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Executive honor

Can an 'MBA oath' fix what’s wrong with business?

By Drake Bennett
May 16, 2010

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The portrait of the American business world that has emerged from the financial crisis is rife with unapologetic amorality. Mortgage bankers encouraged people to take out home loans they couldn’t afford, distinguished investment houses peddled deals to their clients that they themselves wouldn’t consider investing in, and officers at those same institutions continued to pay themselves millions of dollars even as they were bailed out by the federal government, all while insisting — even in front of Congress — that this is simply how the game is played.

Several years back, of course, it wasn’t Wall Street, but firms like WorldCom and Enron and Tyco that shocked public sensibilities, their leaders engaging in outright fraud and larceny to pump up stock prices, their own compensation, or both. Whether inside or outside the law, the last decade has given many Americans the nagging sense that the members of the business elite play by a set of rules far removed from those of the society that ultimately supports them.

The political solution tends to be fresh regulation, such as the president’s push to rein in the big banks. But recent years have also seen the emergence of an alternative from within the business world itself — more specifically, from within the graduate schools that produce a disproportionate number of business leaders. The idea is both radical and straightforward: to make executives more moral, changing business itself by changing the way its leaders think about their responsibilities. And a subtly powerful way to do that,

according to a few management scholars and a growing number of business school students, is simply by creating an oath: a pledge of ethical behavior, modeled on medicine’s Hippocratic Oath, that would be administered as graduates embark on their careers.

The invention of the MBA oath is generally credited to Nitin Nohria and Rakesh Khurana, two professors at Harvard Business School who have written papers on the topic. In 2004, the Richard Ivey School of Business, a top Canadian business school, instituted a pledge that all students were required to take on graduation. In 2006, Thunderbird School of Management, a school of international business in Glendale, Ariz., instituted an oath of its own, and the next year Columbia Business School put in place an honor code meant to bind its students beyond graduation and into their working lives.

The oath that has gotten the most attention, though, is at Harvard. Last year, a group of Harvard business students organized a voluntary oath ceremony at the school’s graduation — over half the graduating class, about 550 freshly minted MBAs in all, took the pledge, promising to “create value responsibly and ethically.” A similar ceremony will be held later this month for the class of 2010. Some of those student founders, working with the United Nations and the World Economic Forum, have set out to seed an international movement: “The Oath Project” website now has pledges from 2,800 students at business schools in the United States and abroad, and two of the project’s founders have just published a book on the oath and its potential. The oath gained fresh prominence earlier this month, when Nohria was named dean of Harvard Business School.

“As managers, we’re in charge of a lot of resources, both human resources and capital resources, and we’ve seen that over the last few years, business has gone wrong, and a lot of people have lost jobs,” says Peter Escher, a 2009 Harvard Business School graduate, one of the founders of the school’s MBA Oath and coauthor of the new book. “An oath is a way to lay out the boundaries around the profession, to develop an agreed-upon body of knowledge and ethics.”

A spoken promise may seem like flimsy armor against the outsized financial incentives that come into play in corporate corner offices, but proponents point to evidence from behavioral science of the surprising power of norms and symbols in shaping our behavior. The sanctity of the Hippocratic Oath itself, they argue, along with the gravity with which everyone from military officers and lawyers to accountants and architects treat their codes of professional conduct, suggests how effective communal standards and ethical self-policing can be. A code, in other words, can be a powerful thing.

Those not won over by the business oath argue that its proponents have things backwards. A few words, no matter how earnestly intoned, are unlikely to change anyone’s long-term behavior — the Hippocratic Oath doesn’t create a doctor’s sense of duty, it merely reflects it, and that sense of professional obligation is the product of years of exposure to medicine’s almost tribal code of behavior.

To its adherents, the oath is part of an attempt to create such a value system for business — to turn management into a profession with aims beyond simply keeping share prices high. But to some of its critics, the oath is just fuzzy thinking. Businesses, they argue, are meant to make money for their owners and shareholders, and in so doing to help grow the economy. To the extent that business has a higher purpose, it is that. It’s up to a nation’s citizens and elected officials to rein in that behavior when it stops serving the public good. The oath, in other words, sits squarely in the middle of a larger debate over whether it is possible to articulate a set of higher principles for business at all.

Throughout Western history, most revolutions have had their oaths. The Tennis Court Oath helped bring on the French Revolution, the Protestation oath failed to avert the English Civil War. The Declaration of Independence was not only an announcement of rebellion but a solemn promise of solidarity, its signers mutually pledging to each other “our lives, our fortunes and our sacred honor.” (That pledge held.)

The idea of an MBA oath first occurred to Nohria in 1996. He was on sabbatical at the London School of Business and talking to a colleague, the management scholar Sumantra Ghoshal, about various parts of the traditional business school curriculum that hindered graduates in the real world.

In particular, Ghoshal was a vocal critic of the “maximizing shareholder value” mantra, the idea, ascendant since the early 1980s, that share price should be the dominant yardstick for measuring the performance of managers. Ghoshal and others had come to believe that that worldview allowed managers to ignore their other, equally legitimate responsibilities: everything from the welfare of their own workers to the environmental impact of their products. And with compensation linked to share price, executives were inevitably tempted to do everything they could, legal and otherwise, to goose stock prices quarter by quarter, even if that damaged the company over the long run.

As Nohria recalls, he began to wonder what sort of thing he could teach students as a counterforce.

“Out of the clear blue — my sister had just graduated from medical school — I thought, what if managers actually had something that was like that?” he says. “What if we provided something that was aspirational, some guidance as to what their responsibilities actually were?”

Although it may feel quixotic to invent an oath without the weight of tradition behind it, the Hippocratic Oath itself gained prominence in the 20th century as a response to troubling modern developments. Despite its roots in ancient Greece, only a minority of American medical students took the oath until World War II, as Max Anderson, a cofounder of Harvard’s MBA Oath, has written. But in the wake of the revelations about brutal Nazi medical experimentation, schools rushed to adopt it as a way to unequivocally set down the limits of medical ethics.

And it is not only history that gives weight to an oath, psychology suggests. For example, the behavioral economist Dan Ariely of Duke University has done a study showing that swearing on a Bible makes even atheists more honest, and that signing honor codes does make people less likely to cheat. Work by the psychologist Robert Cialdini and others has found that making a public commitment to a cause — either by speaking it aloud or writing it down — makes people firmer in their commitment, and more likely to act on it.

The effects that have been found, however, are mostly short-term ones, and there’s no evidence a pledge can shape behavior years later. For his part, Ariely (author of the forthcoming book “The Upside of Irrationality”) is skeptical that a pledge alone will change corporate decision-making. If the goal is to get executives and managers to think more broadly about societal good, a more effective measure, he argues, would be to require the reporting of, say, pollution, or the number of patents created, or the number of jobs created, in each quarterly report. The trick, Ariely says, is “to keep these things on top of people’s minds.”

And as for the Hippocratic Oath itself, its purpose may be primarily ceremonial. Asked what role the oath played in the professionalization of American medicine, Kenneth Ludmerer, a physician and historian of medicine at Washington University in St. Louis, responded, “Essentially none. It’s a nice ceremony, but its impact and role is in effect zero.’

The oath’s champions do not claim that it can transform business alone. They see it as a first step in the larger project of “professionalizing” the practice of management — turning it into a field, like law or architecture, whose practitioners are united not only by specialized knowledge but a shared set of values beyond personal enrichment.

“What professions do is come up with codes of conduct that benefit society or clients or patients. That’s missing in management,” says Gregory Unruh, an ethics scholar at Thunderbird School of Management who helped its students create the school’s oath.

In this sense, the term “profession” doesn’t just refer to a job, but a special sort of work that also represents a higher calling: Doctors make money, but their first directive is to heal people; lawyers can be rich, but their responsibility is to pursue justice for their clients.

“Many people who want to be in business today want to have the status of a profession without any of the constraints,” says Khurana.

But those trying to move business in that direction are immediately challenged by the question of what business’s higher purpose would even be. The responsibilities of a doctor or lawyer are straightforward: the good of the patient; the integrity of the legal system. But aside from the owners of a company, who should the manager be thinking of?

The “Management Oath,” the pledge formulated by the consortium behind the Oath Project, addresses this problem by referring repeatedly to the good of society at large. It commits its takers to “not advance my personal interests at the expense of my enterprise or society,” to “refrain from corruption, unfair competition, or business practices harmful to society,” to “protect the right of future generations to advance their standard of living and enjoy a healthy planet.”

To critics, this sort of language makes the pledge a poor guide for everyday behavior. A business manager’s job, points out Steven Kaplan, a professor at the University of Chicago Booth School of Business, entails the balancing of many often competing interests. In vaguely invoking the good of society, Kaplan argues, the oath ignores these necessary tensions and compromises. The great virtue of shareholder value, on the other hand, is that it provides a single, clear goal against which all of the competing claims can be measured.

“For example, shareholders want profits and workers want higher wages, so there’s a conflict. It may make sense to move operations from one country to another, so you hurt the workers in one place, you help the ones in another,” he says. “There’s no sense of trade-offs [in the oath], and once you get into these details, it becomes meaningless, inconsistent, and impossible to actually stick to.”

The oath also runs up against an enduring strain of thinking about business: that the profit motive itself is a social good. In other words, to the extent that the oath gets its takers to think beyond profit, it only dilutes business’s positive impact on society. Writing against the MBA Oath in the Harvard Business School’s newspaper, Andrew Sridhar, a student graduating this spring, put it this way: “If you really care about those who need electricity or those who are jobless, then pursue your own ambitions aggressively, for the profit motive is the true engine of prosperity.”

Nohria understands this criticism, but believes that the elite business leaders coming out of schools like Harvard need to appreciate that corporations are creations of society, and therefore ultimately beholden to it. “A business charter is something that society bestows on businesses,” he points out. In their earliest days, corporations were only chartered for specific societally important purposes — to open trade routes throughout the British Empire, for example, or to settle Massachusetts Bay — and technically, public companies still exist because the public allows them to.

“I think that we give businesses money in return for their providing something that we value,” says Nohria. “We do this because we believe that the resources that have been used by the business have been used in a way that the value created is more than the opportunity cost of the resources consumed.”

Still, Nohria has no plans to make the oath a part of the business school curriculum. He likes, he says, the fact that students today debate whether or not to sign it, and have to defend their decision one way or another. He agrees that the oath doesn’t provide ready answers to difficult decisions. But that is not its point. Its point is to do something like the opposite: to remind its takers of the complexity and impact of the decisions they will make, and to disabuse them of the view that one measuring stick, or one model, will make those decisions easy.

Drake Bennett is the staff writer for Ideas. E-mail drbennett@globe.com.

(istockphoto/Globe Staff illustration)
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