one.
20:06 Tom Donaldson: Close to where you are and boy, there are plenty of them. That's a fun series and lots of great meat for the business ethics, but I wouldn't pick that one is the one I'd recommend most in this category. I'd recommend Devs, D-E-V-S. It's a series that raises ethical questions about the encroachment in our personal lives of big tech. And it's semi-science fiction, but it knocks you down and it makes you think.
20:40 Cindy Moehring: Very interesting. Well, I will add that one to my list now that I have finished Ozark. [chuckle] Well, Tom, this has been a true treat to be able to hear from you today and to be able to have this conversation. Thank you so much for taking the time and sharing your thoughts on Andy's article. And we will talk to Andy also and see what his thoughts are as well as some others, but you have added a real critical piece of the puzzle here with sharing your thoughts, so thank you very much.
21:12 Tom Donaldson: It's been a pleasure, thanks.
21:15 Cindy Moehring: Thanks for listening to today's episode of The BIS 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.
