Abstract
Preparing students for the consequential ethical decisions that they will face in their careers is among the most difficult tasks of management education. I describe some of these challenges based on my book Why They Do It: Inside the Mind of the White-Collar Criminal and recent work in behavioral ethics. I explore why some decisions are much more easily resolved in the classroom than in practice and offer three ways to more effectively prepare students: integrating ethical decision making with core-discipline teaching, cultivating moral humility rather than moral confidence, and creating opportunities for norm reinforcement.
“What we all think is, when the big moral challenge comes, I will rise to the occasion . . . ”
Steven Garfinkel, the former chief financial officer at DVI, made this observation at the end of one of his conversations about his career with me. Notably, it is a sentiment widely shared by business school students as they embark on their careers. After studying how to resolve dilemmas in a variety of challenging case studies, students feel confident that they can capably handle many of the difficult challenges that might come their way. That too was Garfinkel’s belief when he graduated from his own well-regarded management program. In the years after completing his degree, Garfinkel would go on to achieve considerable success by becoming chief financial officer at a large medical financing firm. It was the kind of prestigious, well-paying leadership position that many, if not most, students aspire to achieve.
When he was seemingly at the peak of his career, however, Garfinkel would make a series of consequential errors that would undo much of this accomplishment. He began fraudulently double-pledging his firm’s assets to different lenders as his firm faced mounting financial pressure from creditors. Soon, Garfinkel would go on to become one of the first executives prosecuted under the newly created Sarbanes–Oxley Act. For his crimes, Garfinkel would be sentenced to nearly 3 years in prison. But none of this is what Garfinkel expected for himself as he embarked on his career. “I didn’t realize I would be a felon,” he lamented. 1
As educators, cases like Garfinkel’s ought to be humbling. In many regards, he is similar to many of our brightest and most ambitious students who leave our classrooms with every intention to do well, but somehow later find themselves making choices that are in direct opposition to these earlier aspirations. On the final day of classes, no student expects that they will deeply falter when presented with a moral quandary later in their career—yet some will. Why do intelligent and often well-intentioned individuals make decisions that are so detrimental to themselves and others?
Over the course of nearly 8 years, I spent much of my time extensively corresponding with and visiting nearly 4 dozen former executives, like Garfinkel, who were once regarded as successful corporate leaders but now found themselves in decidedly different positions. I wanted to see how they viewed the world around them, dealt with the pressures they faced, and managed their decisions. I thought that by better understanding their perspectives about how they made and reflected on their decisions, I might gain a better sense of why people make these ill-fated choices.
In these conversations, the former executives displayed a range of different attitudes toward their criminal activity. Some, like Steven Hoffenberg, who confessed to running a nearly half-billion dollar Ponzi scheme in the early 1990s, were unapologetic. “Morals go out the window when the pressure is on,” he explained to me. “When the responsibility is there and you have to meet budgetary numbers, you can forget about morals.” Hoffenberg described how ethical considerations could be dispensed with while engaging in fraud, but the aspect of executive decision making that I found most intriguing was how little these executives considered the consequences of their actions. “At the time this was going on,” Scott London, a former KPMG executive, told me in regard to his insider trading, “I just never really thought about the consequences.”
London was not alone—I heard similar sentiments expressed by other executives. I found the lack of forethought about the consequences surprising since I initially focused my attention on understanding their criminal actions as rational-choice models would predict. 2 In the 1960s, Gary Becker, an influential economist at the University of Chicago who would later go on to win a Nobel Prize for his research, modeled crime as a trade-off between the expected benefits and the expected costs. To the extent that the benefits exceeded the costs, it was rational to proceed with a criminal endeavor. Prosecutors, attorneys, and judges often appealed to Becker’s framework when describing the motives for white-collar criminality since it seemed well aligned with how executives supposedly made decisions in their corporate work. To me, as a scholar who was trained as an economist at the University of Chicago (and whose graduate courses were also taught by Professor Becker no less), this model seemed like an appealing way to approach understanding these decisions. Yet the challenge was that the more time I spent listening to these former executives the less their crimes seemed the products of an analytical cost-benefit model.
To see this, consider the case of Sam Waksal, the CEO of the biotechnology company named ImClone Systems. In late 2001, Waksal awaited the Food and Drug Administration’s (FDA) approval of ImClone’s promising new cancer treatment. To most market observers, there was little doubt that it would be approved after the FDA put the drug on its fast track for approval. Unexpectedly, the FDA decided to require additional costly testing forcing ImClone to cancel the drug’s release. After privately learning of the FDA’s rejection, Waksal called his daughter and told her to quickly sell her ImClone shares before the news became public. Such illicit trading was exactly the kind of insider trading that regulators monitored—a fact that Waksal was not oblivious to. “I don’t know what I was thinking,” Waksal explained as he struggled to understand how he could have made such a myopic decision. “I wasn’t, sadly.” 3
Like Waksal, most executives I spoke to were not denying that they engaged in a serious offense. Yet they could not understand how they had reached those consequential judgments. One executive put it especially bluntly when I asked him about comparing the costs and benefits of engaging in his crime: “you just don’t think like that when you’re making this kind of decision,” he responded. After hearing similar sentiments again and again, I decided to step back. I realized I needed to reexamine what I was hearing through other academic disciplines and perspectives.
The common presumption is that decisions—especially consequential ones—are made with deliberative thought and analysis. Yet a growing body of evidence, especially from recent research in moral decision making and behavioral ethics, argues that our intuitions and gut feelings play an extraordinarily influential role. 4 The problem is that since these gut feelings lie outside our observable consciousness, we do not ordinarily see or appreciate the role they play.
Building off this work in psychology, I decided to envision these executives’ criminal decisions as failures of intuition rather than failures of reasoning. Such a reframing did not change the impact of these executives’ actions—white-collar crime still had the same detrimental effects. Yet it fundamentally represented a different way that executives could have reached a judgment to engage in crime. The obvious question was if these crimes did arise from failures of intuition, why did executives not intuitively see the harm associated with their judgments and choose a different course?
White-collar crime is not like most other criminal offenses. To steal someone’s wallet, you need to get close to that person, touch their physical belongings, and see their harried reaction as they realize their wallet is gone. It is a physically intimate affair. I spent a lot of time around convicted felons who had stolen many millions of dollars through their actions, but I never once worried about one of them reaching into my back pocket to steal my wallet. As reasonably socialized individuals, they would have instinctively avoided such an offense. However, for most white-collar crimes, the harm created by a dab of a pen or an adjustment on a spreadsheet does not require getting close to individuals. The victims are physically and psychologically distant. In some cases, like insider trading, the victims might not even be identifiable. As a result, perpetrators of white-collar offenses do not experience the same gut feeling of doing harm that kept my interviewees from reaching for my wallet.
There is a well-known philosophical puzzle, known as the Trolley Car Dilemma, which helps illustrate the difference in our natural intuitive reactions when harm is more intimate or distant. In the dilemma, a trolley car is running out of control and headed toward five workers who will all die when it hits. You happen to be standing off to the side near a rail switch. If you pull the switch, you can divert the runaway trolley toward another track where it will kill only one worker. Would you flip the switch?
The vast majority of people say they would flip the switch saving the five workers at the cost of the one. But consider a slight modification to this scenario. The same runaway trolley is again heading toward five workers. This time you are standing on a footbridge over the tracks next to a man wearing a very large backpack. If you give the man a nudge, he will topple over the railing onto the tracks, stopping the trolley. You would save the five workers, but kill the man with the backpack. Would you push the man over the railing? Survey evidence shows that most people—over 90% in fact—would not.
What is interesting in comparing these two situations is that although the number of lives saved or lost is identical, most people are innately inclined to immediately say “no, I just cannot harm the man with the backpack even if it saves four additional lives” when they confront the second dilemma. Understanding why people react in this manner has been the goal of extensive investigation, including in labs equipped with brain scanning equipment. 5 The evidence suggests that the differences in our responses can be explained by the emotional discomfort in causing visceral and direct harm to another individual. When this intimate harm is absent, as in the switch dilemma, we are able to proceed without this discomfort.
Suppose the reason we often see intelligent—even quite strategic—leaders fail is because human intuition is not always well suited to sense more abstract, psychologically distant harms. What kinds of questions and challenges does this raise for management education?
Many classes and aisles of books are devoted to topics like setting core values, honing one’s moral compass, and developing authentic leadership. These efforts are premised on the belief that values steer choices when pressed and students will be able to more capably handle challenges through greater character development. But consider the way one tech executive managed to avoid facing potentially serious sanctions.
In 2002, a successful venture capitalist named Ben Horowitz hired Sharlene Abrams as a chief financial officer for one of his firms. After reviewing the compensation policies for executives at the firm, Abrams pointed out that there was a policy at her prior company, and many others in Silicon Valley, of adjusting the stock option grant date to coincide with the lowest stock price within the prior month, in order to offer executives more financial benefit. Although this sounded attractive to Horowitz, he also appreciated that his expertise did not lie in the finance and accounting domain and that his intuitions about the propriety of such changes might not always be right. Consequently, before making any accounting change, Horowitz had a policy of always running proposed ideas by someone else to get another outside opinion before signing off. In this case, when Horowitz’s confidant came back to him after reviewing the policy, he said the change did not look strictly within the bounds of the law. Despite the fact that a leading accounting firm signed off on the practice and many other firms in Silicon Valley were doing it, he advised against adjusting option dates. Horowitz followed this guidance. Two years later, regulators began looking into “options backdating,” a scandal that engulfed many Silicon Valley companies, often with the support of their law firms. Abrams was indicted and ultimately sentenced to prison for backdating at her prior firm. 6
The reason Horowitz avoided a similar fate and continues to be a well-respected venture capitalist has little to do with his values or with being a more “authentic leader.” Instead, Horowitz understood that his intuitions about a particular accounting policy might not necessarily be in tune with the law. Appreciating this limitation, he designed a system that provided an external source of counsel to intercede before he might be compromised. It was the organizational systems and controls, rather than Horowitz’s personal values in that given moment, which helped him avoid the criminal sanctions that others in his industry faced.
Horowitz’s example is not to suggest that effective leadership and avoiding misconduct are independent of an individual’s values. No doubt, the desire to maintain certain values is what instigates efforts to create and support the kind of systems needed to avoid criminal conduct. At the same time, we should consider whether as educators we give too much credit to stated values in steering day-to-day conduct while understating the impact of surrounding norms, situational pressures, and institutional incentives.
The evidence from the psychological literature provides considerable support for the idea that social elements surrounding a decision often dominate individual character and personality. 7 Evidence supporting this can be found in many of psychology’s most famous experiments including Milgram’s obedience shock study and Zimbardo’s mock prison experiment. 8 In more recent research, behavioral ethicists have provided hundreds of instances in which normal individuals lie, cheat, and steal without even appreciating that they are behaving in a manner that is inconsistent with their purported values and self-descriptions. 9
There is a disconnect between what we understand from research about decision making and what we teach. Despite compelling academic evidence showing how people respond to perverse incentives and difficult circumstances, management education often continues to espouse individual character as the motivating factor that influences success or failure when placed in these circumstances. 10 As a result, management education may not be providing students all the tools needed to most effectively confront the murky decisions they will inevitably face.
Much as it would be ineffective for a coach to train his or her athletes under conditions that are unrepresentative of a competitive match, it is ineffective to teach students how to resolve ethical decisions with tools and processes that are not representative of those needed in practice. Thus, a critical challenge for management educators is how to reduce this gap between teaching and practice. To foster approaching this challenge differently, I offer three ideas to help more effectively prepare students for the ethical challenges they will face during their careers.
Advancing Ethics Training for Managers
1. Integrate Ethical Decision Making With Core-Discipline Teaching
Modern management is a challenging area for academic inquiry since many of the most important questions raise issues that are broader than the expertise of individual scholars. The area of business ethics exemplifies this difficulty with the number of areas of academic inquiry it touches. Psychology explores the basis for how people act and why some decisions are made quickly and some are made more deliberately. Organizational behavior explores how norms and cultures influence decision processes. Finance explores how governance structures can help mitigate or avoid conflicts of interest that create moral quandaries. And philosophy considers approaches to weighing the merits and values of different positions.
For business ethics, this interdisciplinary challenge is usually addressed by teaching a separate course with faculty who have an interest in drawing from interdisciplinary bodies of knowledge. 11 Although such an approach makes teaching more manageable and exposes students to a diverse set of different approaches, treating business ethics as a separate discipline in its own course decontextualizes moral decisions from the actual settings—marketing, strategy, accounting, finance—in which decisions are made. Unfortunately, moral quandaries that students will confront in their careers are not so neatly demarcated.
All areas of management have dilemmas that can be viewed differently through the prism of ethics and morality. Within discipline-based classes, however, rarely are these broader trade-offs seriously discussed. A strategy professor, for instance, is unlikely to delve deeply into the externalities associated with competition. Similarly, an accounting professor will tend to rely on the rules as guiding appropriate or inappropriate conduct, rather than considering whether fluctuating laws reflect sustainable principles.
If we want students to view decisions as not simply marketing, finance, or strategy decisions, but as managerial decisions with significantly broader trade-offs and ethical implications, faculty leading discipline-based classes need to incorporate this perspective into their core teachings. 12 The challenge is that faculty often feel ill-prepared to discuss those perspectives and thus uncomfortable raising these issues with students. Overcoming this hurdle requires management faculty to expand their teaching beyond their narrow subdomains of expertise. 13
In most areas of academia, students want faculty to teach courses that fall within the latter’s area of expertise. But perhaps we need to recognize that there is something different and special with management education. Practicing managers do not divide their decisions by discipline—so why do we do it as instructors? Confronting this challenge requires breaking down the perception that faculty in business schools are simply teachers of a particular discipline. Instead, by conveying relevant and actionable knowledge for practicing managers as it will be used in the field, business school faculty become instructors teaching management rather than narrow academic disciplines. 14 Aligning how courses are taught with how the information is used in practice by managers would increase the relevance of management education.
2. Cultivate Moral Humility, Rather Than Moral Confidence
A second factor contributing to the gap between how we teach moral decision making and how moral decisions are ultimately made arises out of our well-intentioned but misplaced desire to instill moral confidence in students.
Management students spend a considerable number of hours discussing ethical dilemmas in the classroom. Faculty provide frameworks to students to make them more effective decision makers, so that by graduation, they possess the sense that they can effectively tackle big problems if and when they confront them.
However, the tools provided by educators are often far more useful within the context of the classroom than in the field. To appreciate this, consider how business ethics discussions progress in a classroom. We bring students into a room with a well-identified problem, spend an hour or perhaps more discussing a resolution, and encourage individuals to express different views as part of the conversation. But in practice, the process for resolving difficult decisions is often vastly different: Moral dilemmas are not clearly identified, managers are forced to make decisions quickly without much time for deliberation, and managers lack a diversity of viewpoints to draw from and consider.
In many instances, the classroom setting vastly simplifies the challenge of resolving moral dilemmas. 15 Many of the prominent executives I spoke with, I suspect, would have offered judgments in the classroom that differed from those they made in practice. For instance, if the ethical and legal implications of his choice were as clear as they would be in a classroom setting, would Waksal have chosen to call his daughter and tell her to sell her shares? Differences in the salience of the ethical dimensions of choices, the decision-making processes, and the level of diversity in opinions make classroom scenarios unrepresentative of real life.
The collective evidence from the behavioral ethics literature offers numerous reasons to be wary of moral overconfidence: we have a tendency to be dominated by circumstances, we are prone to act unethically when pressed by incentives, and we often diverge from our values without realizing it. If we accept that our students are not likely to be, on average, innately special or “better” than the representative people in this research, then these results should challenge educators to reconsider how to help students avoid falling prey to these biases and mistakes. 16 Instead of trying to instill confidence in students that they are well equipped to handle the most difficult challenges they will confront in their careers, maybe we should instead focus on cultivating humility.
Those of us who try to inspire our students might be uncomfortable with leaving them instead with the impression that they are prone to error. However, helping students understand what research says about human behavior, and then working to design more innovative solutions like the one Horowitz came up with, is likely to offer the more effective way of actually confronting these challenges. It is only when students recognize that moral decisions are not always as easy as in the classroom—and that in fact, they might not even recognize a moral dilemma when facing one—that they will be compelled to undertake the struggle to identify and seek better resolutions for these kinds of dilemmas. 17 Put differently, we must help students appreciate that the most effective way to avoid making major moral errors is through continued effort, diligence, and most critically humility. 18
3. Create Opportunities for Norm Reinforcement Throughout Careers
The final factor to consider in how our teaching may not live up to the demands of practice is how we fail to reinforce learning itself. Earlier, I described how we are not hardwired to intuitively avoid certain kinds of misconduct. To confront this limitation, we can cultivate norms, such as those about how to treat colleagues, competitors, and clients, to help us avoid making poor or harmful decisions. But for these norms to be effective in conditioning behavior, they need to be continually reinforced through practice and effort. In my book, I describe a case that shows how easily newly developed norms can be corrupted.
Anil Kumar was a well-respected senior partner at the celebrated consultancy McKinsey & Company. Kumar had spent his career protecting client confidences, delicately handling some of his firm’s most sensitive information. Decades into a laudable career, he began interacting with Raj Rajaratnam, a billionaire hedge fund trader. Rajaratnam routinely employed confidential information as a source for his profitable trading. After repeatedly interacting with Kumar, Rajaratnam lulled Kumar into a different set of norms where it was acceptable to provide confidential information from McKinsey clients. 19 Kumar would go on to provide Rajaratnam inside information, unraveling both their careers and leading to their criminal convictions.
Kumar’s experience illustrates the importance of norm reinforcement. Despite decades of practicing a particular norm of protecting client confidences, repeated interaction with someone holding starkly different norms created the impetus and later reinforcement for Kumar’s norms to change. Like Kumar, who himself graduated from a top management school, our students often leave management programs with a set of principled norms. Through interactions with people holding different and potentially less laudable norms, the principles that students held during their management programs can become corrupted and will no longer be reflected in their behavior. 20
A single touch point in life might be simply insufficient to effectively impart the critical norms that management programs aspire to provide. A semester-long course that is approximately 40 hours in duration is equivalent to just the first few days of work and exposure to the culture of a new firm. But management education does not need to end at the completion of a formal degree or certificate program.
Management programs frequently have contact with students later in life, both as alumni and through executive education programs. Might we think about finding opportunities at those moments to reinforce the norms that are cherished within management programs and that many students aspired to when they began their careers? If norms change over time when not reinforced, and if we believe that management programs offer students a set of principles that contribute to their future success, then management programs need to find opportunities to convey this knowledge to students not just once in their education but throughout their careers. Such a view would recognize that educating a manager, especially on a subject as challenging as ethics, is not something completed in a single course or program, but rather is a process that continues over one’s professional life.
Conclusion
Ethical quandaries are some of the most difficult issues that managers face and we confront as management educators. The importance of addressing these issues within business programs is widely understood, but our approaches to teaching the topic have not always kept up with the advances in our understanding of how people become morally and legally compromised in their careers.
Much as firms must adapt and innovate when new disruptive technology emerges, we as faculty cannot satisfactorily address this challenge by just adding an additional course, as if moral decision making is simply another academic discipline. Rather, we need to reconsider and reframe how we actually incorporate this material into our curriculum and into our management programs more broadly. Many of the observations I describe here nudge us to be more ambitious when thinking about what management education can offer students to help confront moral quandaries. From what we know and teach as educators, to how we teach it, to when we teach it, there continue to be many opportunities to expand our impact on students who will face difficult moral decisions throughout their careers.
Footnotes
Acknowledgements
I would like to thank Joe Badaracco, Max Bazerman, Paul Healy, and Mike Tushman for their helpful feedback on earlier drafts.
This article is part of the Special Issue “Behavioral Ethics”
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This work is supported by funding from the Harvard Business School.