Ethics for the New Business Manager

If you've been following the business news over the past decade or so, you know that it has been riddled with one scandal after another. Managers accused of cooking the books, engaging in insider trading, and doing all kinds of greedy things, seem to be all around.

As a professor of business administration and pretty honest guy, I take these news items a little personally. Management is my profession and teaching it is my calling, and I'm disgusted by anyone who gives my profession a black eye. I'm especially put off when people assume that scandalous managers learned to be that way through formal training and education, as if every MBA student has taken a course called "Fundamentals of Crooked Accounting" or "Advanced Money Laundering."

Nothing could be further from the truth. Every accredited business program must address "Ethics and Social Responsibility" as an important dimension of what makes a professional manager or businessperson. Frankly, though, when I address the topic in courses I teach, I cannot tell you that every student appreciates the importance of the issues, or has an epiphany that changes years of upbringing and personal conviction.

I can tell you that when I started teaching over fifteen years ago, there was an ethics paradigm that allowed for the idea that just knowing and obeying the law was all the ethics that any manager needed. As long as management played by the "rules of the game," s/he was on safe grounds. I'm not saying that this idea was right, I'm just saying that this model was common. Today, it sounds minimalist, barely adequate and only a notch above "it's legal as long as you don't get caught." Actually, the philosophy behind it is interesting and you should be aware of it, because it is not dead yet.

An important and influential economist named Milton Freedman is the most famous champion behind this line of thinking. So first understand that it is, very much, an economics point of view. But economics is powerful stuff and we depend on "the dismal science" to provide us with guidance on all sorts of important policies.

Picture the widow of someone who worked very hard for a company for many years, leaving a measly pension as his life's only economic legacy. The pension is tied to the company's economic fortunes, or Return on Owner's Equity -- the performance of common stock. The poor - literally poor - widow needs the managers of the company to manage it for financial performance, not any moral imperative beyond what good financial performance takes. Her life depends on it.

Otherwise, who died and left management the right to be goody-two-shoes on her dime? She owns the company, and so do all the other stockholders. They should determine what management does. Managers are only agents of the owners, not the principals themselves. Between government regulation and the invisible hand of the free market, companies will stay on their moral toes. Either the legislators will keep the company honest, or consumers will punish poor business decisions by taking its collective business someplace else.

Calm down, now, I didn't say that I agreed with that. I'm not trying to talk you into anything. I'm just explaining a traditional point of view that is still alive and well.

Over the past fifteen years, however, the more typical position about business ethics has evolved, more towards the idea that managers should, indeed, be moral agents and not simply seek to maximize shareholder wealth. But I chose my words very carefully in that sentence. I said that managers should not simply seek to maximize owner's equity, I did not say they should not only seek to do that. Only seeking profit is not simple anymore, if it ever really was.

Are you still confused? I'm saying that today, it is commonly accepted that regardless of your personal sense of business ethics, it is smart to be good. Investors nowadays, including our blue-haired widow, expect managers to behave ethically and morally. Also, our widow may not be able to sell company stock, but these days huge blocks of stock are owned by highly sophisticated and very powerful institutions, and they call the tune that managers play much more than any single investor can ever hope to. Today, they are calling the tune of accountability and disclosure, and it's no fad.

An idea associated with the concept of business ethics is that of social responsibility. The above discussion focused on stockholders. Stockholders are also stakeholders, but not all stakeholders are stockholders. Let me wipe the spittle off my chin before I explain that.

A stakeholder is anyone that has a vested interest in the decisions that the managers of an organization make. (Incidentally, organizations don't make decisions, managers do. This means you.) It's a buzzword, but it's an important one. Stakeholders include employees, citizens of local communities, political action groups ... heck, anyone or any group, potentially. What is called the "stakeholder concept" asserts that managers should consider themselves agents of all stakeholders, not just the stockholders, and make decisions that balance the interests of them all.

Well that sounds pleasant, doesn't it? I apologize for my cynicism, but the reality is that most managers weight the concerns of powerful stakeholders more heavily than the powerless. I too am charmed when I hear stories of businesspersons that act on behalf of the powerless as much as the powerful, but the general expectation is more realistic.

So as a new manager, don't beat yourself up for being a realist in all of this. You don't have the political currency yet to walk this gauntlet unscathed. Whether you act ethically because it is the Quixotic thing to do or because it is the Machiavellian thing to do, act ethically and responsibly because it is, at the minimum, the smart thing to do.