Is there anything more to ethics than just avoiding criminal behavior?

Consider this ethics case study: 

You work at a company that processes low-level radioactive waste from hospitals. Everyone knows your company is in serious financial trouble. Your manager tells you to start dumping truckloads of unprocessed waste material on the school playgrounds in your community. Just one truckload per school per month– your boss says that’s not enough to make anyone sick. What is the ethical thing to do? Develop and explain a range of options, choose one, and defend your choice.

While melodramatic, that case study is only a slight exaggeration from the case studies I recall from my long-ago ethics class in grad school. If memory serves, we had one class that was half marketing and half business ethics. The case studies, as I recall, were primarily dramatic overstatements with a painfully obvious correct answer. Those that weren’t extremely obvious had several choices, all of which were it-feels-good options with minimal ethical distinctions.

Melodrama does not really teach ethics. Neither does mush.

Sometimes I think the same thing happens in ethics classes for CPAs. We listen to extensive discussion of the bright line rules for independence. You can’t have an audit client when your wife is the owner or CFO.  You can get the client if the CFO is your wife’s brother’s uncle-in-law’s second wife’s adopted-stepson-from-a-first-marriage. We then draw a bright line around which relatives can and cannot be owners or key managers of audit clients.

What we need is a framework for dealing with a CFO that is pushing an accounting position in a gray area. How do I deal with that?

I’ve been wanting to write about ethics for some time.  Until I have the spare time to do so, I will point out articles I read that are generally heading in the same direction as I’d like to go.

Do business ethics classes just point at the dividing line between illegal and legal?

Business ethics need to move beyond what’s illegal by Felix Salmon discusses the idea that business ethics needs to go beyond what is criminal and point towards what is the ethical approach.

There is a danger of teaching either of two approaches: first, just avoid what’s illegal; second, the only criteria for a decision is maximizing profits. What is ethical, or the right thing, needs to be a factor.  We need to be able to figure out what is the right thing.

Mr. Salmon points to an article by Luigi Zingales.

Do Business Schools Incubate Criminals, by Luigi Zingales, explores the question.

The responsibility of a business entity is to maximize shareholder value. That does not mean it is okay to do anything and everything to make a buck. There is a critical qualifier that usually gets dropped.  Mr. Zingales points out:

When the economist Milton Friedman famously said the one and only responsibility of business is to increase its profits, he added “so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” That’s a very big caveat, and one that is not stressed nearly enough in our business schools.

He points out several things that are legal, or at least you thought won’t get you into too much trouble, but have serious ethical problems.

He suggests that ethics instruction in business schools should be incorporated in all classes, not isolated to just one class.

The illustration to the article makes this point well.

Imagine a bookshelf with five books of varying sizes. There are big books labelled corporate finance, accounting, and microeconomics. The really, really thick book is macroeconomics. And then there’s this tiny book, about one-third the height and one-fourth the thickness of any other books. That textbook is ethics – separate and very small.

Professor Zingales concludes:

Of course, no amount of instruction can prevent some people from engaging in bad behavior. It can, however, contribute to a social consensus that would discourage diffuse fraud, like the widespread misreporting of Libor rates or the willful self-delusion and dishonest dealing that helped turn the subprime crisis into a global financial disaster. The daily scandals that expose corruption and deception in business are not merely the doing of isolated crooks. They are the result of an amoral culture that we — business-school professors — helped foster. The solution should start in our classrooms.

The issue goes far beyond the business world.

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