Without ethics, business can't be done — or taught

by Richard Schmalensee, John C Head III Dean

August 30, 2002 — Students now arriving for their MBA program at the MIT Sloan School of Management will not find something they may be expecting this fall: brand-new courses on ethics added to their required class list.

Richard Schmalensee, John C Head III Dean Long before the current wave of corporate scandals, MIT Sloan was already rethinking what we teach and how we teach it. We are redesigning our curriculum starting with a clean slate. And this process does not include adding hastily developed ethics classes, although such a move might win us some good short-term PR. We already offer courses that deal with the principles and analysis of ethical issues. We can, of course, improve what we do, but not through a knee-jerk reaction.

MIT Sloan and other business schools were founded in reaction to new ways of doing business. When MIT began awarding degrees in management shortly after the turn of the last century, the modern corporation was a recent creation. For the first time, large numbers of managers were being hired to make important decisions involving other people's money. These managers needed to learn both specific skills and standards of professional conduct. It's one thing for entrepreneurs to take huge risks in secret with their own money, for instance, but as a professional manager you are basically deceiving your clients, your shareholders, if you take a gamble with their money and don't tell them about it.

If business schools have encouraged such behavior, we need to fix it. You may not be able to change character, but you can teach people what's expected of them as professional managers. They may choose not to meet those expectations, but we have an obligation to make sure they at least recognize an ethical problem when it arises.

What I understand happened at WorldCom didn't involve an ethical problem; it involved outright, large-scale lying to investors. It's not a subtle point to teach that you shouldn't lie, that lying to your investors is not expected of a professional. The role of the good professional manager usually includes risk-taking, but it always requires disclosure and integrity.

We don't need new courses for such issues to come up among either faculty or students. We have students, most of whom are idealistic, who are paying good money so that they can go out and achieve something positive. They are not comfortable with the image that they're training for a profession peopled by crooks. When any of our classes gets even close to an ethical issue these days, I would be astonished if our students, let alone our faculty, didn't raise it.

We must integrate a concern for ethics and values, for responsibility and professional behavior throughout the curriculum. It is important for students to understand the economic value of a corporate culture that values integrity. If you can't trust the people you work with, you waste a lot of time checking up on each other. And the need to build trust carries implications about how you behave and how you insist others behave. It is hard to persuade people to give you bad news, for instance, if your reaction is generally to hide it from supervisors and investors.

Principled leadership is neither easy nor simple. The market sometimes reacts to unpleasant disclosures with share price drops and other consequences that seem extreme and unjustified. But to buy into the argument that managers should withhold just this little bit of bad news so the company isn't hurt by a market overreaction is to start down a very slippery slope. Ethical decisions are easy when they don't have consequences.

It would be naive for me to believe that everyone graduating MIT Sloan will do what I would do in a situation that involves ethical issues. But we want our graduates to be able to recognize and think through situations with an ethical dimension and to make considered decisions based on recognition of professional standards and high expectations of themselves. We don't expect everybody to be saints, but we want to develop people who respond to situations where principles matter with moral courage, even when it carries costs.

MIT Sloan's mission is to produce managers who are capable at driving successful innovation. We want the graduates who wear our ring to be both effective and principled.

This op-ed ran on page A19 of the Boston Globe on 8/30/2002.

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