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Recent corporate scandals and cases of corporate espionage have focused attention on business ethics. Are these instances of a few unscrupulous individuals or are business managers less ethical? The quest for answers to questions such as this has led to internal scrutiny within the academic community about the way qualifications such as the Masters of Business Administration (MBA) are being taught in business schools.

The late Professor Sumantra Ghoshal of the Advanced Institute of Management Research (AIM) and London Business School argued that the roots of business misconduct may be traced to ideas expounded by business schools over the last three decades. He suggested that “by propagating ideologically inspired amoral theories, business schools have actively freed their students from any sense of moral responsibility”. This was because attempts to make management a science meant denying any moral or ethical considerations.

For example, Ghoshal asserted that few managers would question the economist Milton Friedman’s assertion that a business organisation’s only responsibility was to its shareholders. Yet Thomas Kochan, Professor of Management at MIT’s Sloan School of Management, attributed corporate scandals in the United States to widespread overemphasis on shareholder value at the expense of other constituencies. Ghoshal challenged the priority given to shareholder value, reasoning that other constituencies such as employees, including managers, produce the value created by a company. Furthermore, he argued that employees bear more risk, because it is generally more difficult for them to find alternative employment than for shareholders to sell their stocks.

Robert Cooke, who was the Director of the Institute of Business Ethics at DePaul University, has identified fourteen danger signs that an organization that is at risk of unethical behaviour. These are if it:

• normally emphasizes short-term revenues over long-long considerations
• routinely ignores or violates internal or professional codes of ethics
• always looks for simple solutions to ethical problems and is satisfied with ‘quick fixes’
• is unwilling to take an ethical stand when there is a financial cost to the decision
• creates an internal environment that either discourages ethical behaviour or encourages unethical behaviour
• usually sends ethical problems to the legal department
• looks at ethics solely as a public relations tool to enhance its image
• treats its employees differently than its customers
• is unfair or arbitrary in its performance-appraisal standards
• has no procedures or policies for handling ethical problems
• provides no mechanisms for internal whistle blowing
• lacks clear lines of communication within the organization
• is only sensitive to the needs and demands of the shareholders
• encourages people to leave their personal ethical values at the office door

There are signs that things are changing. Ethics are increasingly being woven into the curriculum of business schools. Recognition of the need for attention to ethics is evident in the Association of MBAs’ (AMBA) requirement that a business school’s curriculum pay attention to ethical and social issues to meet its accreditation criteria. Finally, Ghoshal concluded that the situation be rectified by encouraging a diversity of ideologies and positive perspectives on behaviour.

Find out more

An introduction to business studies

Marketing and society

Managing human resources

Take it further - sharpen up your business skills

Corporate Accountability and Ethics - a disregard for ethics can lead to trouble: remember the Enron saga

‘Danger signs of unethical behaviour: how to determine if your firm is at ethical risk’ by Robert Cooke, in the Journal of Business Ethics, volume 10, (April 1991)

'Bad management theories are destroying good management practices' by Sumantra Ghoshal, in the Academy of Management Learning & Education,  volume 4 (2005)

'Addressing the crisis in confidence in corporations: Root causes, victims and strategies for reform' by Thomas Kochan, in the Academy of Management Executive, Volume 16 (2002)

About the author

Fiona Harris is a lecturer in management in the OU Business School. Her research interests include social marketing and marketing ethics.

 I had a good laugh at last week's blog by my colleague Jason Toynbee – especially his recommendation that young city traders might be issued with ASBOs in order to stop them causing any further economic damage. Now, given the recently exposed activities of Jerome Kerviel – the French junior trader whose fraudulent transactions appear to have cost his employer Societe Generale around £4 billion – some might suggest even stronger measures are necessary.

Photograph taken by rednuht. Used under Creative Commons license.

While Kerviel's story is making good copy, one problem I have with the press coverage is the depiction of him as a singular and pathological 'rogue trader'. Newspaper reports have tried to account for Kerviel's alleged actions largely by portraying him as a one-off, deviant or 'flawed' personality. Thus we learn that Kerviel was a social introvert whose 'shyness' and 'quiet demeanour' marked him as 'different' to his colleagues. The fact that he was 'never seen with a woman, or a man, always alone' is offered up to signify some (as yet unspecified) psychological problems or personality defects. Bank officials have gone further, and have been quick to identify the previously anonymous Kerviel as a manifestly 'troubled man' with an acknowledged 'fragile mental state', while nameless colleagues have also been moved to label him a 'solitary' figure who may or may not have lived in some kind of 'fantasy world'. Well, OK, perhaps he did – but to me it all sounds pretty ordinary so far. Indeed, the fact that Kerviel 'didn't chat to neighbours', or 'rarely took holidays', hardly marks him out as unusual - sounds like most people with a stressful job.

The aim of all this press-talk is clear; first to shore up belief in the idea that only isolated, 'rogue' individuals commit financial crime (a claim not borne out by any evidence), and, more specifically, to provide SocGen managers, employees and, indeed, the financial industry as a whole, the opportunity to distance themselves from Kerviel, deflecting attention from their own potential culpability in the architecture of this scandal. Indeed, it is arguable here that the media are helping to individualise what is in essence a structural and systemic problem. So I would like to read more about how we have created a financial industry where corporate frauds have become more widespread (if not endemic), that actively encourages and rewards excessive, often reckless, risk-taking, that glamorises individuality in the context of an aggressively masculine culture of deal-breaking and profit-making, that pushes workers to extraordinary limits to achieve targets (but will deride or discard anyone unable to maintain these capriciously applied but ever-increasing standards) and that is widely perceived to lack the moral probity required to ensure effective application of regulatory controls. In fact, it is financial institutions themselves, in slavish adherence to market principles, that create the conditions under which 'rogue' trading can occur – and so can hardly wash their hands of any responsibility when frauds arise. I read recently that Professor Roger Steare of the Cass Business School found that financial services executives subjected to ' integrity tests' tended to 'score lower than average in honesty, loyalty and self-discipline' – a worrying trend but one I think perhaps best explained not by individual pathology but by the ethical deficit contained within the system as a whole; it seems to me that these 'rogue' traders are not born - they're made.

About the author

Mark Banks is Reader in Sociology at the Open University. His research interests include the cultural and creative industries, popular culture, cities and urban space.