MSB Media? Blog Archive ? The Entrepreneurs of Ethics

By Chris Blose

A new institute has the power to reshape the teaching and practice of business ethics.

In New York?s Financial District, investors search for smart plays that will give them an edge over their competition. On K Street in Washington, D.C., professional lobbyists exert their own special brand of market influence to benefit their high-paying clients. On Capitol Hill, elected leaders scurry to take action on the issue of the day. In cubicles and corner offices across the country, employees navigate their jobs.
At Georgetown McDonough School of Business, John -Hasnas and his colleagues try to make sense of it all.

Hasnas studies business ethics. You can spare him the jokes about how ?business ethics? is an oxymoron; he has heard them all before. Given the steady stream of scandals of the past decade or so and the ever-shifting regulatory environment that has sprung up in response, he knows ethics is serious business.
It is serious enough that Hasnas, associate professor of business ethics, sought and received a $1 million, 10-year grant from the BB&T Foundation to start the new Georgetown Institute for the Study of Markets and Ethics (GISME), with the goal of rethinking and re-creating the way ethics is taught and, perhaps even more important, practiced.
Ethics focuses on the moral foundations of what makes actions right or wrong; as a field of study, it is as old as philosophy itself. However, the academic field of business ethics is only roughly four decades old. For such a young field, Hasnas sees plenty of room for growth and improvement. He and GISME?s other scholars, Associate Professor Ed Soule and Assistant Professor Jason Brennan, plan to ask the ethical questions no one else has asked, using the intellectual resources and academic clout that come from being at Georgetown.
?I couldn?t justify a new ethics institute to do more of the same,? Hasnas says. ?What I see as the future of this institute is to broaden the field of business ethics. We won?t just be talking about what obligations businesses or business people owe to the larger society or to stakeholders. We?re going to look at anything that could be an ethical issue people will face when functioning in a market environment.?
Put more simply: ?We?re not creating another institute for business ethics. We?re creating the institute for market ethics.?

Don?t Be Boring
Soule has heard all the jokes about business ethics, too, along with the barbs from people who have a vague notion that profit-minded business must be inherently bad. He even has a little joke of his own about what led him to pursue a doctorate in moral philosophy after more than a decade as CFO for Edward Jones. ?It wasn?t a result of court-mandated community service or anything like that. I was just truly interested.?
That interest was further stoked by 2001?s Enron scandal, which pushed terrorist attacks off the front page and put bad business behavior in the spotlight. Soule has studied the ethics of government regulation in response to such scandals, but he has found over the years that the ethics of an organization track very closely with that organization?s culture ? something regulation alone cannot fix. Still, Soule is an optimist. He points to Coca-Cola?s efforts to reduce the environmental impact of its water consumption and Novartis? unreimbursed distribution of malaria drugs as examples of companies doing the right thing, and not just for the sake of good PR.
Soule is performing long-term research on Knights Apparel?s Alta Gracia project, a factory in the Dominican Republic that pays a ?living wage? of more than three times the wages at similar factories in the country. Soule and a colleague have been following Alta Gracia from the start of the experimental project. The premium wage seems to be reducing absenteeism, attracting better employees, and creating good will within the community, but Soule?s long-term research goals go deeper than good will.
?To what extent does the premium wage benefit the company in the form of profitability?? he asks. ?Obviously the brand image is enhanced, but we?re looking at hard numbers.?
To follow a company on the ground for years does not come cheap, though. Although it was funded already, Alta Gracia is exactly the type of research that GISME can fund in the future ? deep dives into ethical topics that might go overlooked otherwise.
That is what Hasnas has in mind. He has proposed a simple slogan to drive GISME?s work: Don?t be boring.
Hasnas? own research is far from boring, especially for companies faced with laws that actually conflict with ethics in some cases. For example, if a company is under investigation by the Department of Justice, that company?s lawyers or managers may tread murky ethical waters.
?Compliance programs often require a great deal of intrusive monitoring of employee behavior ? more monitoring than most ethicists think businesses should be engaged in,? he says. ?How do you square the pressures from the law with the results of research that tell you that procedural justice is more important than command-and-control monitoring??
Hasnas explains an important difference between the two: Procedural justice within a company depends on trust between employer and employee, but the government?s command-and-control monitoring can undermine that trust if, for example, the interests of the company differ from the interest of an employee under investigation. A culture of trust may lead people to feel comfortable coming forward when they see unethical behavior ? but only if employees feel like the company will protect them.
Brennan?s work explores the similarly murky world of political lobbying. ?I?m interested in how you work well in a system where the market can be rigged and corrupted,? Brennan says. He explores the phenomenon known as rent-seeking behavior, or the effects of lobbying and policy influence on the market. The big question: How do you act ethically when all your competitors are doing everything they can to gain an advantage, ethical or not?
Despite how we typically view marketplace competition, it is not always a simple matter of companies competing to sell something better. ?Instead of people competing by trying to produce a better product,? Brennan says, ?they compete by trying to rig the regulatory environment in their favor.?
Rent-seeking behavior is why, for example, online retail giant Amazon supports an Internet sales tax. Even though it would hurt its business, it would hurt smaller competitors more because they sell less volume to make up for lost profits. Rent-seeking behavior is why we have ethanol in gasoline and corn syrup instead of sugar in soda; the corn industry?s influence comes from the financial support of Democrats and Republicans alike. In a sense, rent-seeking behavior is what is on the minds?? if not necessarily the tongues ? of Occupy Wall Street protesters. Such protestors share a vague notion that the market is rigged, but very little research in business ethics has explored exactly how.
?For every little bit of rent-seeking, the cost to us is fairly low,? Brennan says, explaining why most people pay it little mind. ?But the overall cost to the market is very high.?

Embedded Ethics
The grant that established GISME will fund research for scholars from many disciplines across Georgetown, but Hasnas holds equally ambitious goals for both teaching and outreach to the business community.
Hasnas, Soule, and Brennan all point to flaws in the way business ethics has been taught in the past. First is the sometimes awkward pairing of two disciplines, philosophy and business. A moral philosopher with a firm grasp on Aristotle, Immanuel Kant, and John Rawls is likely less familiar with the finer points of organizational management or finance than a business professor, and vice versa. Second is the one-and-done approach to business ethics, in which young students take a course on the basic principles of ethics but then do not get enough chances to apply them in later course work. Third is the focus on hypothetical ethical quandaries a manager may face in his or her career. There is value in such mental exercises, but Hasnas says they fail to reflect the most difficult challenges people and companies face.
GISME?s professors al-ready have a proven track record of overcoming these flaws. For example, Soule co-teaches a Leadership and Business Ethics course for MBA evening students with Michael O?Leary, assistant professor of management, in an effort to fuse their expertise in moral philosophy and management. And Brennan is teaching a new course called The Moral Foundations of the Market Society, which explores what it means to be a good citizen in a capitalist society. He also created a First Year Seminar section on The Ethics of Entrepreneurship. GISME can fund such courses in the future, in an effort to embed ethics in every facet of business teaching and keep it in front of students throughout their studies.
?We want to teach basic principles early in the curriculum,? Hasnas says. ?And whenever ethical issues come up in any subsequent course, we want to be clear on the common vocabulary of ethical principles- that allow students and faculty to raise issues and discuss them.?
In the past, Soule also has run small seminars with 12 to 14 students acting as consultants for firms, including Cisco Systems and Coca-Cola. Those students got a real look inside the heart of a company, with a specific focus on how that company does nonfinancial reporting on corporate social responsibility efforts.
?That sort of project, to get inside a company and see how they manage efforts in ethical areas, is a real point of entry into management and best practices,? Soule says. He also points out that he and his students worked on a shoestring budget and still found success.
Hasnas envisions creating an online repository of the most successful teaching tools that come out of GISME, from details of specific assignments to broader methods of integrating ethics into a general business school curriculum. He also wants to create tangible tools for practitioners.
Hasnas already is planning a symposium for fall 2012 on the ethics of bailouts and government support for corporations. He is inviting leading philosophers, economists, political scientists, and others from across the political spectrum to discuss this timely topic. Each person will present a thesis for discussion, and afterward, GISME will collect all the materials and publish them in a book. With a tangible product, the conversation can extend far beyond a weekend conference.
The possibilities go beyond traditional academic publishing, too. For example, Hasnas? own expertise on the intersection of law and ethics could prove valuable for corporate lawyers and managers. ?If we have a product that will help business people know how to comply with the law without acting unethically toward employees, we can go directly to businesses with that information,? he says.
Georgetown McDonough?s entrepreneurial spirit permeates everything Hasnas, Soule, and Brennan hope to accomplish. GISME?s scholars are well prepared to try new approaches and take risks ? and to back those approaches and risks with the necessary funding.
?We will be explicitly entrepreneurial in what we do,? Hasnas says, ?so we get to propose projects, try them out, cut off the ones that fail, and continue the ones that work. We have the chance to do business ethics right, then put our approach out into the world for other people to use.?

?To what extent does the premium wage benefit the company in the form of profitability? Obviously the brand image is enhanced, but we?re looking at hard numbers.?
?Ed Soule
ASSOCIAtE PROFESSOR

?We?re not creating another institute for business ethics. We?re creating the institute for market ethics.?
?John Hasnas
ASSOCIAtE PROFESSOR

The Ethics Project

Jason Brennan?s new teaching experiment, the Ethics Project, seems simple at first glance. Students in his course The Moral Foundations of the Market Society will form groups of five, think of something ?good? to do, try to do it, then write about the experience.
Complexity comes from the freedom Brennan is allowing students. He is not putting limits on what it means to do something good. Students can try to start a business, work with a nonprofit, do volunteer work, or anything else that comes to mind. They will be eligible to receive $1,000 from the Georgetown Institute for the Study of Markets and Ethics (GISME).
Along the way, Brennan anticipates students will encounter lessons in human behavior, from how they pick leaders and resolve disagreements to whether people try to coast on the work of the rest of their group. Even the $1,000 in funding will present obstacles because of Georgetown?s regulatory policies on what types of spending qualify for reimbursement.
The Ethics Project represents GISME?s true experimentation in pedagogy. Success is not guaranteed for the students, and that is part of the point.
?You can?t just want to do good,? Brennan says. ?That?s not good enough. You have to know how to work with the institutions that get in your way.?

Assistant Professor
Jason Brennan

Fairness in Finance

What is the difference between a market speculator and a gambler? In the general public?s mind, the two are the same, but Associate Professor James Angel begs to differ.
?Speculators take risks because they expect a return,? Angel says. ?Gamblers take risks for entertainment purposes, but they don?t have any legitimate reason to expect a return.?
Angel and research partner Professor Douglas McCabe?? two examples of Georgetown McDonough?s strength in business ethics research even before the establishment of GISME ? explored this question in ?The Ethics of Speculation? in the December 2009 Journal of Business Ethics. The two argue that speculators add to the common good of society by bearing risk that others simply could not bear. Oil speculators provide price assurances for smaller producers who might close their wells if prices are too volatile, for example, and grain speculators bear much of the risk that would otherwise fall on the shoulders of farmers.
Their arguments hit home. The paper received the Best Paper Award at the International Conference Promoting Business Ethics in New York City, an accolade McCabe attributes to the duo?s unique approach to research.
?We try to integrate traditional ethical theory with modern financial theory,? McCabe says. ?People take a lot of these financial issues for granted but never ask, ?Should it be that way or not????
The team?s approach has produced a steady stream of research over the past five years, often spurred by high-profile public debates on timely topics. For example, in 2008, they tackled the controversial topic of executive compensation in the form of stock options, and in 2009, they turned their attention to the practice of ?naked short-selling? while the SEC was cracking down on it.
The forthcoming paper ?Fairness in Financial Markets: The Case of High Frequency Trading,? to be published in the Journal of Business Ethics, explores another SEC hot button. The practice of traders using ultra-fast computers has raised issues of fairness. Are these computers somehow sneaking in front of other traders and creating an unfair advantage?
McCabe and Angel say no. They come to this conclusion in part by separating the technology from the way the technology is used. ?It turns out they are doing the same things people have been doing in financial markets for the past 400 years, a lot of which is beneficial, some of which is so-so, and some of which is manipulative,? Angel says.
Given the complicated nature of finance and the general public?s tendency to distrust or misunderstand its practitioners, the two researchers are not likely to run out of concepts for papers anytime soon.
?For us, the beautiful thing about finance is that there are all kinds of ethical quandaries and ethical issues in just about every financial undertaking,? Angel says.

James Angel

Douglas McCabe

Source: http://msbmedia.georgetown.edu/the-entrepreneurs-of-ethics/

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