With the global economy in tatters, trillions of dollars in wealth destroyed, once mighty corporations bankrupted, and levels of unemployment unseen in decades, much public opprobrium has been leveled at the financiers and corporate chieftains who allegedly made this happen. There are some, like Ponzi-schemer Bernie Madoff, who intentionally cheated people out of their money; there are others who tried to hide results from shareholders through creative accounting; and there are many more who simply relied on poor assumptions or who made bad business decisions. Regardless of where they went wrong, the results were the same: jobs lost, wealth destroyed, and lives ruined.
If you ask what motivated the disgraced former CEOs of now-dead companies like Bear Stearns, Lehman Brothers, and Merrill Lynch, the standard answer is: greed. In the reckless pursuit of profits, the story goes, these people let their self-interest get the better of them—and now we are all paying the price. Rather than following ethical professional practices, these businessmen are said to have instead embraced with bacchanalian abandon what The New York Times has called an “era of immorality.”
But shouldn’t these businessmen—and the hundreds working with them, investing in them, and hiring them—have known better? After all, many were graduates of some of the nation’s top business schools, institutions that have for decades included courses in professional ethics in their undergraduate and MBA degree curricula. With such a heavy emphasis on ethics, why, then, did so many act so unethically?
Perhaps the problem is not the lack of ethics training, but the nature of the training. Are the ethics being taught at business schools teaching businessmen how to avoid the types of corporate failures that are so common today—and to instead achieve the type of enduring professional success that has eluded so many in this crisis? And if not, what then are they teaching?
Let’s take a look. The Wharton School of Business at the University of Pennsylvania has a Legal Studies and Business Ethics Department that “examines how business entities and individuals can better serve their own and society’s interests through the observance and promotion of ethical, moral and social values.” For instance, a course called “Markets, Morality & the Future of Capitalism” asks undergraduates to explore whether “markets contribute to the common good.”[1] At Harvard Business School, students are required to take “Leadership and Corporate Accountability,” a course that aims to help students grapple with the “complex responsibilities facing business leaders today,” which include, among other things, expectations to “respect society’s ethical standards and contribute to the communities of which they are part.”[2] Meanwhile, some HBS students have even originated an “MBA oath,” each promising that, “as a manager, my purpose is to serve the greater good” and to “strive to create sustainable economic, social, and environmental prosperity worldwide.”[3]
These examples reveal that the ethics training offered by the business schools, far from teaching businessmen how to achieve personal and professional success, wholly emphasizes altruism, that is, the consideration of others over one’s own self-interest. The implicit premise of these courses is that the businessman’s primary purpose is to serve social ends, not manage profitable businesses. The lesson students absorb is that, pragmatically, profits are to be made but, morally, they must be sacrificed for the sake of allegedly noble ends.
The unnoticed paradox is that as a result of this incessant focus on altruism, business schools actually communicate that business and ethics have nothing to do with each other. If only “giving back” and “building communities” are seen as requiring a definite commitment to virtue, then ethics logically has nothing to say about creating the profits that make such charity possible. Resultantly, businessmen are left reams of guidance on how to sacrifice profits, but no ethical training or guidance regarding how to create them.
Without any ethical principles to guide their actual profit making, is it any surprise that businessmen have acted disastrously? Bernie Madoff thought he could cheat reality by cheating clients of their wealth, hoping to maintain the illusion of wealth creation for the numerous charitable organizations invested in his funds. How many people in a position to grasp the fraud that Madoff was perpetrating hesitated because, according to the standard they had been taught, his behavior was a model of virtue? One does not look for fraud in saints—and by the conventional measure, Madoff appeared to be a saint.
Angelo Mozilo did not investigate whether his loans made good sense; he merely pawned them off on the taxpayers through Fannie Mae while making sure Countrywide was celebrated for its altruistic practice of making loans to people who could not afford them. Did any business ethics professor give his students the tools to recognize that an executive who does not evaluate the worthiness of his own products is ethically suspect, even if he goes out of his way to hire minorities or serve the poor?
Former Lehman Brothers CEO Dick Fuld thought he could leverage borrowed money indefinitely by taking greater and greater risks, expecting to be bailed out by taxpayers if his gamble failed. Did any of the managers under him conduct case studies in their business ethics classes of executives who did not practice the virtue of foresight? Did any class teach that risk-profit analysis requires tremendous honesty, and that such honesty is justified by its ability to secure long-term profitable results?
Madoff, Mozilo, and Fuld all lost their jobs, destroyed their firms, and wiped out billions of dollars in wealth. Trying to cheat the facts of reality, adhering not to rational business practices but to a yearning for the esteem of other men, and replacing the creation of values with wishful thinking—does not build wealth in the long term and more regularly leads to business failure in the short term. These men were taught that business and ethics had nothing to do with one another; is it any surprise that they are now the icons of the failure that type of teaching brings.
What none of them learned at their business schools is that actual, enduring profitability requires a deep commitment to and habituation of a definite ethics—in other words, that true wealth creation is the result of tremendous dedication to rational principles that have to be learned and practiced. They never learned the practical necessity of practicing integrity and justice in dealing with others. They never learned the power of intellectual honesty—the ability to recognize wishful thinking and emotional bias in oneself. They never learned that making money is an exercise in focusing steadfastly on the facts of reality, of actively engaging the rational mind, of possessing a dedicated, virtuous drive to produce.
Business students never learn the ethics of moneymaking because business schools have never invested in identifying and developing such ethics. There are no courses, for instance, explaining the meaning of integrity and showing students precisely how practicing such integrity is a necessity of wealth creation. There are no courses teaching students why morally unjust compensation schemes undercut business growth and how, as managers, they should go about practicing the morality of justice. There are no courses teaching students how honesty manifests itself in decisions regarding long-term versus short-term considerations.
A proper curriculum in business ethics would teach that successful production of wealth presupposes a tremendous moral commitment, and that the profits a businessman reaps as a result of his productive activities are not a guilt requiring atonement, but his reward for virtuous activity. Such a curriculum would teach that the rational, moral businessman is he who reinvests in himself and his business, pursuing long-term growth; it would teach that the irrational, immoral businessman is he who pursues short-term profits to spend on pleasure yachts or Perma-Tan, impervious to the long-term effects such behavior has on himself and his business. It would teach that the more virtuous the businessman, the greater his enduring profits—and that the more immoral, the greater his downfall, however high any illusory, transient moment of unearned success he happens to achieve.
In response to the demise of these former business leaders, the business schools have been calling on students and professional to become even more altruistic, hoping to further curb the allegedly immoral pursuit of profits they regard as the cause of the crisis. Lost in the analysis is the fact that these businessmen were not primarily interested in profits, and therefore failed to truly earn them. The manner in which these fallen businessmen ran their companies provides clear evidence that the honest desire to make money was not their motive. Their pursuit of short-term gains to be doled out in the name of altruistic ends (along with the adoration, popularity, and limelight that invariably accompany such altruistic practices) not only failed to generate profits, but indeed destroyed their companies and brought them personal ruin.
In advocating for increased altruism, the universities are creating more men like Madoff and Mozilo, and more pragmatic drones to follow and enable them. Clearly, this is not the solution to the ongoing crisis. Instead, business schools must rediscover (or discover) and impart the complex application of virtue that is profit seeking—and the honest, rational productivity it entails. Only then will they help produce truly ethical businessmen who can build and sustain viable, long-term wealth in America’s companies.
Ryan Puzycki received his BA in International Relations from Boston University in 2005. After spending some time working in the financial industry, he is now enrolled in NYU Stern’s MBA program.
The Undercurrent is a national campus newspaper that offers commentary based on the ideas of Ayn Rand.
[1] http://lgst.wharton.upenn.edu/About.htm
[2] http://www.hbs.edu/news/releases/062104_ethics.html
[3] http://mbaoath.org