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JAN 18, 2011

Marginalia Vol.2: “Professional” Ethics in Business?

By John Vandenbrink

Marginalia are brief notes written in the margin of a book or article. John Vandenbrink, Deputy Dean of GLOBIS University, will share his notes on topics that have caught his attention in his readings on finance, business, and economics.

Is business a profession?

As an American who spent a career in finance and is now teaching in a MBA program, I have been doubly sensitive to the criticisms that have been leveled against bankers and MBA’s in the wake the global financial crisis of 2008. How could Wall Street—perhaps the most densely MBA-populated sector in business—create a huge economic crisis, accept rescue by taxpayers, almost completely escape accountability for enormous lapses in business judgment and ethics, and then immediately, unrepentantly resume paying unseemly bonuses? Clearly something was wrong, as citizens, pundits, and politicians all proclaimed.

Remedies have been proposed, but few have come from the world of finance. At business schools, however, there have been attempts to expand instruction in ethics and even to require professional oaths of MBAs students, like the Hippocratic oath often required of doctors. (Business schools had a head start. They had previously been called to task for ethical failings of MBA’s who committed fraud at Enron and WorldCom.) I have followed some of these developments, though without arriving at a conclusion about their utility. Recently I was prompted to look at them again. There is value in the proposals at business schools to reform business ethics, but there are also significant obstacles.

What prompted my reassessment were passages on the origins of graduate schools and professionalism in Louis Menand’s book, The Marketplace of Ideas: Reform and Resistance in the American University (Issues of Our Time) (W.W. Norton & Company, Inc., 2010), which deals with the reforms and tensions within American universities. Menand writes about Charles William Eliot, who served as president of Harvard University from 1869 to 1909 and who transformed the schools of law, medicine, science, and engineering into organizations that provided paths for professional certification, making them more selective and thereby raising the social status of their respective vocations. This was, Menand points out, an early manifestation of a trend in American society toward the creation of professions as a means for dealing with the increased specialization of knowledge in modern society. In a capitalist economy driven by “efficiency and self interest, professions set standards for performance that rate quality above dollars” (p. 103). Professionals accede to long and expensive periods of training, and they also agree to comply with peer-determined standards for disinterested actions to improve the profession and to provide specialized services fairly to clients and patients (p. 103). In exchange, professionals gain elevated social status, high but not irresponsibly high income, and job security derived from membership in modern-day guilds with strong barriers to entry. Graduate schools were not the only new institutions born of the thrust for professionalism, writes Menand. Lawyers, doctors, professors, and workers in other vocations also created professional associations that often had the authority even to disbar or otherwise disqualify professionals from practice.

Menand’s analysis raises a fundamental question: Is business a profession, or can it be a profession? Is it reasonable to expect that businessmen, in their pursuit of profits, can strike essentially the same arrangement with society as doctors, lawyers, and other professionals? In October 2008, two professors at Harvard Business School published an article in which—narrowing the scope from business to management—they answered, yes. They are Rakesh Khurana and Nitin Nohria , who is now dean of the business school. The article, “ It’s Time to Make Management a True Profession,” has stimulated considerable debate.

Certification for managers?

Khurana and Nohria point out that management education developed out of fear of the rise of large corporations with dispersed shareholding and control. It was intended that professional managers with scientific training, certification, and codes of conduct would ensure that large corporations served the greater needs of society. This vision of managers as professionals has not been realized, Khurana and Nohria acknowledge. However, they believe that the “institutional arrangements are known and easy enough to put into place.” This is an overstatement, but the steps they suggest for the professionalization of business management are thought-provoking and merit assessment.

Khurana and Nohria call for a broad expansion of certification of professional managers utilizing higher standards of knowledge and competency than are in place today and requiring periodic refresher courses to renew certification. While this objective would be by no means impossible to achieve, it would be insufficient to create the conditions for society and government to acknowledge management to be a full-fledged profession. First, there is the problem of businessmen without certification. Who in society or government would prohibit uncertified businessmen from becoming managers? It is not likely to happen, and unless it did, certified managers would never enjoy the vocational exclusivity that is at the core of the unwritten contract between other professional groups and society. Associations of professional managers would have authority to set standards for management education but not for the practice of management.

Second, other recognized professionals can plausibly argue that at the heart of their work there is a relationship between an individual and a specialist, for example, between a client and a lawyer, a taxpayer and an accountant, or a patient and a doctor. The individual lacks the specialized knowledge of the professional and so is at a disadvantage in judging the quality and value of the service provided. Professional associations set standard to protect the interests of individual clients, taxpayers, and patients. Managers, however, work for corporations, not with individual clients. What are the standards that managers should follow? In true professions, the standards of conduct apply primarily to relationships between individual and specialist, and also to relationships among the specialists. It is not so simple for managers.

This becomes troublingly clear in Khurana and Nohria’s discussion of the value that managers should hold in highest regard in their work. As Khurana and Nohria point out, there is a school of thought in business and economic literature contending that the highest standard is shareholder value, which is nothing more or less than the economic value of the corporation less the funds it borrows. This would make managers servants of the very same large corporations with dispersed shareholding and control that business schools were founded to contain in the first place. Khurana and Nohria reject shareholder value as the standard for the behavior of managers. Instead, they argue that managers should view “society as their ultimate client” (p. 6). However, this solution would provide little meaningful or practical guidance to managers, and it would be even less useful for associations of professional managers charged with compliance. The problem is that the work of managers is not analogous to the work of specialists in the true professions, whose clients are individuals. (This is not to say that shareholder value ought to be the standard. Khurana and Nohria are correct in suggesting that it would leave managers embracing the letter rather than the spirit of the laws that govern their corporations.)

True professionalization of management is unlikely. It is therefore unlikely that associations of professional managers will develop codes of conduct for managers, monitor their behavior, and discipline ethical breaches. However, Khurana and Nohria’s program should not be rejected completely. They propose a “Hippocratic Oath for Managers” and make a convincing case that it, or a code similar to it, would indeed influence the behavior of managers. Their code contains some principles that ought to be promoted in the world of business, whether management becomes a profession or not. Students at Harvard Business School have drafted an oath and have created a supporting organization. The Thunderbird School of Global Management has adopted an oath that is incorporated in the application process and signed at graduation. These developments ought to be encouraged.

Joel Podolny, dean and vice president of Apple University in Cupertino, CA and former dean of the Yale School of Management, has supported the creation of MBA codes of conduct and has even gone so far as to advocate withdrawing the degrees of graduates who violate them. [“The Buck Stops (and Starts) at Business School,” Harvard Business Review, June 2009, p. 7]. Management may never become a profession, but certainly there are other creative ways to promote ethical behavior in management and business.