Good business leaders have always been concerned about ethics. But its inclusion in university curriculums as a subject in its own right, particularly in business schools, is more recent. It would be wrong to suggest that ethical values were missing in academic programs, because they were being discussed as early as the 1700s. However, they’ve only come to the fore recently as part of the growing emphasis on long-term integrated thinking.
YA
ÖYÖ
Ethics appears in course material on different functions of the organization. Finance textbooks, for instance, have a unit on finance and ethics. Similarly, marketing textbooks have a unit on marketing and ethics. But it’s only in the last ten years that it’s been taught as a subject in its own right in Turkey.
BE
My view, being outside academia, is that we might be confusing business ethics with being ethical. Business ethics is a discipline focused on resolving conflicts that frequently arise in business management; it’s not about teaching people to be ethical. While managing our businesses, we often face situations that affect the interests of our suppliers, customers, shareholders, society, and employees quite differently. Business ethics courses focus on how to balance the interests of various stakeholders according to certain ethical standards. It seems to me that sometimes there’s a confusion of concepts in this regard. Of course, when it comes to business ethics, anyone critical of business people generally tends to think, “Here they go again, talking on and on about business ethics, but when it comes to their own interests…”
YA
Their pockets come first.
BE
“… Business ethics go out the window, what matters is their own interests,” for example. There’s a cartoon on this matter that I’ll never forget: The chairperson is sitting at the head of a boardroom table with directors seated on either side, and he says, “Compliance with business ethics is absolutely crucial, provided it’s within reason, of course.” The impression is that businesspeople will pay lip service to something until it becomes “unreasonable,” at which point they’ll go back to their old ways. If you ask me, the best way to promote business ethics is to prove that you can be both ethical and successful in business.
There are business ethics societies and foundations in Turkey, but I think they confuse the picture and don’t serve their purpose. I’ve no doubt that several were founded with the best of intentions, to promote business ethics in business. But what do you see instead? You see executives of companies mired in scandal trying to clear their names through the prestige of these organizations. In this regard, an even more striking example comes to my mind. A foreign expert was invited to Turkey by one of these ethics institutions and I went to listen to him. I recall the title of his speech very clearly: Why Business Ethics, Why Now?
After delivering a well prepared, consistent, fluent and professional presentation, he answered his own question at the end: “...Because business ethics can improve your company’s public image very effectively.” What can you say to that? If that’s the rationale behind presenting business ethics to the business world in Turkey, what can we expect from these organizations? What are they trying to achieve?
YA
Good governance and business ethics overlap in my view.
BE
Very good. Yes, I agree.
YA
Good governance and corporate governance gained popularity in the wake of financial scandals and crises, and many of our current rules came afterwards. Regulations were tightened by the OECD, the Capital Markets Board in Turkey, and the Securities and Exchange Commission in the US. Corporate governance was presented as an approach that would protect smaller shareholders from bigger ones or enable companies to access credit more easily. In my books, I try to make a special point of emphasizing that corporate governance is actually a much broader concept, which is why I deliberately use the term “corporate trust.” Corporate governance is not just essential for accessing financial resources, it’s the only vehicle for gaining the trust of all stakeholders in order to access all kinds of resources.
By stakeholders I mean employees, customers, suppliers, dealers and society. Firms that aren’t trusted necessarily face higher operational costs. Let me give you an example of a company that pays its bills late, not just once but all the time. Soon all the suppliers notice, and because they do, they add an interest payment into their price. Consequently, your costs will be higher than those of the firm that pays on time. Similarly, differences will arise between the company that treats its employees well and the one that doesn’t. Good employees will move elsewhere and the company will start to lose competence. We’re already headed towards very tight margins due to competition. Lack of trust restricts access to resources and raises costs, which in turn makes it impossible to attain economies of scale and economies of learning. So, business ethics and good governance are in a company’s own long-term interest and affect all its stakeholders.
Let’s take a look at why good governance and boards of directors matter. When you give authority to a general manager it’s a 24-hour job. Their first responsibility is to safeguard the assets entrusted to them; the second is to create value with those assets. But safeguarding comes first. That’s why managers are responsible for workplace safety and protecting employees. When you give authority to managers, no matter who they are, you should also audit their decisions, especially the important ones. Every decision has a multitude of dimensions: short and long-term effects, risks, benefits, as well as different impacts on different stakeholders. It’s very difficult for one person to always find the right balance. That’s why reviewing particularly critical decisions about strategy and key investments reduces the potential for error and reduces risk. This review is the duty of the board, which should comprise directors with diverse points of view. The board of directors has three principal duties. The first is to exercise reasonable care, that is, to evaluate the decision knowledgeably and with care. The second is duty of loyalty. That means prioritizing the interests of the company, but without forgetting the interests of stakeholders. Directors have to keep stakeholders’ interests in mind and to be fair about them. The last one is duty of disclosure. Company decisions have an impact on shareholders and other stakeholders. Trust is only built through explanations that are transparent and, for purposes of accountability, complete and comprehensive.
As you can see, all of these points aim to raise the level of trust in a company. The board serves its function by approving or rejecting management proposals. If it were to begin giving orders to management instead, it would lose its function as a mechanism of oversight. So the ideal structure is one that helps management achieve the right balance in all the areas mentioned above by approving or sending back proposals. Companies with a well functioning board of directors, culture, and set of systems will also have better business ethics.
ÖYÖ
Sadly, students underrate business ethics courses as far as I can see. Since social norms in Turkey don’t steer people towards ethical behavior, I’m not sure just how much of the material students actually absorb, but I think it’s useful if only to raise awareness. It’s important for students to recognize that even legal behavior may not be ethical.
I hope that students will carefully examine the decisions they make in the future as managers and spend a little more time deliberating before making decisions that harm others. These courses shouldn’t be dropped at all; if anything, they ought to be reinforced. As you’ve just pointed out, unethical behavior is sure to damage a business in the long term. Perhaps this is the message that ought to be made very clear alongside ethical philosophy: Whether you believe in ethics or not, you will suffer in the long run and your business will fail if you don’t behave ethically.
BE
I agree that ethical behavior and long-term success are directly related. Companies are under unrelenting pressure to grow profits in the short term. Those that give in and stray outside ethical boundaries may hide somewhere, get away with it, and find some way of carrying on without being embroiled in scandal, but they can’t win in the long run. Otherwise, we’d have to accept that all successful businesspeople are crooks.
I’d like to touch on management training, perhaps as a final heading in our conversation. I’ll start with my personal experience and perspective. I didn’t study management at the undergraduate or graduate level. I studied physical chemistry first and then chemical engineering. I wanted to do a master’s in management but was encouraged first to work for a while; that was how things were done then. I dove into work, couldn’t get back out, and was forced to make up for quite a lot the hard way. I tried to learn what I needed by attending short management courses, studying on my own, and taking a variety of courses in specific areas – it was all done the hard way and took much longer. So, my recommendation to young people who see their future in management is to avoid this path and do a graduate degree in management. They might well have other interests as I did. There’s no problem with studying for a degree in those branches. But if they are determined to go into business, become managers, and spend their lives in the corporate world, then I advise them to spend time and effort on training for it without delay.
Another thing I’ve observed is this: What’s taught in management schools is so important in view of the conditions and needs of our time that it’s almost strange it’s taught at an MBA level. Today, university students can graduate without having learned the most basic principles of economics, yet it’s very difficult to appreciate what’s going on in the world without this knowledge. For example, it’s almost impossible to understand what politicians and their parties promise or to earn a real return on your savings. Making sense of the stock market is out of the question, as is assessing the companies you invest in and evaluating investment alternatives. All this needs to be taught in high school in my view. Yet we teach them at an MBA level. That’s what I think, at least. Do you agree? I’m also very curious about new trends in management training. Which topics are becoming more important? The business world is very concerned about innovation and sustainability; have they also made an appearance in MBA programs? Could you tell us about what students are being taught these days?