Ethics: The Key to Understanding Business and Society; Managers Need to Be Taught the Principles and Practices of Business Ethics and Sound, Responsible Corporate Governance If Businesses Are to Avoid Corporate Scandals

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The spectacular business frauds of Enron, WorldCom, Parmalat and the collapse of the dot-com and telecommunications companies have prompted a huge rethink on what should be taught at business schools. There is a growing consensus that business schools may have underestimated the consequences of separating enterprise success from ethics and social responsibility.

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It was for this reason that the Association for the Advancement of Collegiate Schools of Business (AACSB) urged the business schools whose courses it accredits to upgrade their teaching of ethics. The association's standards for accreditation define the substance of what is taught in education, and, by implication, provide for instruction in business ethics and ethical analysis.

Carolyn Woo. Dean of Notre Dame business school and incoming AACSB President, commissioned an AACSB task force on which I served to examine this issue. Its report* advocates systemic changes in the way ethics should be taught to future owners and managers of business. It concluded that the teaching of business ethics under current AACSB standards is inadequate. We have therefore proposed more specific guidelines for the delivery of knowledge about the relationship between business and society.

Our first proposition is that business has a relationship to society. Business as a permanent institution of human civilisation is about much more than making money for owners and senior managers. The purpose of business--its teleology--is to create wealth for society out of private capital.

The second proposition, flowing from the first, is that business exists inside a web of stakeholder relationships. Conceptually, boundaries and borders cannot be built to wall off a successful business from its customers or from its employees, equity investors, creditors, suppliers and regulatory communities. The business penetrates into the lives of the stakeholders and stakeholder concerns often penetrate into business decision-making.

Thus, we advocate that the teaching of business ethics must start with knowledge of the complex relationship between business and social stakeholders. Such teaching needs to be carried out across the curriculum wherever stakeholder concerns are implicated in the formation of business judgement.

For example, stakeholder concerns arise in finance and accounting courses (owners and investors); in marketing and sales courses (consumers); in organisational theory and human relations/worker rights courses (employees); in business law courses (community); in courses on production management (customers, suppliers, community concerns for the environment, employees); and in strategic planning courses (all stakeholders).

Business ethics can no longer be a marginalised academic discipline aligned principally with moral philosophy. Virtue must be integrated with profitability. The more accurate framework for reflection and policy making is CSR as an underlying matrix for sustainable profitability.

Our report implicitly offers a new valuation analysis of a firm. We assert inferentially that success in business will depend on wise stewardship of stakeholder relations. Profit for owners results in--and does not precede--good service to stakeholders and, through them, to society at large. Profit is compensation for a job well-done. Thus we challenge valuation theorists and economists to develop new metrics by which the value-added, or risk, assumed by a business regarding its stakeholders can be included in the analysis of profit quality.

For example, Enron attracted considerable debt financing and kept its stock price up after its profit from operations began to dry up in 1999. But the quality of the earnings it then reported with the help of special purpose entities and 'sales of product with an obligation to repurchase' was abysmal. Enron's reporting of profits was essentially a fraud perpetrated on everyone. …