BEYOND THE BOTTOM LINE | PAGE 1, 2
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Now, global capitalism and instant information raise new problems of restraint, commitment and unintended effects. Instead of passively receiving jobs and infrastructure from agricultural exploiters, poor and densely populated countries like Indonesia and Thailand must attract foreign capital by proving their own cleverness and efficiency. So they establish research labs, retain bright young professionals and build airports to connect them to the developed world and its ample resources. (As the first world economies have boomed, more investors have felt the need to find more places to grow their money.) But the capital for new projects is startlingly fluid. When countries look promising, investors pour in. When they start to look dicey, investors run away. Although this is the same logic that informs the pricing of U.S. stocks, the trouble for business students arises when investment decisions in developing countries affect millions of people whose poverty worsens dramatically when investors withdraw. Such consequences invite revised ethical thinking -- even if that thinking leads to established conclusions.

Economic theory says markets stabilize where "social welfare" is as big as it possibly can get. But a manager investing in unstable markets faces ethical questions that bastardize theories of economics and justice: Should he take any precautions before selling a big block of currency, knowing that a reigning despot will commit crimes when national debt balloons? Should he worry about teaching low-wage laborers to save and invest? On ethical questions like these, business school profs don't have much more material to draw on than their students do. Accustomed to using the work of practitioners as texts, they can listen to an articulate bunch of do-nothings or a chorus of muddled hand-wringers. When we scan the writings of two financial superstars, we begin to see why new ethical models are so elusive.

On one side, zillionaire financier and self-appointed industry conscience George Soros frets in his new book about taking money from British taxpayers in a 1992 currency swap, and then continues trading as he always has. On the other, Nobel laureate Milton Friedman disparages the International Monetary Fund and stands by his 1971 edict: "The social responsibility of business is to increase its profits." Lots of moderately liberal MBAs applaud Friedman's reminder that businesses profit when societies are stable. A classmate points out that markets reward free elections and universal education, and that no sane trader would toy with a currency she thought was doing well on its own. True enough. But in China or other regimes that are newly capitalist and scarcely democratic, a manager will probably find corruption, environmental recklessness and appalling working standards. The dilemma of business schools, some professors critical of current curricula have suggested, isn't that MBAs are blind to these offenses, but that they graduate with only Friedman or Soros to guide them.

"We as management schools are shitty at teaching management," says a tenured professor at a top 20 program, who requested anonymity. "The real problem isn't which stocks you buy but how you have a board of directors discussion about what the policy is and then prepare to deal with it." Some schools are looking beyond finance to sharpen what Harvard professor Joe Badaracco calls a "moral imagination." (Badaracco uses fictional texts in teaching his ethics courses.) The University of Denver overhauled its curriculum in 1992 to intersperse ethical topics throughout a team-taught course load. Other prestigious schools are testing integrated courses or role-play training. But you can't teach capitalist management without giving a grounding in finance. And you can't build a new capitalist ethic without understanding the reach of financial thinking.

Finance dominates many business school curricula, and the notion of open markets dominates finance. Roger Ibbotson, who taught in the University of Chicago’s legendary finance group in the 1970s and now works at Yale, runs an in-class auction in which students bid for ownership of a classmate's taxi service. One student offers a crazily high price just for yuks, and he ends up owning the business. The lesson is bedrock -- the value of anything equals the highest bid in an open market. This principle, which is sometimes called "present value," has nothing to do with normative ethics. "The way to tell whether a method is right or wrong is whether you get a [financial] trade out of it," says a 1998 MBA who now researches convertible bonds. "So what if you refuse to cut down trees to build a power plant?" asks another recent graduate whose firm is in a position to do just that. If the power plant looks profitable, you will simply be stepping out of another bidder's way. When you consider that finance professors are usually a school's best-recognized stars, you may not be surprised to hear one Wharton student paraphrase his classmates' humanitarian thinking thus: "Charitable giving should only be measured in terms of what I get back."

This extends the "present value" logic behind a savings bond into interpersonal realms. Perhaps acknowledging the current influence of this idea, many professors interested in new business ethics are laboring to adopt it, along with an economic concept called "the principal/agent problem," into stylized, quantifiable models. The principal/agent problem crops up when an agent assigned to shepherd someone else's wealth pursues her own interests instead. The classic example is an executive who gets money from a board of directors and then sets her own salary. The Aspen Institute's Samuelson, a Yale B-school grad, attempts to use the principle/agent problem in a mathematical ethics model where social and environmental costs accrue and eventually effect the ultimate success of the business.

Stanford's Kirk Hanson isolates degrees of indigenous poverty and similar sources of turmoil and tries to help students calculate their "costs" to the firm. This language, argues Samuelson, places ethics in the intellectually rigorous area of risk management and strategy. "I don't think doing something because it's right is sustainable, nor do I think it can be an afterthought," she explains. Her project involves sponsoring courses that put quantitative tags on ethical problems. This idea resonates with big accounting firms who sell "social audits," and with professors who consult for big accounting firms. But it only measures costs to the actor, with what one professor called "highly contingent" and somewhat arbitrary numbers.

"Soft" disciplines like organizational behavior ditch the numbers. A Stanford seminar requires dancing and confrontation. Harvard's Badaracco dispatches Arthur Miller and Chinua Achebe to dramatize quandaries. Kellogg rolls out current and former CEOs to confess past ethical struggles. But in the absence of those declarative numbers, many discussions get stuck in the ideological ditch. Lynn Paine, who heads Harvard's "general management" group, has started a second-year course that examines firms as they globalize. (Wharton's Tom Donaldson is doing similar research.) Paine says her cases ask students to determine which business values "make sense" in foreign contexts and fashion methods for propagating those that do. Stanford's Hanson says he spends a "huge amount of time dealing with differences between cultures." That's time many students -- especially the mathematically minded -- won't commit.

Other schools adopt an everyone-in-the-pool approach. "The only way to teach ethics," says Gartska, "is to almost do it unethically by creating a dilemma which is personal." Yale is developing integrated six-week courses, team-taught, to examine one or two large business cases from several disciplines. But these courses may flicker as dimly as Wharton's model, in part because students will be tempted to be less than honest in their answers. "Nobody wants to look like a shark," explains a Wharton first-year. More broadly, the curve-based grades that make the rest of business school rigorous can tempt students to fudge their ethical inquiries. A Stanford second-year warns: "You're never going to re-create an ethical dilemma in the classroom."

Perhaps these new methods will gradually create a cohesive, teachable business ethics and help lift the confusion that beset my graduation, but it's difficult to see the light at the end of the tunnel. Graduation speakers this spring will cheer the world of DaimlerChrysler or DaimlerChryslerNissan, or FordVolvo, and graduates will still march out carrying these wise words but few tools for thinking through the complicated political and moral questions that they will surely face. Even with integrated courses, great books and mathematical models, the new international order seems as unpredictable to ethicists as to market players. However, investors are rewarded for accepting extra risk. There's no guarantee the world will get the same deal.
SALON | March 1, 1999

Alec Appelbaum is a writer in New York. He contributes to CBS MarketWatch.com, the New York Observer and other publications.