Krause, David S.

Peck, Sarah

English

epublications@Marquette

Marquette Universitye-Publications@MarquetteFinance Faculty Research and Publications Finance, Department of1-1-2008Teaching Business Ethics: The DepartmentalPerspectiveDavid S. KrauseSarah PeckMarquette University, sarah.peck@marquette.eduPublished version. "Teaching Business Ethics: The Departmental Perspective," in Dean's Perspectives.Ed. Krishna S. Dhir. Atlanta: Decision Sciences Institute (Georgia State University), 2008: 94-99.Publisher Link. © 2008 Decision Sciences Institute. Used with permission.Georgia State University published Dean's Perspectives.94 The Dean's Perspective Teaching Business Ethics: The Departmental Perspective David Krause and Sarah Peck We attended the AACSB conference "Teaching Business Ethics" in the sum-mer of 2005 and came away with a better understanding of the various issues involved in teaching this material. One of the major questions was whether ethics should be taught as a separate business course or integrated across the curriculum in all business courses. We learned from those attending the con-ference that there is no agreed upon method. Some schools offer a specific required ethics course; others integrate it into the "Business and Society" course; others attempt to integrate it into all of the business courses taught; and some don't address ethics at all. Another major question discussed at the conference was whether business ethics courses should be taught by business professors or by professors from philosophy or religious studies. When the course is taught by business profes-sors, most often, it is taught by those in management. We did not fit into either group. We were part of only a small handful of finance professors attending the conference, despite the fact that many of the well-known corporate scan-dals have been finance and accounting related. We were there because we plan to offer a course entitled "Investment Management, Ethics, and Society," a finance business ethics and society course. In developing this course, we have not been able to find any other school that offers a similar course. Be-cause we are doing something that is innovative, we thought it would be valuable to share what we are doing and why. This article first appeared in Decision Line, May 2006, 37(3). Issues in Teaching Thinking Beyond the Current Issues-What We Do at Marquette 95 At Marquette University we take the issue of teaching business ethics seri-~usly. As a Jesuit university, Marquette has a long standing practice of requir-mg a heavy dose of both theology and ethics of all our students, whether in the business school or not. Like many business schools, both Jesuit and non-Jesuit, our students are required to take either a "Business and Society" course or a "Business Ethics" course. We also integrate ethical issues throughout the courses in our curriculum. However, unlike other schools, our students can also take an ethics course tha t is specific to their major, like the finance course mentioned above. We also offer "Economics and Ethics" and "Marketing and Society." A heavy dose of ethics is incorporated into our II Auditing Principles and Procedures" course for our accounting majors. Besides making us dis-tinctive, we believe that there are several advantages to this approach, the most important being, of course, that we produce students who become man-agers and who are able to conduct business in an ethical and moral way. Engages Students and Enhances Student Leaming Teaching ethics at the major level requires that students have advanced knowl-edge of their field. As a result, the ethical issues that can be addressed are more sophisticated and subtle than those that can be addressed in a more general-ized course. Often students perceive that what they are taught, for example, in a Business in Society course, is self-evident. "Yes, we already know that it's bad for corporations to pollute the environment." If students perceive that they are not learning anythlng new, then they tend to disengage and thus miss some of the more sticky issues in ethical decision making taught in those Courses that are of value to them. Students are also likely to have a heightened interest in the material because it relates to their chosen field. Because students are interested in finance, they are more likely to be interested in ethical issues in the finance industry. Their self-selection into a major that holds interest for them can serve as a vehicle to enhance their interest in related ethical issues. For example, an on-going prob-lem in the finance industry is soft dollars. The term soft dollars refers to an arrangement where a money manager receives research or brokerage services from a broker-dealer in exchange for executing trades through that broker. The practice is classified in Section 28{e) of the Securities Exchange Act. Soft dollars are considered by some to ~ a hidd~ cosHo individual investors that benefits money managers and theIr finanaal advisors. Most commonl~ a portion of every commission is retaine~ by the broker as payment for research advice or other services normally paId for by the money manger. Such agreements are called "commission recapture ar-96 The Dean's Perspective rangements/' which are basically expenses that can be directed to the money managers' broker to improve the fund manager's bottom line at the expense of their investors. The controversy over whether soft dollar arrangements pose conflicts of interest is a topic that is specific to the finance industry. It is un-likely that a marketing major would be interested in discussing whether soft dollars calise an over-consumption of research and how this influences the decisions of money managers-while a finance major would likely find this ethical discussion very intriguing. Another example is "market timing." Market timing, unless specifically stated in a fund's prospectus that the practice will not be used, is not illegal, but can be unethical. Market timing is an investment technique involving short-term, "in and out" trading of mutual fund shares, which has a detrimental effect on the long-term shareholders for whom mutual fund investors are designed, such as retirees and other "buy and hold" investors. The technique is de-signed to exploit market inefficiencies when the "net asset value" or "NAV" price of the mutual fund shares-which is set at the 4:00 p.m. market close-does not reflect the current market value of the stocks held by the mutual fund. When a "market timer" buys mutual fund shares at the stale NAV in a rising market, he or she realizes a profit when he or she sells those shares the next trading day or thereafter. That profit dilutes the value of shares held by long-term investors. Understanding market tiroingrequires students to have s~­clent understanding about how portfolio values are calculated and specifi-cally how mutual funds are priced. Again, it is unlikely that students in other majors would have either the sufficient background or interest to grasp the ethical issues involved in this trading technique. However, it is critical f~r students entering the investment business to be familiar with these issues if they are to become ethical money managers. Practical Advice and learning Outcomes In addition to engaging students, taking an ethics courses in their major is likely to produce more ethical managers because the course can focus on is-sues that are specific to that industry. Thus, students will be better prepared to fac~ issues that they will most likely encounter in their chosen profession and ul~ately ~ake the right decision. After all, this is why we have ethics in the curncu1um m the first place. While most finance majors will encounter the soft dollar or market timing dilemmas in their careers (75% of Marquette's finance students enter the investment field), virtually no marketing majors would. Teaching students about current ethical dilemmas in their chosen career will also provide them with better tools to address new ethical dilemmas that will come across their paths in the future. Most of the ethical issues in investments revolve around the use and disclosure of information, the timing of trades, and the pricing of securities. For example, a detailed discussion of issues such Issues in Teaching 97 ~ soft dollars and market timing will increase the student's grasp of these ISsues. As managers, these students will be in a stronger position to identify and nullify potential ethical violations associated with more complicated and new types of financial transactions that emerge in the future. Turning out students who become proactive managers who prevent ethical violations is certainly an important learning outcome. Ethics courses that are specific to a major can also provide more practical adVice. Most professions have a code of conduct that is specific to a profes-sion. For example, in finance there are professional designations, Charter Fi-nancial Analyst and Certified Financial Planner. Not only should students know what the codes are for these designations, but they should also be able to ethically evaluate these codes of conduct. They should also understand the distinction between legal, ethical, and moral conduct for their profession. This provides practical advice for students starting their careers. What are the spe-cific dilemmas that they are likely to encounter? What are the industry stan-dards that guide this behavior? What are their values? Who do they go to? Their boss? The SEC? Meaningful Integration MCSB and many other teaching professionals advocate an integrated ap-proach to curriculum design. A common integrated approach is to discuss ethics in all courses. However, because no substantial amount of time is de-voted to ethics in anyone course, the treatment of ethics tends to be both superficial and repetitive. For example, irISider trading is often used as an example of unethical behavior in finance. It's easy and quick and gets covered in almost all courses. Most students know about insider trading already and their eyes glaze over after they've heard it for the umpteenth time. When that happens, they are not learning about ethical decision making. Teaching ethics at the major level allows more time for students both to go into more depth on anyone issue, as well as to cover issues that are less transpar-ent or well known. While many students know about insider trading, they are less likely to be familiar with soft dollars. New material is likely to capture students' attention and result in greater learning. Issues that are more com-plex and problematic force students to be more engaged in thinking through the ethical issues. Teaching ethics at the major level also forces integration of course material that is traditionally taught across departments. Socially responsible investing provides an example of how material in a "Business and Society" course taught by the management departrnentcan be integrated into a finance course. Identifying companies that are socially responsible requires an understand-ingof the topics covered in a traditional "Business and Society" course: stake-holder theory, and its attendant issues of employee relations, environmental 98 The Dean's Perspective concerns, etc. However, evaluating the stock price performance of socially responsible companies requires an understanding of risk adjusted returns, portfolio theory, and benchmarking. As a practical issue, students can also learn about various rating agencies and mutual funds that claim to follow a practice of socially responsible investing (SRI). Thus, an investment ethics course is able to integrate material from two separate courses, "Investments" and "Business and Society," into one course that is likely to have more mean-ing for a finance major as well as provide more practical advice. Another benefit of an integrated approach is that it allows another opportu-nity to teach major material. Understanding issues in finance such as soft dollars, market timing, and SRI requires a solid understanding of how finan-cial markets work and securities are priced. A discussion of the ethical and moral issues surrounding these topics requires visiting these basic concepts in finance once again. Student learning is often enhanced when students see important concepts re-visited repeatedly but in different contexts. Practical Issues: Teaching, Scheduling, Faculty Buy-In Even if you buy into the pedagogical reasons for offering a major ethics course, there are always resource implications. First, administrators must find some-one who can teach such a course. Hopefully, there are faculty in the depart-ment that have either a teaching or research interest in developing such a course. Deans need to provide support for the development of the course ma-terial, such as ours did by sending us to the conference (it also helped that we have research interests in corporate governance, the financialcosts of Sarbanes Oxley, socially responsible investing, etc.). If not, business professionals ar~ often a possible resource. Unfortunately, there are many who have had expen-ences with unethical business behavior in their specific professions. Administrators also have to think about whether a major ethics course offered as a major elective can substitute for a "Business and Society" or "Business Ethics" course and whether the major ethics course is required for all majors. The former requires sufficient sections to be offered each semester so that stu-dents can fulfill course requirements and graduate on time; the latter requires only that the course be offered with the same frequency as other electives in the major. The first approach requires more teaching resources be devoted to teach-ing business ethics. Which of the two approaches administrators take will depend on the resources available at their institutions, as well as on each department's commitment to teaching ethics. :inally, and most importantly, faculty must "buy in" to such an approach for It to ~ successful. At Marquette, in developing our curriculum, we focus on le~nung outcom.es rather than requiring specific courses. First, a committee WIth r€f'resentatives across departments identified the learning outcomes for the ethICS component of our curriculum. These learning outcomes were then Stakeholder Engagement 99 approved by the entire faculty. Subsequently, courses can be submitted for approval as one that satisfies the learning outcomes in a particular area, i.e., ethics.1f the undergraduate committee determines that a proposed course ful-fills the learning outcomes, then it is approved. This approach takes the em-phasis off department" ownership" of courses and places it on student learn-ing. It also allows for more innovation and new course development. Students Who Become Ethical Managers The bottom line is that we believe that offering ethics at the major level ulti-mately produces students who are both more proficient and more ethical man-agers. Ethical dilemmas presented in the context of the student's chosen ca-reer provide more practical advice, more effective tools for ethical manage-ment, greater student engagement and learning, and another opportunity for students to learn important concepts in their major. If deans are willing to realloca te resources to such an approach, we can think of no costs in terms of the learning outcome-producing ethical managers-that underlies the ratio-nale for teaching ethics in the first place. 

Teaching Business Ethics: The Departmental Perspective

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Teaching Business Ethics: The Departmental Perspective

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