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Royal commission shows business students should be given a moral compass

Cordelia Fine

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The banking royal commission hearings have left the community underwhelmed by the ethical leadership capacities of those at the helm of our major financial institutions.

Commissioner Kenneth Hayne and assisting senior counsel have pulled back the thick curtain of management-speak to reveal a disturbing culture. As management academic Robert Phillips observes in Stakeholder Theory & Organisational Ethics, the stakes are high when it comes to ethics in business:

"Business organisations are among the most powerful social entities on earth," he says. "They are the grand social institutions of our time, perhaps the sole remaining effective social institutions, expected not only to fuel free-market economies, but also to carry burdens once thought the province of government and religion (eg, healthcare, childcare, protection of privacy, education). Business organisations control vast resources, cross national borders, and affect every human life. Their pervasive impact on human lives rivals that of history's most powerful czars, kings and emperors."

Commissioner Kenneth Hayne and assisting senior counsel have expertly pulled back the thick curtain of management-speak to reveal a disturbing culture. 

The royal commission is a reminder of the responsibility on those who teach future managers and leaders, and the difficult task they face. How to furnish students with knowledge and skills that will help them with the inevitable ethical demands of their professional roles?

Sometimes students will face genuine ethical dilemmas – situations in which reasonable people can disagree over, say, the appropriate trade-offs between this principle and those consequences, how to resolve competing responsibilities to consumers versus shareholders, or which course of action represents the lesser of two evils.

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Complexity and nuance

Ethical reasoning is often taught with thought experiments, such as the well-known "trolley problem": if a runaway trolley were hurtling towards five workers working on the track, should you push a fat man off a bridge to stop the trolley and save their lives? For all its value in teasing out different ethical principles and challenging intuitions, it's hard to imagine an ethical dilemma less like the ones business students face.

Real-life ethical problems considerable expert knowledge to fully grasp all their complexity and nuance and decisions often have to be made in the context of incomplete knowledge and considerable uncertainty – conditions in which unintended judgmental biases often prevail.

And, unlike the atomistic individual transported into a hypothetical dilemma, business students have professional duties that overlay, and have to be balanced with, the moral obligations we share as citizens.

National Australia Bank chairman Dr Ken Henry made welcome reference during the hearings to the idea of managerial responsibilities beyond shareholders. Even Milton Friedman, famous advocate of the view that profit making is the only social responsibility borne by business, acknowledged the need for managers to abide with the "basic rules of the society, both those embodied in law and those embodied in ethical custom".

Cordelia Fine: "Sometimes our students will face genuine ethical dilemmas – situations in which reasonable people can disagree over, say, the appropriate trade-offs between this principle and those consequences." Paul Burston / University of Melbourne

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Frameworks that take into account fundamental ethical norms – such as honesty, responsibility and compassion – rarely offer the blissful certainty provided by a single-minded focus on short-term profit, but they do provide students with a systematic way of thinking through dilemmas, and making priorities and trade-offs explicit.

Other times, it won't be genuine ethical dilemmas that our students will be facing, but moral temptations in which the choice is between right and wrong. The pressure, or current practice, is to go with the latter. Even setting aside the difficulty of distinguishing between right and wrong – the dogma of shareholder primacy is particularly effective at dressing up moral temptations as ethical dilemmas – the challenge is substantial, simply because so many interacting individual, social, institutional and industry factors contribute to ethical failures.

Prevailing norms

The final crucial step is to help students put ethics into practice. Many business ethics faculties now draw on the Giving Voice to Values curriculum for this. Developed by Mary Gentile of the Darden School of Business, its goal is to build what Gentile refers to as "moral competence". As such, its focus for students is the question: "What if I knew what I thought was the right thing to do? How could I get it accomplished?"

Cases and teaching materials give students the opportunity – away from colleagues and prevailing norms – to consider the rationalisations and push-back they'd encounter if they suggested change, and how they might respond persuasively and, with any luck, relatively safely.

Business students have professional duties that overlay, and have to be balanced with, the moral obligations we share as citizens. Louise Kennerley

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What we have witnessed in the royal commission is a finance industry that has lost sight of the fact that the community expects its purpose to be to provide financial products that serve their needs, rather than merely ones that are maximally profitable for the institutions that provide them.

As teachers, by fulfilling our professional purpose to give society graduates equipped with academic knowledge and skills but also a moral compass, we give our students a better chance of fulfilling their own professional purpose.

Cordelia Fine is a professor in the School of Historical & Philosophical Studies at the University of Melbourne, and teaches ethics to MBA students at Melbourne Business School.

National Australia Bank chairman Dr Ken Henry made welcome reference during the hearings to the idea of managerial responsibilities beyond shareholders. Screen capture

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