Should CEOs take ethics oath just like doctors?


By Zhen Ming


SHORTLY after the eyeball-popping terrorist attacks of 9/11, US investors on Wall Street came under a gut-wrenching attack of another kind.

It was an attack similar to the kind we all saw last week when markets around the globe lost an estimated US$6 trillion (about S$9 trillion) in a non-stop wave of panic selling. (This humongous loss, over just five days, is equivalent to snatching away US$3,600 in hard-earned savings from every family of four on this planet.)

Then, big corporations like Enron and WorldCom admitted that they had overstated their earnings by billions of dollars.

They went bankrupt, so did a few other big companies which had done the same.

All in all, these scandals wiped out some US$500billion worth of investments in US stocks.

The current crisis and the one in 2001 had one thing in common. CEOs, many of whom had MBAs from top universities, were too greedy.

In a new article in the Harvard Business Review, Rakesh Khurana and Nitin Nohria - who both teach at the Harvard Business School - say that it is time for a managerial version of the Hippocratic Oath, to which all doctors must swear (see sidebar).

Implicit in their argument entitled 'It's Time to Make Management a True Profession' is a criticism of the MBA degree itself, which many of today's failing managers hold.

According to the two professors, true professions have codes, and the meaning and consequences of these codes are taught as part of the formal education required of their members.

Two schools of thought

But the main challenge in writing an enforceable Hippocratic Oath for CEOs lies in two deeply divided schools of thought.

One school argues that management's aim should simply be to maximise shareholder wealth; the other argues that management's purpose is to balance the claims of all the firm's stakeholders.

Professor Jeffrey Pfeffer of Stanford's Graduate School of Business thinks the oath itself will do little to change things.

'This oath, in and of itself, will do little or nothing to professionalise management. That does not mean it is a bad idea, only that a pledge is insufficient to fix the problem.

'The core issue is that business education uses economic language and theory as its primary foundation, and economics proceeds from the assumption of self-interest. It is hard to 'square' that intellectual foundation with a pledge to take the interests of other parties into account.'

Indeed, of late, there has been much tongue-lashing at the failure of the MBA courses that Wall Street's 'best and brightest' took before rising up the ranks of global finance and making those big mistakes.

As I see it, the question is do we need MBAs at all to recognise the fact that someone is a good manager?

Many, after all, believe that management is as much art as science, better mastered through experience than formal education.

I asked Professor Pfeffer (who taught me 'Power and Influence' at The B-School).

He said: 'I don't think experience is the only valid teacher... Management education could add more value and may - given the many reforms in business school curricula now being implemented.'

Nobel Prize-winning economist A Michael Spence, however, believes that an MBA is merely a signalling device: Going to a business school allows individuals to credibly signal their greater commitment to a career in management.

And many MBA students have yet a different perspective: They believe that business school is simply an opportunity to develop a robust network of peers and alumni.

Indeed, the success of iconoclasts like Bill Gates - a Harvard dropout, no less - might suggest that a lack of formal management training was a positive advantage in becoming a successful entrepreneur.


The proposed CEO oath

Hippocratic Oath for managers? The Hippocratic Oath is an oath taken by doctors to ensure medicine is practiced ethically. The following is the oath Harvard professors Khurana and Nohria has proposed for managers.

As a manager I serve as society’s fiduciary for one of its most important institutions: enterprises that bring people and resources together to create valued products and services that no single individual could produce alone. My purpose is to serve the public’s interest by enhancing the value my enterprise creates for society. Sustainable value is created when the enterprise produces an economic, social, and environmental output that is measurably greater than the opportunity cost of all the inputs it consumes. In fulfilling my role:

I recognize that any enterprise is at the nexus of many different constituencies, whose interests can sometimes diverge. While balancing and reconciling these interests, I will seek a course that enhances the value my enterprise can create for society over the long term. This may not always mean growing or preserving the enterprise and may include such painful actions as its restructuring, discontinuation, or sale, if these actions preserve or increase value.

I pledge that considerations of personal benefit will never supersede the interests of the enterprise I am entrusted to manage. The pursuit of self-interest is the vital engine of a capitalist economy, but unbridled greed can be just as harmful. Therefore, I will guard against decisions and behavior that advance my own narrow ambitions but harm the enterprise I manage and the societies it serves.

I promise to understand and uphold, both in letter and in spirit, the laws and contracts governing my own conduct, that of my enterprise, and that of the societies in which it operates. My personal behavior will be an example of integrity, consistent with the values I publicly espouse. I will be equally vigilant in ensuring the integrity of others around me and bring to attention the actions of others that represent violations of this shared professional code.

I vow to represent my enterprise’s performance accurately and transparently to all relevant parties, ensuring that investors, consumers, and the public at large can make well-informed decisions. I will aim to help people understand how decisions that affect them are made, so that choices do not appear arbitrary or biased.

I will not permit considerations of race, gender, sexual orientation, religion, nationality, party politics, or social status to influence my choices. I will endeavor to protect the interests of those who may not have power, but whose well-being is contingent on my decisions.

I will manage my enterprise by diligently, mindfully, and conscientiously applying judgment based on the best knowledge available. I will consult colleagues and others who can help inform my judgment and will continually invest in staying abreast of the evolving knowledge in the field, always remaining open to innovation. I will do my utmost to develop myself and the next generation of managers so that the profession continues to grow and contribute to the well-being of society.

I recognize that my stature and privileges as a professional stem from the honor and trust that the profession as a whole enjoys, and I accept my responsibility for embodying, protecting, and developing the standards of the management profession, so as to enhance that respect and honor.


Source: The New Paper, Sun 12 Oct 2008