Need for Ethics in B Schools

Indian Institute of Management, Kozhikode

Business Ethics Project B- Schools teach business ethics .Do students learn?

Submitted By:

Anuj Sharma

Skiti Lakhmani

Sushant Kumar

PGP/17/008

PGP/17/051

PGP/17/053

V Sharada PGP/17/058

DECLARATION OF AUTHENTICITY

We, the undersigned, declare that this report is our original work, gathered and utilized especially to fulfil the purposes and objectives of this project. We also declare that the material presented for assessment is entirely our own work and it does not violate any copy right rules, legal or privacy rights of others. We further submit that all references have been duly acknowledged.

Date: 10-12-2013

Signature: Anuj Sharma Skiti Lakhmani Sushant Kumar V.Sharada

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Index Chapter-1 Introduction ……………………………….…………………………………………………………….………………………1 Chapter-2 The case of Rajat Gupta .……………………………………………………………………………………………………2 2.1 The person 2.2 The story 2.3 Applying value ethics 2.4 Applying Utilitarianism and Consequentialism Chapter-3 Need for Business Ethics in B-Schools ………………………………………………………………………………5 3.1 Need 3.2 How does teacher feel about it? 3.3 Does BE teaching is relevant or irrelevant? Chapter-4 Whether students want to learn BE ….……………………………………………………………………..……….7 4.1 Teaching methodology and the motive behind the same 4.2 How do students perceive ethics? 4.3 How important do students feel theoretical knowledge? Chapter-5 Conclusion ………………………………………………………………………………………………………………….……11 References Figure 4.1 ………………………………………………………………………………………………………………………….9 Figure 4.2 ………………………………………………………………………………………………………………………….9 Figure 4.3 ………………………………………………………………………………………………………………………….9 Links and References…………………………………………………………………………………………………………12

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Chapter – 1 Introduction The financial crisis of 2008 had left behind a poorer and understandably more frustrated society, which questioned where the culpability lied for the seemingly ever lasting damage inflicted by the recession. When the question arose, naturally the eyes turned towards the leaders, those who promised to lead the economy towards a brighter and better place. Government heads, CEOs of financial giants weren’t spared. In the end, it trickled down to the very educational base they originated from. The B-Schools naturally, received a battering from the media and the society for serving as breeding grounds for individuals who have a skewed understanding of business ethics. We are here to tackle this very question. Do the B-School curricula sufficiently prepare MBA students to face the ethical questions posed by the business practices across the world? How much are these students learning and imbibing these teachings in their everyday decisions and actions? We followed and exploratory and explanatory method while answering the questions which arose during the course of the project. We analysed real life case studies, conducted surveys and interviews to familiarise ourselves with the on ground situations.

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Chapter – 2 The Case of Rajat Gupta The case of Rajat Gupta, ex-Managing Director of Mckinsey and Company, convicted of insider trading dominated headlines last year. One of the most prominent and well respected business leaders, the world was divided on the quantum of punishment to be awarded to him considering his contributions to various societal causes and philanthropic endeavours. 2.1 The person Gupta’s life story was the perfect embodiment of the Great American Dream before the trial. Orphaned at 18, and backed by an educational degree from the prestigious Indian Institute of Technology Delhi, Gupta went on to do his MBA from Harvard. Later on, he became the first non-American managing director (worldwide) of McKinsey and Co, director on Goldman Sach's board, director on Procter & Gamble's board, adviser to the UN Secretary General, trustee of Rockefeller Foundation, adviser of several world renowned companies and NGOs, and was personally worth close to $84 million. He was also a noted philanthropist – having made significant contributions to various universities and other educational institutions as chairman and member of several boards and councils including University of Chicago’s Board of Trustee and Yale President’s Council. He is also the co-founder of the Indian School of Business along with Anil Kumar, and has also contributed significantly to various health initiatives such as The Global Fund to Fight AIDS, Tuberculosis and Malaria, Public Health Foundation of India and India AIDS initiative of the The Gates Foundation. 2.2 The Story The sordid saga unfolded in March 2011 as the S.E.C. charged him in the largest insider trading case in United States history. Gupta was accused of placing a call to Mr. Rajaratnam, CEO of Galleon Holdings (hedge fund) after learning that Goldman Sachs had approved a $5-billion investment by Warren Buffett’s Berkshire Hathaway Inc. Mr. Rajaratnam then proceeded to buy stocks worth $35 million to take advantage of the movement in stock prices as a result of this deal. A federal judge called it “the functional equivalent of stabbing Goldman in the back.” In October 2012, in a New York court, District Judge Jed Rakoff found Gupta guilty on three counts of securities fraud and one count of conspiracy and sentenced him to a two-year prison term and a $5 million fine.

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So, what are the typical ethical questions that the entire episode raises?

Error in judgment or criminal conspiracy?

How did Gupta, as such an accomplished figure in the world of business, commit such a grave error in judgement?

If intentional, what prompted a millionaire with a net worth of close to 84 million to indulge in such an activity of a criminal nature?

Should the judges have kept in consideration Gupta’s philanthropic endeavours while awarding him the punishment?

2.3 Applying value ethics Virtue ethics is an agent-based approach to ethics. This approach focuses on inherent character and motivations of the individual rather than limit the individual to prescribed rules or guidelines. It states that the ultimate goal of the individual should be to achieve excellence in moral standards and behaviour while keeping in mind virtues like courage, wisdom, fairness, integrity and consistency. By applying the concept of virtue ethics we can demonstrate that Gupta’s actions can be considered immoral on the following parameters: 

Integrity: Integrity refers to honesty, truthfulness and consistency in a person’s action. Gupta’s actions indicate lack of integrity towards his employer, Goldman Sachs, as he gives away internal and confidential information of the company to an outside party for personal benefits. What makes it even worse is that being in the industry for close to four decades, Gupta probably had full knowledge of the implications of his actions and yet chose to go ahead with it.

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Trust: Being on the Board of Directors, Gupta owed a fiduciary duty to the shareholders of the company. By leaking essential information he violated that trust reposed on him by the shareholders as well as other members of the board.

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Fairness: Gupta’s actions are unfair on principle as they put other investors who did not have the information on Buffett’s deal at a disadvantageous position and then used the information entrusted to him to benefit himself and Rajaratnam.

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Honesty: Gupta was dishonest with Goldman Sachs and his fellow board members to whom he implicitly promised not to share inside information by accepting a position on their board.

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Self-Control: Gupta did not exercise enough self-control as despite knowing the consequences of his actions he leaked inside information in the quest for a few extra zeroes in his net worth.

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2.4 Applying Utilitarianism and Consequentialism Utilitarianism can be simply defined as “greatest good for the greatest number”. It states that the required course of action is the one that leads to maximum utility, usually defined as maximizing happiness and minimizing pain. Consequentialism says that the consequences of any action should be kept in consideration while evaluating any decision on the parameters of ethics. Any act is considered morally right or wrong based on the outcome or consequence it produces. To evaluate Gupta’s actions based on utilitarianism one needs to examine the consequences for those affected either directly or indirectly. The primary stakeholders in the case were the person engaged in insider trading (Rajaratnam), the person who leaked the insider information (Gupta), and the company about which information is leaked (Goldman Sachs). Secondary stakeholders were the other potential investors in the market. While evaluating consequences from the standpoint of an egoist, insider trading has immense positive consequence as it helps the individual in making large sums of money for the insider involved. This, however, still entails the negative consequence of risk of being persecuted. For the investor community at large, insider trading means exploiting internal information of the company to trade unfairly in the market. This may lead to a huge negative consequence as people may stop participating in the market viewing it as an unlevel playing field. This will adversely impact capital formation and investment and in the long term, the economy as a whole suffers. Thus, the total weight of positive consequences is much lower than the weight of the negative consequences, and thus the probable happiness that can be produced by that action is greatly outweighed by the possible unhappiness, making Gupta unethical using consequentialism and utilitarianism.

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Chapter – 3 Need of Business Ethics in B-Schools 3.1 Need The world has seen many financial crisis but the recent sub-prime crisis and the scandals at many investment banks gives us a view that ethics is forgotten in making profits. Not only the financial sector, there is need for ethics in business in general. 

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Not only the scams but the growing inequality in the society is a concerning fact. It’s getting tough to ignore now. The executive pay cheques are getting fatter at the cost of someone else’s daily necessities. One more important aspect why business ethics should be taught in B schools is because of the contradiction between personal beliefs and the organizational beliefs. Individuals experience ethical conflicts when their personal belief set is shaken by the organizational codes and conducts. The relativity and subjectivity of ethics is also an important reason for teaching business ethics in B schools. Ethics is claimed to be a subjective topic and the simple question of what is ethical for someone might be unethical for the other. Ethics, as a course constitutes many theories which can be important for future managers to analyze their decisions.

The important question which arises is whether B schools should be blamed for the same or is it something which can’t be taught in B schools. We have already looked at a few examples of scandals where the conman has been a B-school graduate. B schools which are supposed to bring out the best professional behaviour in an individual might sometimes bring the competitive spirit for fatter pay cheques. Also, every firm has bad apples but when these bad apples are at the top of the tree, they can affect the organization in a very negative way. It suggests that either the stakeholders are not looking or the company has a corrupt culture. 3.2 How does the teacher feel about it? In an intriguing interview with the Wicklander Chair in Business Ethics at the Darden School of Business; Patricia Werhane was very disappointed with employees who had been involved in the Enron case who were also her students in University. She confessed that all those students had good grades in college. She also felt that once the course had been taught, her students would go out in the corporate world and bring the best ethical behaviour in them. She also suggests that as an addition to the Ethics course, students should be given reasoning skills so that they can be objective in their decisions and confess why they took a particular decision instead of just saying that they felt like doing it without any reasons. 3.3 Whether teaching Business Ethics is relevant or irrelevant? Seeing so many examples of unethical behaviour by managers all across the world, the important question arises is whether teaching business ethics in B-schools is relevant or 7

irrelevant. After conducting a small survey across various B schools in India, we came across surprising responses. While some B schools don’t have such courses at all, other B-schools have it as a part of their curriculum. Some B-schools have dedicated departments that help ethic to be implemented at a core level. Weekend workshops, guest lectures and sometimes pass-fail course also constitutes the teaching methodology. When asked about the effectiveness, some students straightaway rejected the effectiveness of ethics in their life. This leaves us with the open ended question again whether Ethics is relevant or irrelevant in B-schools. In an interesting experiment by Israeli game theorist Ariel Rubinstein, when students of Tel Aviv University were made CEO of hypothetical companies and given mathematical equations where the profits were related to the size of the company, most of them were ready to lay off employees to maximize profits without thinking about the consequences and the ethicality of the situation. On the one hand where B schools teach that the ultimate aim of business is to maximize profit and keep the shareholders (who are the true owners of the company) happy and satisfied, an ethics course contradicts with the views of profit maximization. The divorce between the subjectivity/relativity of ethics and the objectivity of economics leads to a constant divide between the mindset of people. Managers sometimes feel it difficult to give equal weightage to both these aspects of business. Economics and greed clearly shape the ethicality of a person where students are taught that any business situation should be dealt rationally analyzing the cost and benefits of taking a decision. Students are usually very myopic in their view when they come across a decision making situation. In a research conducted at the Aspen Institute shows that 60% of the new students in the school thought that maximizing shareholder’s profit is the ultimate objective. When the same students were subjected to same situation during the mid of curriculum, the number rose to 69%. Though, maximizing shareholder’s profit is not wrong but the intriguing question which arises here is whether business and managers ultimate role is just for profit making or it has a larger role in society. Also, do B schools completely change the thinking process of an individual who had his/her morals intact but after joining a professional course like MBA changes the thought process? Even if we consider that teaching ethics is relevant in B schools, is the teaching methodology to be blamed? Can a standalone course teach ethics to the budding and competitive managers in this corporate setup or we need to incorporate ethics in mainstream course like finance, accounting or economics? Also, employers who give a lot of weightage to hands on training and global course work also need to demand for more ethics instructions. But on the other hand companies just do the opposite by stating that an ethics course won’t make or break a hiring decision since firms especially tend to train the new hires for the upcoming job. Again the question boils down to the fact whether an A in an ethics course is really a valid way of judging an individual’s moral values.

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Chapter – 4 Whether students want to learn BE The reason for teaching business ethics in major universities is clear. But, what do the students feel? How do they perceive this subject? Is this yet another elective or workshop which is taken as a free hour, left to do anything the heart desires? Or is it a compulsory course, with a mandate in attendance, which they grudgingly attend? And, given that the students are interested in learning ethics, owing to the importance it plays in every decision they would be making as a manager in the future, how do they want it to be taught? -

Role-plays? Debates? Readings and cases? Movies? Seminars and workshops?

These are the key areas which will be discussed in this section. 4.1 Teaching methodology and the motive behind the same: When we talk about the learning curve, we also need to discuss the methodology of the teaching employed in various B-Schools. We observed that it is an eclectic mix of seminars, workshops, elective courses and compulsory courses. It should be emphasised that, the effectiveness of these techniques can’t be measured solely based on the grades obtained, but by the ethical standards of the students in question. We have to remember that all these methods are directed towards the managers of future who are receiving education in the present. It is a matter of immense importance that students understand and appreciate the connection between acting ethically and business outcomes such as profits, sales growth, etc. Exposure towards understanding and examining ethical issues is recommended so that students understand the vitality that ethical conduct holds and its impact on the organisations they’ll serve and the society at large. Moreover, the role of business schools in tertiary institutions, trade associations, business community and the news media will play a stronger role in fulfilling this mandate in the future. 4.2 How do students perceive ethics? Are we able to observe significant changes in their ethical stand? To find out how much students learn and implement ethics in a B-School, we conducted a survey. We asked the following questions as a part of the survey: 1. You just printed a 200-page document that used all the paper in the printer. 9

2. Your boss hands you a stack of papers that accidentally includes confidential personnel files. 3. You're running late because you got a little too happy at last night's happy hour. 4. You haven't had a vacation day in months and realize you'd like to take tomorrow off. 5. In the middle of the most boring business meeting, you realize you could be more productive (or less bored) if you were at your desk instead. 6. You find out your cubicle neighbour is having a secret affair with the intern in accounting. 7. You just accepted a job offer at a new company. It begins in a month, so you're going to wait two weeks to give your notice. The next day the boss comes in and explains how he wants to restructure the department and your role is pivotal. 8. You know the boss is in a terrible mood. You also know your co-worker is about to go ask the boss for a ridiculously large raise. 9. Its 3 p.m. the day before Thanksgiving and everyone is on vacation. The phone hasn't rung once and no e-mails have come in. 10. The boss loves the ideas you pitched to everyone and can't stop showering you with accolades. The problem is the ideas were a joint effort between you and your colleague. Our respondents encompassed students from various prime B-Schools in India. The break up is as follows: (i)

(ii)

(iii)

In terms of year of education: o 72% of first year students and o 28% of second year students. Gender based: o 42% Male o 58% Female Based on prior work experience: o 28% respondents didn’t have any prior work experience o 62% had work-experience within the range of 0-2 years and o 10% had work experience more than 2 years.

The questions asked involved basic ethical dilemma an MBA graduate may encounter in the work place. The questions provided three options to the respondents to choose from. The first option was the most ethical behaviour and the expected thing from any individual in corporate world. Second option was the casual behaviour towards the situation and the usually encountered thing in the corporate world. The final option was the unethical behaviour and which is never expected from any individual. The respondents involved were the ones who had studied ethics course at least once. The main purpose of the survey was to observe that “Does ethics principles studied in class are used by students when faced with ethical dilemma”.

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1. Out of the total respondents, 72% opted for the ethical behaviour in majority of situations. 22% opted for the casual behaviour and 6% opted for the unethical behaviour when faced with the dilemma. This shows that teaching business ethics definitely had an effect in the standard of ethics followed in the general population. Thus, proper implementation of the course can reduce the number of cases involving unethical behaviour as in the case of Enron. Insert Figure 4.1 here 2. Since freshers had never encountered the real situation in a work place, they seemed to be unaware of the intricacies of a business environment. Thus they opted for the unethical behaviour more when compared to those who had prior work experience. Hence, we are able to draw an observation that teaching business ethics supplemented with corporate exposure is able to tackle unethical behaviour more effectively. Insert Figure 4.2 here 3. An unexpected and rather surprising result that emerged out of the survey was the ratio of genders involved in unethical behaviour. Contradicting all previous mental notions and barriers, it showed that 78% of the female respondents display casual and unethical attitude compared to the 22% from the male population. This maybe an indication of the change in trends of the society. Insert Figure 4.3 here 4. One more observation from the survey was that the questions involving “taking the credit

for some work”, people usually prefer the ethical choice. While in cases involving daily routine activities, a casual and perhaps an unethical attitude is reflected. Based on these evidences, our suggestion would be to ensure that the focus should be based on changing the existing mind-set, which categorises ethical behaviour for more “important” situations, and not so much for day to day activities. It must be emphasised that ethical behaviour is not a switch that can be turned ON and OFF time dependant, but a way of life, which should guide the choices made regularly. 4.3 How important do students feel theoretical knowledge? To tackle this question, we spoke to MBA graduates, passed out of leading Indian B-Schools, working in various sectors. We chose this segment, as they would be able to identify the ethical dilemmas faced in everyday work and would have a contingency plan to tackle them. In the interest of confidentiality, the identity of the respondent is hidden. The respondent is a graduate from the 2011 batch of IIM, Lucknow and is currently employed with a leading financial services firm. The synopsis of the conversation is as follows: Q: What was the methodology followed for teaching business ethics?

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A: We had a 30 hour workshop, spread out over 10 weekends of 3 hours each. There were no credits associated with it. So, none of us really understood the importance of the workshop until we started working. Q: How relevant do you think the course is, in the context of business today? A: Well as I said earlier, we did not understand the importance the workshop held until we joined the corporate work force. Ethics was something we thought of as inbred, something that cannot be modified by one course in a post graduate college. I have come to realise that the aim of the course was not to modify behaviour, but to make me aware of the ethical conundrums that I may encounter when I am at the helm of affairs. This being said, yes, the course is highly relevant in the current corporate sphere. With all the scams, and crises caused primarily due to a fundamental lack in ethical behaviour, anytime is a good time to learn business ethics. Q: Any ethical issues faced by you in your organization? How did you tackle it? A: Well yes, on many counts, I have faced an ethical dilemma. The most prominent one being the times we have client calls. This is a regular affair, but the dilemma arises when we start recording the calls, without informing the client. It violates my personal ethical policy, but I find my hands tied regarding this issue. I have learnt to differentiate my work from personal policies, a schizophrenic approach, if you may. This has helped me cope with the conundrum to a certain extent. Q: Did you apply the theoretical knowledge imparted to you in the course of your post graduate curriculum? A: Honestly, while taking decisions on the line of fire, you do not think which ethical purview the particular issue falls under. But, the concepts taught in the course helps form a framework, following which helps me resolve the issue at a much brisker pace relative to a situation, where I may have been unaware of the principles.

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Chapter – 5 Conclusion The study suggests that the awareness of the importance that the subject holds has increased substantially in the last decade. The B-Schools have also responded favourably to this change by tightening the standards of the curriculum followed. However, there still exists a discord between the expected and the actual behaviour displayed by the students. We observed that while the ethical standards followed were high in case of crucial matters such as use of unfair means in examinations, these standards are compromised in case of everyday situations such as freeriding in a group, flicking blank sheets from the computer lab etc. Moreover, the observed trends suggest that the students are not only aware of the theoretical concepts but use it as a framework while taking decisions both while part of the programme and when they move to the corporate world. The ideas and classrooms discussions become a part of the subconscious latent memory which guides their actions when faced with moral dilemmas in the workplace. This suggests the success of the course in making more responsible, socially aware and ethical corporate citizens.

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REFERENCES: http://www.forbes.com/sites/freekvermeulen/2010/11/22/does-an-mba-make-you-unethicalfinally-some-evidence/ http://www.businessbecause.com/news/making-the-headlines/286/are-mbas-an-unethicalbunch http://viccareers.com/2011/10/31/are-mba-students-unethical/ http://www.forbes.com/sites/shawnoconnor/2013/05/15/the-responsibility-of-businessschools-in-training-ethical-leaders-2/

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