The pressure to perform has created an alarming tendency to bend – and sometimes break – the rules, says Patrick Harker

Enron, WorldCom, Parmalat, Martha Stewart – just a few names that could make up a global roster of “Who’s Who in Corporate Ethics Scandals”. And despite wide-ranging publicity, court cases and even new laws, such as America’s Sarbanes-Oxley Act, the list keeps growing.

Business school deans worldwide have spent a great deal of time and money addressing corporate ethics since the first wave of scandals. We have watched with horror as alumni from some of our most highly respected schools have been exposed, charged and convicted of serious violations of their positions of trust.

Some critics have argued that corporate corruption is a sign that business schools have failed to prepare their students in the area of ethics. Others have gone so far as to say that business schools are the fount of corporate corruption – virtual training grounds where the primary objective is to teach students how to break the rules and get away with it.

I think it is unfair to lay all the blame at the doorsteps of business schools. I do, however, fervently believe that they must do more. Our role, in every sphere of a person’s development that we can influence, is to help them develop the habit of ethical awareness in their professional decision-making. If we do it right, we help set the moral framework for their careers. But the problems begin long before students are sitting in a business ethics class. No-one wakes up and decides “today’s the day I’m going to compromise my integrity and become a crook”. One decision leads to another, then another, and so on.

Precedents can accumulate so slowly that practising them is not recognized as unethical until the violation is fully formed – and publicly exposed.

As a supplier of leaders to organizations worldwide, the Wharton School of the University of Pennsylvania invests enormous effort and resources to ensure that our graduates are people of integrity. But to graduate people of integrity, we find we also have to pay close attention to admitting people of integrity.

We are witnessing an alarming rise in ethical issues among applicants to our institutions. Cheating – from padding résumés to falsifying recommendations – is more pervasive in the admissions process than ever before. If people come in as cheaters, it is hard to change them, and sorting them out from the start is not as simple as it used to be.

We now hire an outside firm to do a background check on every student admitted. A few years ago, we checked only randomly; now we enquire into everyone. If, somehow, an offender gets by us, we act. Recently we expelled a second-year, second-semester student in good academic standing in our Masters of Business Administration programme when we discovered falsified material in the student’s application. Our policy is zero tolerance.

Deception on an industrial scale
What is most disturbing about the cheating practices educational institutions are now seeing is the range and subtlety of the forms they take. At first glance, in fact, some of them may not look like cheating at all. It is accepted, for instance, that it is wrong for anyone to take the multiple-choice SAT or GMAT tests used to assess aptitude for someone else. It is fraud.

But what if someone writes an admissions essay for another person? What if a parent edits an admissions essay? What if someone hires a coach to advise them on the admissions essay? An entire industry has developed serving exactly that purpose, and more and more applicants are using it. The line between breaking rules and bending them is becoming harder and harder to draw.

But the line has to be drawn, and we also need to decrease our tolerance for bending the rules. We know this: some day those rule-benders will become employees somewhere, and they will not view bending the rules as all that problematic. From there, it is a short walk to breaking the rules.

The question remains: why has cheating become more widespread?

There is relentless cultural pressure to “win” in any category of effort. The nothing-short-of-winning mindset develops early in places like the six-year-olds’ soccer field, where the “win” message overrides the “play” message. What else can we expect when parents wear t-shirts that say, “Second Place is the Number One Loser,” which I recently saw at one of my daughter’s basketball games?

The outsized admiration we heap on big winners became even more prevalent in the 1990s at the height of the dotcom era, as we created the cult of the celebrity chief executive officer (CEO). In reality, most successful CEOs that I know have as their goal running a good company, not being a bigger star than their peers. Strong leadership should be recognized, admired and emulated, but when honoured exclusively for its “star” power, it can result in a dwindling of the quality of life – as the values of participating versus just being in the game – diminish.

In business we trust
In business, we hold positions of trust. In a publicly held company, we are overseeing other peoples’ capital investments. When we manufacture a product or deliver a service, we are guaranteeing its quality and value in the economic exchange.

Fundamentally, business is about relationships – relationships of trust that have a far-reaching and deeply personal impact. Our founder, Joseph Wharton, made the point that as business professionals we not only hold positions of trust, but also that we must “serve the community” in doing so. In his view, the goal of business was to make peoples’ lives better, to advance society through economic development. And he rightly believed this required us all to act with “strict fidelity” to moral principles of equity and fair play.

At Wharton, we teach required courses in ethics at the undergraduate and graduate level. Our ethics faculty has a deep, scholarly understanding of moral, ethical philosophy – perhaps unique in the business school community. We have created an environment where our students’ ethics are constantly challenged and assessed, providing our graduates with a framework for decision-making based on the ethical considerations involved. We expose them to the complex dilemmas they will encounter, and we do this in the contemplative setting of the classroom surrounded by bright fellow students and guided by knowledgeable faculty.

We are also putting additional resources into business ethics education with our new doctoral degree programme in law and ethics. Our faculty in this programme includes leading experts on legal theory, ethical theory and economics as it relates to normative issues. Our goal is to increase the population of business ethics scholars to teach in other business schools and to increase the scholarship in this very critical area.

By the time our graduates enter the business world they have been educated in forming their judgments with a firm foundation in ethical reasoning. But the graduates of business schools have a further obligation: to act ethically and morally in the marketplace once they leave business school. Even with the best of instruction and experience, each person must still make the personal choices that fall on one side or the other of the ethical scale.

The costs of cheating
Unethical practices in commerce are not unique to our time. Perhaps, they are not even more widely practised – just better reported. But the problem remains, and it is a hugely consequential one for our economic system.

When markets are corrupt, as they were in some of the former Soviet republics, they cannot be efficient. That is why the World Bank, the International Monetary Fund and many large global institutions dedicated to improving economic activity have made anti-corruption initiatives some of their most important priorities.

Thoughtful chief executives of large global corporations are right to worry that persistent malfeasance can lead to a political backlash against the market-based system. If governments can claim that capitalism does not work for the common good, it can be replaced, its industries nationalized. We need only look to Latin America to see the dangers.

For the market-based system to do what it does so well – that is, direct the self-interest of people toward the common good – it requires the ethical cooperation of its participants. Without the foundations of trust and ethics, capitalism cannot perform its work. The stakes here are high, not just for business schools, or businesses, or economies, but for all of society.

Patrick Harker
Patrick Harker is the Dean of the Wharton School and the Reliance Professor of Management and Private Enterprise.