1. Introduction

In recent years, the search for ways to stop the production of economic, environ-

mental and social crises has extended to business education.

Reformers and institutions that address environmental and social issues have increas-

ingly looked to business schools for positive contributions. Progressive business

scholars have argued for the integration of sustainability (e.g. Stubbs & Cocklin, 2008;

Willard, 2004) and corporate social responsibility (e.g. Carroll, 2000; Schwartz &

Carroll, 2003) content in business school curricula. Influential organizations like the

Aspen Institute and even the United Nations have developed programs to promote

more responsible and sustainable leadership development in business education.1

1 See The Aspen Institute’s Business & Society Program and the Principles of Responsible

Management Education initiative of the United Nation’s Social Compact program.

Chapter 11

Beyond Business Ethics and

Corporate Social Responsibility Courses

D.P. Gijsbertse

AbstractMany business schools have integrated business ethics, sustainability and

corporate social responsibility content into their curricula. The goal of these

reforms is to change the broader economic, environmental and social ef-

fects of organizational decision-making by their graduates in positive ways.

This chapter distinguishes four levels of integrating ethical reflection into

business education based on the type of reforms that schools have under-

taken so far. It argues that each of these levels is necessary, but not suffi-

cient to effectively change the broader economic, environmental and social

effects of organizational decision-making in positive ways. It then proposes

two further, much more radical levels of integrating ethical reflection into

business education that can change the broader effects of organizational

decision-making in positive ways.

125Published in: Gijsbertse, D.P. & Naeije, W.J. (2014). Bedrijfskundigen in de 21ste eeuw: Nieuwe perspectieven op bedrijfskundig onderwijs. Rotterdam: Hogeschool Rotterdam Uitgeverij.

Critics, on the other hand, have blamed business schools for the corporate scan-

dals of the early 2000’s and the 2008 financial crisis. Several business scholars

(e.g. Adler, 2002; Gioia, 2002; Khurana et al., 2004; Swanson, 2005) have blamed

corporate scandals like Enron, Arthur Andersen, WorldCom and Tyco on the

absence of ethics from business school curricula. Influential journals like Harvard

Business Review (Podolny, 2009) and Forbes (Serchuk, 2009) and quality news-

papers like The Financial Times (Bradshaw, 2009), The New York Times (Holland,

2009), The Guardian (James, 2009) and The Independent (Green, 2009) gave a

stage to critics who argued that business schools are responsible for the financial

crisis for the exact same reason.

In response to these concerns and criticisms, many business schools have integrated

business ethics, sustainability and corporate social responsibility content into their

curricula. While Forbes had previously criticized business schools for their complicity

in the financial crisis, it called it encouraging to see that ‘many schools, in response

to the financial crisis, are updating their curricula to better prepare students for the

ethical questions they may be forced to answer in the decades to come’ (O’Connor,

2013). More importantly, a study by the Aspen Institute (2011) found that the per-

centage of leading business schools with ethics and corporate social responsibility

content in their curricula had increased from 34% in 2001 to 79% in 2011.

This chapter addresses the efficacy of the reforms that business schools have

undertaken so far – focusing especially on their capacity to change the broader

economic, environmental and social effects of organizational decisions in posi-

tive ways. It argues that these reforms are indeed necessary, but that the ways in

which ethics, sustainability and corporate social responsibility content has been

integrated into business school curricula so far is not sufficient. Therefore, it also

proposes more radical ways of integrating a combination of ethical reflection and

critical thinking into business education that seem to be more promising.

The following section discusses why reformers and critics are right to target busi-

ness schools in their search for ways to stop our production of economic, environ-

mental and social crises. This is followed by a distinction of four different levels of

integrating ethics, sustainability and corporate social responsibility content into

business school curricula in section three. Section four explains why each of these

levels is necessary to change the broader economic, environmental and social

(side-)effects of organizational decisions in positive ways. After that, section five

will continue to argue that these four levels of integration nevertheless still fail

to address the actual driver behind the production of economic, environmental

and social crises. Section six discusses why, as a result of this failure, the first four

levels of integration are not sufficient to change the outcomes of organizational

decision-making. Section seven proposes two further and much more radical

levels of integrating ethical reflection on the broader economic, environmental

and social effects of organizational decisions into business education.

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2. Why Target Business Schools?

For every newly appointed corporate social responsibility or sustainability profes-

sor or lecturer, there is at least one business school professor or lecturer who

thinks these subjects do not belong in business education. For every critic who

has blamed business schools for the financial crisis, there are at least ten who

have blamed the financial crisis on governments instead.2 Before evaluating the

ways in which business schools have responded to growing environmental and so-

cial concerns and criticisms about their functioning, a brief discussion on whether

reformers and critics are right to target business schools is in order.

In general, there is a tendency among reformers and critics to blame the economic,

environmental and social crises on institutions or actors that can control, or, as

they would argue, could have controlled the production of the negative effects that

create these crises. The financial crisis, for example, is blamed predominantly on

governments, because they could have contained the creation of systemic econom-

ic risk through tougher regulation of the financial sector. The environmental crisis

is often blamed on consumers, because more sustainable consumption patterns

on their part could reduce greenhouse gas emissions, pollution and the depletion

of natural resources. Even growing unemployment in an increasingly automated

and competitive global economy tends to be blamed on individual members of

the work-force, because they could – as the argument has it – compensate for the

decline in labor market demand by becoming better entrepreneurs of the self

(i.e. personal investments in the development of one’s human capital or literal

engagement in entrepreneurial activities).3

Although this focus on the failures of the constraining and compensating mecha-

nisms that these actors and institutions have at their disposal can surely be useful

(as will be discussed in section 4), it does overlook where the production of these

crises actually occurs. While governments may be able to curb or compensate

for the creation of financial risks, they do not drive the production of these risks

themselves. Consumers may be able to reduce greenhouse gas emissions, pollu-

tion and the depletion of natural resources by changing their consumption pat-

terns, but it is not the act of consumption itself that brings these negative effects

into being to begin with. Individual members of the work force can compensate

for decreasing labor market demand by becoming better entrepreneurs of their

self, but their decisions and actions as individuals looking for work do not drive

the disappearance of jobs.

2 As a quick measure for approximation, there are fourteen chapters dedicated to the

various forms of government failure compared to one chapter about business schools

in Howard Davies’ (2010) The Financial Crisis: Who is to Blame?

3 The term entrepreneurship of the self is derived from Michel Foucault’s discussion of the

reformulation and generalization of the notion of homo œconomicus as ‘an entrepreneur

of himself’ in American neoliberalism (see Foucault, 2008, p. 226).

127

So where does the production of economic, environmental and social crises

actually occur? The answer is rather simple: it occurs as a side-effect of the

current functioning of organized forms of economic production, or, more simply:

business. It is not governments, but financial institutions that have produced the

systemic financial risks that came close to bringing down the world economy. It

is not consumption, but heavy industry that produces greenhouse gas emis-

sions, pollution and the depletion of natural resources as byproducts of their

business operations to begin with. The decisions of business, not individual

members of the workforce result in automation and lay-offs at the expense of

employment opportunities.

Knowing that these crises are produced first and foremost by the current func-

tioning of businesses, it is but a small step to see why business schools are

responsible for these crises indeed. Governments, consumers and individual

members of the workforce can be blamed at most for their failure to constrain- or

compensate for the production of negative economic, environmental and social

effects by businesses. Business schools, on the other hand, can be blamed (in)-

directly for the production of these crises, as they have developed, taught and

distributed the management tools and theories that have increasingly come to

govern organizational decision-making and the organization and functioning of

economic production (i.e. firms) more generally over the last 50 to 70 years.

3. Four Levels of Integrating Ethical Reflection

So if business schools are to blame, what have they done to change in response to

these crises? Detailed empirical studies about the content, teaching methods and

the position in the overall curricula of their reforms are missing or difficult to find.

But it is still possible to capture most of these reforms by making some conceptual

distinctions. Since we are interested in the capacity of these reforms to change

the outcome of organizational decision-making, these distinctions are based on

the extent to which ethics, sustainability and corporate social responsibility con-

tent is integrated in the ways in which business schools prepare their students for

real-world organizational decision-making. Based on this criterion, the following

four levels of integration can be distinguished.

Level 1: Stand-alone Courses

At the first level of integration, business ethics, sustainability and corporate social

responsibility are added to the curricula as separate, stand-alone course content.

There either is one course or part of a course dedicated to one of these three

topics entirely, or there are two or three courses or parts of courses that are each

dedicated to one of these three themes. A separate, stand-alone course on busi-

128

ness ethics, for example, would teach students to reflect on the effects of organi-

zational decisions on stakeholders from an ethical point of view.

Level 2: Integrative Courses

The second level of integration is reached when business schools offer course

content that integrates and relates ethics, sustainability and corporate social

responsibility topics. Such integrative course content teaches students to reflect on

the effects of organizational decisions for stakeholders and the broader economy,

environment and society from an ethical point of view. (Henceforth, the use of ‘ethi-

cal reflection’ will refer to this broader mode of reflection unless stated otherwise).

Level 3: Integration Across the Curriculum

The third level is reached when ethical reflection is integrated into the core

courses of the traditional curriculum (e.g. strategy, corporate finance, business

economics, marketing, human resource management etc.). These courses would

teach students to incorporate ethical reflection into the problem-solving and

decision-making approaches they learn.

This level can be achieved in several ways. One is to adopt a textbook that treats

the ethical aspects of the kind of organizational decision-making that is typical to

the subject of a course and actively involve reflections on these aspects in teach-

ing the course. Another way is to assign additional readings about ethical aspects

connected to the subject, explicitly discussing the ethical dimensions of business

cases that involve decision-making on the subject of the course. Finally, instruc-

tors of stand-alone courses on business ethics can help instructors of courses

from the traditional curriculum to integrate ethical reflection in the approach to

organizational decision-making that their specific courses teach.

Level 4: Integration in Business Assignments

The fourth level is reached when ethical reflection is integrated into business

assignments for real organizations. This level can only be attained by business

schools that have their students carry out projects or internships at real organiza-

tions during their studies. Schools that do, can achieve this level by making ethical

reflection on the effects of organizational decisions that are made or recommend-

ed as part of business assignments into a standard assessment criterion, as well

as a discussion point for coaching sessions during the project.

Most business schools are somewhere between the first and second level of inte-

gration. They have somehow added course content on business ethics, sustain-

ability and corporate social responsibility to their curricula. But the content is not

129

yet fully integrated. There is no ethical reflection on the effects of organizational

decisions for the broader economy, environment and society. Business schools

that have progressed to level two, three or four are at the forefront of making

business education more responsible and likely to be concerned with ways to en-

sure that ethical reflection actually changes the broader economic, environmental

and social effects of the decisions their graduates make in positive ways.

4. Why These Four Levels of Integrating Ethical Reflection are Necessary

Though each of the first four levels of integration has its shortcomings (as will be

discussed in section 5), they also represent necessary steps for business schools –

steps that must be taken in order to change the broader economic, environmental

and social effects of organizational decisions in positive ways.

Adding a separate, stand-alone (Level 1) course on ethics is necessary, because

students have to learn how to make judgments about decisions from an ethical

point of view. From the 1960’s onwards, business schools have adopted a science-

based approach to management.4 As a result, business education has come to be

dominated by a positive approach to business that is based on the-way-the-world-

(of-business)-is. In fact, this positive approach is so dominant that students would

not even know what ethical reflection and normative reasoning about the-way-

the-world-(of-business)-ought-to-be are, if their educational experience were lim-

ited to the traditional business school curriculum. If ethical reflection is going to

change the way organizational decisions are made, business students would first

have to know how to reflect on decisions from an ethical point of view. Therefore,

teaching separate stand-alone course content on business ethics is a necessary

precondition for more responsible organizational desicion-making.

Likewise, adding separate, stand-alone (Level 1) course content on sustainability

and corporate social responsibility is also necessary, because students have to

become aware of the (side-)effects that organizational decisions can have on

the economy, the environment and society. Traditional core courses focus on the

way that the relevant aspects of one business function (e.g. strategy, finance,

marketing, human resource management, etc.) are related to the performance of

the individual firm. In doing so, the business environment tends to be taken into

4 See discussions by Mintzberg (2004, p. 27ff), Ghoshal (2005, p. 77) and especially

Khurana (2007, p. 268ff), among others, about the way in which business schools were

transformed into science-based and analysis-centred institutions for ‘training in the

functions of business’ (as Mintzberg, 2004, p. 5 puts it) and turned away from the pro-

ject of developing management into a profession (as Khurana 2007 puts it).

130

account only to the extent that it is relevant for the performance of the individual

firm itself. That is, the effects of organizational decisions on the broader economy,

the environment and society are not considered as relevant in- and of themselves.

Business students who follow a traditional curriculum without any sustainability

or corporate social responsibility course content may even be(come) oblivious

to the fact that such effects exist. If the negative economic, environmental and so-

cial effects that are currently produced by businesses are to be changed through

the way organizational decisions are made, then business graduates who are go-

ing to make these decisions must be aware of them first. Therefore, it is necessary

to integrate stand-alone course content on sustainability and corporate social

responsibility themes into business school curricula.

By the same token, (Level 2) courses that integrate ethics, sustainability and

corporate social responsibility content are necessary, because students have to

learn to reflect on the broader economic, environmental and social effects of

organizational decisions from an ethical point of view. Teaching students to reflect

on decisions from an ethical point of view and teaching them about the broader

economic, environmental and social effects of organizational decisions is a first

step. But if these topics remain disconnected, students will learn only to identify

the broader economic, environmental and social effects of organizational deci-

sions in purely descriptive ways and remain unable to evaluate, argue and judge

whether these effects are good or bad from an ethical point of view. If business

graduates are to change the broader economic, environmental and social effects

of organizational decisions in a positive way, then they would have to be able to

evaluate- and argue about the normative reasons for doing so first. Therefore,

it is necessary to add courses to business school curricula that integrate ethics,

sustainability and corporate social responsibility themes in a way that students

learn to reflect on- and evaluate the broader economic, environmental and social

effects of organizational decisions from an ethical point of view.

The third level of integration, then, is also necessary, because ethical reflection

needs to be incorporated into every type of organizational decision-making.

Traditional courses like strategy, finance and marketing teach students how to

analyze- and solve problems and make decisions that are typical to the business

functions they address. If ethical reflection on the broader effects of business is

merely taught in stand-alone courses on ethics, it will remain detached from the

standard approaches to problem-solving and decision-making that are taught

for each business function. Business ethics, sustainability and corporate social

responsibility courses would appear to be just another set of separate courses,

each with their own approach to their own domain of problems. Such an isolated

position would make ethical reflection appear as a rather abstract exercise that

is detached from, and therefore irrelevant to, the problem-solving and decision-

making methods that are taught in other function-dedicated courses. If ethical

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reflection has to change the outcomes of organizational decisions in practice,

it has to be an integral part of all the standard approaches to organizational

decision-making that are taught in business school curricula. Therefore, it is

necessary to integrate ethical reflection across the core courses of the tradi-

tional curriculum.

Finally, even the fourth level of integration is necessary, as the traditional cur-

riculum is too theory-centered to prepare students properly for dealing with the

complex dynamics of real world organizational decision-making. The traditional

business school curriculum prepares students for making real-world organizational

decisions by training them in abstract analysis of business cases that are written

in a way that the available theories can easily be applied to find the right solution.

Factors that complicate decision-making in business practice (e.g. limited available

information, changing circumstances, organizational politics and all the unique

particulars of a situation that are not a part of the theory) are either bracketed or

excluded through a series of simplifying assumptions. This predominantly analytical

approach has led Henry Mintzberg (2004) to argue that business education fails to

develop competent managers in general, because it is to detached from the com-

plexities of real-world business contexts. His argument for doubting the efficacy of

business education extends a fortiori to the efficacy of teaching ethical reflection as

an integral part of organizational decision-making in classroom settings only. If busi-

ness students are to change the outcomes of decision-making in business practice

based on ethical reflections, they will have to learn how they can integrate these

ethical reflections and act upon them in the complex social reality of real-world

organizational contexts. Therefore, it is necessary to integrate ethical reflection into

business assignments, projects and internships for real-world organizations as well.

5. The Actual Driver Behind the Production of the Crises

The previous sections have argued that business schools can indeed be blamed

(in)direclty for the production of economic, environmental and social crises (sec-

tion 1), distinguished four different levels in the ways in which business schools have

reformed their curricula so far (section 2) and explained why each of these reforms

are necessary to change the negative economic, environmental and social effects

produced by organizational decisions (section 3).

This section discusses why the first four levels of integration – even though they

are necessary – fail to address the way in which traditional business school cur-

ricula drive the production of negative economic, environmental and social (side-)

effects in organizational decision-making. This failure results from their solution-

oriented approach, which merely seeks to use ethical reflection as a constraint on

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the production of negative external effects. This approach overlooks and distracts

from the actual driver behind the production of these negative effects.

There are two different ways to respond to crises: a problem-oriented approach,

which analyzes and seeks an understanding of the causes of a crisis first, and a

solution-oriented approach, which prioritizes the search for- and implementation

of possible solutions over gaining a complete understanding of the causes of a

crisis first.

The first four levels of integrating ethical reflection into business education are

solution-oriented responses. After the corporate scandals of the early 2000’s and

the 2008 financial crisis, critics were quick to blame these negative effects on the

absence of business ethics from business school curricula. Business schools quick-

ly responded by integrating business ethics and corporate social responsibility

content into their curricula. These rapid responses by critics and business schools

were focused on integrating business ethics as a solution that was readily at hand,

without any further or more thorough analysis of the underlying problem.

This solution-oriented approach definitely has one major strength relative to the

problem-oriented approach. It does not wait for an exact and complete under-

standing of how a crisis could have occured before coming up and implementing

responses to it. As such, it does not lose any valuable time when it is necessary

to mitigate immediate threats. Imagine that governments, in 2008, had commis-

sioned a thorough investigation into the causes of the financial crisis before issu-

ing bailouts to financial institutions that were at the brink of bankruptcy and too

big to fail. The economic system would probably have ground to a halt.

But the solution-oriented approach also has a major weakness. In skipping over a

more thorough analysis of the underlying problem, it tends to treat the absence

of the solutions that it generates as the problem. Consequentially, the solution-

oriented approach is at risk of responding to crises situations in a way that does

not address the underlying problem at all.

As responses to the economic, environmental and social crises, the first four lev-

els of integrating ethical reflection suffer from this weakness. Critics and business

schools alike did not so much engage in a thorough analysis of the ways in which

business education has contributed to the occurrence of corporate scandals and

the financial crisis. Instead, they proposed business ethics and corporate social

responsibility as a solution first and then backwards-rationalized that the absence

of business ethics was the problem second. But blaming these corporate scandals

and the financial crisis on the absence of business ethics in business education

does not explain why these (and other) negative effects occur when ethical reflec-

tion is absent from business education to begin with.

133

So what, then, drives the production of negative economic, environmental and

social effects in organizational decision-making that is devoid of ethical reflection?

It is the principle of shareholder value maximization.

Over the past three decades economic production increasingly has come to be or-

ganized around the principle of shareholder value maximization. This principle was

first popularized as a new conception of organizational purpose in the United States

in the early 1980’s. Throughout the 1970’s, corporate strategies of American firms

had been oriented predominantly ‘towards retention of corporate earnings and re-

investment in corporate growth’ (Lazonick & O’Sullivan, 2000, p. 13). In the decades

that followed, this was transformed into an orientation on ‘downsizing of corporate

labour forces and distribution of corporate earnings to shareholders’ (ibid.). Though

this transformation started in the United States, it has spread far beyond.

Business schools have played a decisive role in crafting this focus on shareholder

value maximization into the overriding objective for organizational decision-making.

The main intellectual thrust behind the aforementioned transformation of organiza-

tional purpose came from a group of financial economists (e.g. Jensen & Meckling,

1976). These economists translated a series of standard assumptions from neoclas-

sical economics into prescriptions for corporate governance in what has come to be

known as agency theory. Assuming that market mechanisms are superior to mana-

gerial decision-making and that human behaviour is essentially self-interested, they

argued that corporate governance should be designed as to prevent managers from

pursuing objectives that are not in line with the financial interests of shareholders.

One way to do this, as they proposed, is to grant stock options to executives. Another

is to promote a market for corporate control that would replace managers who failed

to maximize shareholder value. The theoretical design and practical implementation

of this approach to corporate governance implicitly transformed the conception of

organizational purpose from one that was tied to institutional stability and growth to

one that was focused on shareholder value maximization above all else.

This principle of shareholder value maximization has developed into the foun-

dational assumption behind most thinking, theorizing and teaching in business

schools. After its development under the guise of agency theory, shareholder val-

ue maximization was quickly adopted as the dominant doctrine on organizational

purpose in business education (Gintis & Khurana, 2006, pp. 303–304; Khurana

et. al., 2004, p. 9). One measure of its pervasiveness is its spread throughout

academic articles, books and standard educational textbooks on the different

business functions to which most core courses in the traditional business school

curriculum are dedicated. Examples of its adoption can be found in the academic

literature- and educational textbooks on corporate governance (e.g. Jensen, 2001;

Rappaport, 1986), strategy (e.g. Grant, 2008, p. 36), marketing (e.g. Srivastava,

Shervani, & Fahey, 1999) and human resource management (e.g. Becker et al.,

1997). Even more strikingly, studies by the Aspen Institute (2008) show that maxi-

134

mizing shareholder value is the most cited objective when business students from

the world’s highest ranked MBA programmes were asked what they thought was

the responsibility of business.

The principle of shareholder value maximization drives the production of negative

economic, environmental and social (side-)effects by imposing the maximization

of the firm’s individual financial performance as the overriding objective on every

organizational decision.

Every organizational decision has a range of possible effects that can be cat-

egorized and qualified along various dimensions. One of these dimensions is the

amount of shareholder value it generates, or – to put it more simply – the effects of

the decision on the financial performance of the individual firm. Another dimension

would be the broader economic, environmental and social effects of the decision.

In theory, these two dimensions would allow for 25 possible outcomes, between

the two of them, if each is divided into five different categories. Figure 1 depicts

each of these outcomes as 25 squares. The firm’s individual financial performance

runs from “minimized” to “maximized” across the vertical axis and is represented

Figure 1: All the possible effects of organizational decisions in terms of financial

performance and their broader external effects

by the top-left triangular part of every possible outcome (with dark-red represent-

ing minimized financial performance and dark-green representing maximized

financial performance). The broader external effects run from “most negative” to

“most positive” across the horizontal axis and are represented by the bottom-right

triangular part of every possible outcome (with dark-red representing most nega-

tive external effects and dark-green representing most positive external effects).

135

MOSTNEGATIVE

MINIMIZED

NEGATIVE

BREAK-EVEN

POSITIVE

MAXIMIZED

FINANCIAL PERFORMANCE

NEGATIVE NEUTRAL MOSTPOSITIVE

EXTERNAL EFFECTS

POSITIVE

When organizational decisions are governed by the principle of shareholder value

maximization, however, there are only five possible outcomes that decision-mak-

ers will strive to achieve. Only those outcomes where the firm’s individual financial

performance is maximized (depicted in the top row of figure 2) will do. The rest

are irrelevant and illegitimate.

Figure 2: The valuation of all the possible effects of organizational decisions under

the principle of shareholder value maximization

Moreover, which of the five legitimate outcomes a decision-maker will actually

strive to achieve is determined by the expected pay-off of the decision alterna-

tives in terms of financial performance alone. If the decision alternative that is

expected to maximize financial performance is also expected to result in posi-

tive- or even maximally positive external effects, the decision-maker will have to

select this alternative. But if the decision alternative that is expected to maximize

financial performance is also expected to result in negative- or even maximally

negative external effects, then the decision-maker will also have to select this

alternative. Strictly speaking, the broader economic, environmental and social ef-

fects of each decision alternative are not even considered; they are relevant only

to the extent that they would have an effect on the firm’s financial performance

(e.g. when juridical penalties or damaged corporate reputation would have a nega-

tive- or when communicating responsible corporate behavior would have a posi-

tive expected effect on the bottom line). In other words, the broader economic,

environmental and social effects are irrelevant in- and of themselves.

Because of its indifference to the external effects of organizational decisions,

the principle of shareholder value maximization does not only drive decision-

making in a way that maximizes the firm’s financial performance. It also drives

136

MOSTNEGATIVE

MINIMIZED

NEGATIVE

BREAK-EVEN

POSITIVE

MAXIMIZED

FINANCIAL PERFORMANCE

NEGATIVE NEUTRAL MOSTPOSITIVE

EXTERNAL EFFECTS

POSITIVE

the externalization of negative economic, environmental or social effects every

time this happens to coincide with maximizing expected financial performance. As

such, the principle of shareholder value maximization also drives organizational

decision-making according to an implicit logic of externalization:

Wherever profit- or shareholder value maximization functions as the overrid-

ing principle in the organization of economic production, negative economic,

environmental and social effects have to be externalized whenever this is

expected to maximize the financial performance of an individual firm.

It is this logic of externalization upon which not only the financial crisis, but also

the continued production of environmental and social crises should be blamed.

Blaming the financial crisis of 2008 on the laxity of government or the corporate

scandals of the early 2000’s and the 2008 financial crisis on the failure of busi-

ness schools to teach their students how to act responsibly, frames the problem

as an absence of constraints. It does not address the underlying problem: the

presence of the principle of shareholder maximization and its implicit logic of ex-

ternalization, in business education and business practice, as a driver behind the

production of negative economic, environmental and social (side-)effects in the

way organizational decisions are made.

6. Why the First Four Levels Are Not Sufficient

The first four levels of integration are not sufficient because they fail to address

the presence of this driver in traditional business school curricula. Each of the

first four levels integrates ethical reflection more deeply into the way organiza-

tional decision-making is taught. Nevertheless, ethical reflection still remains a

separate supplement to the standard approaches to decision-making that are

taught in the traditional core courses of business school curricula. In light of the

previous discussion, this separation results in at least two problems for the capac-

ity of ethical reflection to change the broader economic, environmental and social

effects of organizational decision-making in positive ways.

Figure 3: The general stages of standard approaches to decision-making that are

taught in busines education

First, ethical reflection comes in too late. Decision-making is only one stage in the

much broader process of problem-solving that business schools teach. There are

several other stages involved that precede the option-selection or decision-making

137

Problem Identification

Problem Analysis

Option Generation

Option Evaluation

Option Selection

Implemen-tation

stage (as figure 3 depicts). Now, if these preceding stages were neutral, it would not

be a problem that ethical reflection only enters in the decision stage. But they are

not. The earlier stages of problem identification, problem analysis, option generation

and option evaluation are all guided and shaped by the theories, tools and the domi-

nant approach to business that are taught in the core courses of traditional curricu-

la. Given the dominance of the principle of shareholder value maximization in busi-

ness education (see section 5), this means that these stages tend to be governed

and shaped by the overriding objective of financial performance maximization.

Because the principle of shareholder value maximization guides and shapes the ear-

lier stages in the process of problem solving, ethical reflection will only be brought

to bear on preselected options. Some alternatives that would have more positive

external effects could be precluded during the problem analysis and option genera-

tion phase. More importantly, problems that are not directly related to the firm’s

individual financial performance, but could be significant in terms of their broader

economic, environmental and social effects, will likely not be raised during the prob-

lem identification phase to begin with. For under the principle of shareholder value

maximization, they do not qualify as a relevant business problem at all.

The second problem is that ethical reflection is overruled by the logic of sharehold-

er value maximization whenever its outcomes conflict with the overriding objective

of financial performance maximization. The first four levels of integration leave

the principle of shareholder value maximization with a trump-card that overrules

any normative judgment that conflicts with the objective of financial performance

maximization. This is best explained through a quick review of a classic debate

in the literature and most courses on corporate social responsibility: shareholder

value maximization vs. stakeholder value, or (as it has also been dubbed after the

principal proponents of both positions) Friedman vs. Freeman.

The two positions in this debate are relatively simple. Friedman (notoriously) rep-

resents the position that ‘the [only] social responsibility of business is to maximize

its profits’ (Friedman, 1962, p. 133, 1970, p. 122). In other words, financial perfor-

mance maximization should figure as the one and only corporate objective that

overrides all other considerations in making organizational decisions (see Jensen,

2001 for this more recent rendering of the same position). Freeman’s side, on the

other hand, can be said to represent the position that businesses has a broader

responsibility to all the groups and individuals who can affect- or be affected by

the firm’s actions,5 i.e. the stakeholders of the firm (Freeman et al., 2010, p. 9;

Freeman, 1984, p. 25). In other words, shareholders do not have a privileged posi-

5 Note that this position is committed fully to the normative use of stakeholder theory,

instead of its mere descriptive or instrumental uses (see Donaldson & Preston, 1995 for

a discussion of these distinctions).

138

tion; ethical reflection on the broader effects of organizational decisions on all the

stakeholders are decisive.

Now if this debate is approached from an ethical point of view, normative judg-

ments about the broader effects of organizational decisions on all stakeholders

will have a reasonable chance to overrule the narrow objective of financial perfor-

mance maximization. There are only two moral arguments to defend Friedman’s

position, which have become increasingly unconvincing. The first is that overall

utility for all stakeholders in society is maximized when firms maximize their indi-

vidual financial performance (e.g. Jensen, 2001, pp. 11–12). But this claim, as many

proponents readily admit, brackets the problem of externalities (also see Jensen,

2001, p. 11) and relies on assumptions about trickle-down economics that have

recently been refuted (see Piketty, 2014). The second argument is that managers

and employees have a fiduciary duty to act in the interests of shareholders, since

they are their employers and the owners of the firm (see Friedman, 1970, p. 122).

But this duty is difficult to defend as being absolute, since the rights of other

stakeholders can easily be argue to give rise to fiduciary duties that need to be

taken into account as well (see e.g. Boatright, 1994). Approaching the debate from

an ethical point of view, more than a few proponents of stakeholder theory have

therefore congratulated themselves on triumphing over Friedman’s position based

on the superiority of their moral arguments.

The problem, however, is that proponents of the shareholder value maximization

principle ultimately settle the debate with a positive argument about the necessity

of financial performance maximization. This argument – which goes back, most no-

tably, to an argument that Milton Friedman has developed elsewhere (see Friedman,

1953, p. 22) – is that firms have to maximize their profits, lest they will succumb

to the natural selection pressures of competition. In Jensen (2001), this argument

presents itself as the claim that organizations that do not maximize financial perfor-

mance over the long term will be handicapped in the competition for survival (pp.

10, 11) and selected out in an environment of competing firms that do (p. 14). Grant

(2008) uses the same argument in one of the most widely used textbooks on busi-

ness strategy and extends its logic to managerial positions (in a way that shows

just how much influence agency theorist have had since the 1980’s). Not only does

Grant argue that inter-firm competition necessitates shareholder value maximiza-

tion, he also adds that ‘management teams that fail to maximize the profits of their

companies will be replaced by teams that do’ on the ‘market for corporate control’

(Grant, 2008, p. 36).

This positive argument overrules normative judgments that conflict with financial

performance maximization – with an implicit philosophical twist – by playing what

can be called the ought-implies-can card against them. As an ethical precondi-

tion, ‘ought implies can’ means that ethical reflections cannot result in normative

139

judgments that tell us that something ought to be done, whenever that something

cannot possibly be done under natural conditions.6 The selection argument effec-

tively plays this precondition against all normative judgments that are not aligned

with financial performance maximization. It implies that such judgments cannot

guide organizational decision-making, because organizations that do eventually

would not survive.

The positive claim of the selection argument thus undermines the efficacy of

ethical reflection under the first four levels of integration whenever the normative

judgments at which it arrives do not coincide with financial performance maximi-

zation. Courses on business ethics and corporate social responsibility (Level 1) and

the more integrated applications of ethics (Levels 2 to 4), can thus teach students

to reflect on the broader external effects of organizational decisions from an ethi-

cal perspective. But core courses from the traditional curriculum will teach them

that acting upon the outcomes of such reflections is impossible whenever this

would conflict with financial performance maximization. The first four levels of

integrating ethical reflection into business education therefore remain ineffective

at stopping the production of negative economic, environmental and social (side-)

effects in organizational decision-making.

7. More Radical Levels of Integrating Ethical Reflection in Business School Curricula

The previous section discussed that the first four levels of integrating ethical

reflection into business education are not sufficient for two reasons: at each level,

ethical reflection enters into the process of problem-solving too late and is over-

ruled by the principle of shareholder value maximization. These two problems can

only be overcome by more radical integrations of ethical reflection in business

education. To that end, this section proposes two further levels of integrating ethi-

cal reflection into business education.

Level 5: Critical Reflection

The fifth level of integration deals with the problem that ethical reflection remains

a separate approach to decision-making that enters into the broader process of

problem-solving too late. It solves this problem by supplementing ethical reflec-

tion with a mode of critical reflection that extends its reach and influence to the

earlier stages of the problem-solving process.

6 This short formulation of “ought implies can” is commonly traced back to Immanuel

Kant’s formulation that an ‘action must be possible under natural conditions if the

ought is directed to it’ (Kant, 1998, p. 540 – A548/B576).

140

The importance of moving beyond the separation between traditional theoretical

approaches to problem-solving and decision-making and ethical reflection has

been stressed before. Freeman et al. (2010) have argued that business research

and education should move beyond the ‘separation fallacy’ (p. 7) by taking dif-

ferent perspectives into account, acknowledging the importance of conceptual

framing and bringing together ethics and traditional management literature (pp.

76-78). Khurana (2007) even goes as far as to argue that debates about integra-

ting ethics into business education should ‘examine, first of all, whether and how

the fundamental rationale, structure, and content of business education might

need to be revised or even overhauled’ (pp. 365-366).

These suggestions point business scholars and educators in the right direction.

But they still require concrete and specific elaborations on how a much more radi-

cal integration of ethics into business education can be achieved.

One way – which is proposed here as a fifth level of integration – is to supplement

ethical reflection with critical thinking and reflection skills in two ways.

First, the development of a critical reflections course and its integration into busi-

ness school curricula. This course should combine and integrate elements from

basic philosophy of science, critical theory and ethics in ways that challenge and

tackle the separation problem. Here, students should learn why theoretical and

analytical approaches to problem-solving and decision-making cannot be separated

from ethical considerations in an applied social science like business administration.

Second, the combination of critical and ethical reflection that is taught in this

critical reflections course should be integrated into the standard problem-solving

and decision-making methods that business students learn in the rest of the

curriculum. These reflections need to be critical, in the sense that they have to

explicate how the assumptions of (traditional) theories shape the outcome of the

problem-solving and decision-making processes in which these theories are ap-

plied. They need to be ethical, in the sense that they have to integrate normative

judgments in the process. And they need to be radically integrated, in the sense

that they have to be incorporated throughout all the phases of these problem-

solving and decision-making processes.

One way to integrate this combination of critical and ethical reflection in problem-

solving and decision-making processes, is to teach the following five steps as a

standard part of these processes.

1. Identifying how the theory represents reality

Business students must learn (a) that theories only offer partial accounts of

reality and (b) that the implicit “choices” about what is included and excluded

141

in a theory affect how the application of this theory represents reality. Based

on such an understanding, they should subsequently learn to ask and answer

the following questions when they are applying theories in problem-solving

and decision-making processes: “Which objects, phenomena and actors does

this theory include? Which objects, phenomena and actors does this theory

exclude? How are these objects, phenomena and actors conceptualized?

That is: Which characteristics of these objects, phenomena and actors does

the theory include as relevant? And which characteristics of these objects,

phenomena and actors does the theory exclude (as irrelevant)?”

2. Identifying how the theory rationalizes reality

Business students must learn (a) that the ways in which theories are develo-

ped and validated in an applied social science like business administration are

not simply based on their objective truth, but on their ability to describe and

explain how some aspect of reality works in a way that aids the advancement

of certain – often implicit – goals. In addition, they should learn (b) that these

(implicit) goals imbue theories with a way of rationalizing reality. That is, they

determine how objects, phenomena and actors should be related to each

other in purpose(-)ful(l) ways. Based on such an understanding, they should

subsequently learn to ask and answer the following questions when they are

applying theories in problem-solving and decision-making processes: “What

(implicit) goal(s) does this theory assume? What other ends are excluded

through the (implicit) assumption of this (or these) goal(s)?”

3. Identifying the broader economic, environmental and social effects that

(could) result from these ways of representing and rationalizing reality

Business students must learn that the way in which a theory represents and

rationalizes reality guides and shapes the outcome of the problem-solving

and decision-making processes in which it is applied. Based on such an un-

derstanding, they should subsequently learn to ask and answer the following

questions as an integral part of problem-solving and decision-making proces-

ses: “What are the (potential) consequences for the broader economy, the

environment and society when problem-solving and decision-making would

assume that the way in which this theory represents reality is exhaustive?

What are the (potential) consequences for the broader economy, the environ-

ment and society when problem-solving and decision-making processes would

strictly follow the way in which this theory rationalizes reality?”.

4. Evaluating all the consequences from the application of the theory from

an ethical point of view

Business students must learn that not only the implicit goals of theories are re-

levant in evaluating alternative options in problem-solving and decision-making

142

processes, but that the potential economic, environmental and social (side-)

effects of these processes are also relevant from an ethical point of view. Based

on such an understanding, they should subsequently learn to ask and answer

the following questions as an integral part of problem-solving and decision-

making processes: “How do you judge all the available decision alternatives

based on the effects that are included and relevant according to the way in

which the theory represents and rationalizes reality from an ethical point of

view? What decision alternatives, that could be relevant from an ethical point of

view, are overlooked or excluded by the way the theory represents and rationa-

lizes reality? How do you judge all the available decision alternatives, based on

the broader economic, environmental and social effects that are excluded and

irrelevant according to the way in which the theory represents and rationalizes

reality, from an ethical point of view?

5. Integrating these normative judgments in decision-making

Business students must learn that problem-solving and decision-making pro-

cesses always have an ethical dimension (because these processes prescribe

what ought to be done and because their outcomes can always be questioned

in terms of right and wrong). Based on such an understanding, they should

subsequently learn to ask themselves and answer the following questions as

an integral part of decision-making processes: “What is the best decision from

an ethical point of view?”

This five-step approach can be taught as a second part of the critical reflections

course that has to be integrated into business education in order to reach Level 5.

But from there on it should be integrated into the standard problem-solving and

decision-making approaches of the traditional core courses as well. One way to

do this is to develop criteria for the assessment of students’ application of these

steps in business assignments and internships for real organization.

When this five-step approach is integrated into the problem-solving and decision-

making methods taught by business education, this will at least ensure that win-

win alternatives (where financial performance is maximized and external effects

are more positive or less negative than other alternatives) are not overlooked

because of the way traditional theories guide and shape the outcome of problem-

solving and decision-making processes. At best, they will also prevent the morally

indefensible externalization of negative economic, environmental and social

effects that would have resulted from a narrow focus on financial performance

maximization otherwise. But that brings us back, of course, to the second reason

why the first four levels of integration are not sufficient.

143

Level 6: Ethical Prioritization

Though the fifth level of integration will change the outcome of some problem-

solving and decision-making processes, it still remains powerless against the

logic of externalization. Even if business graduates integrate critical and ethical

reflection into problem-solving and decision-making processes, their normative

judgments would still be overruled whenever they conflict with the objective of

financial performance maximization.

Solving this problem requires an even further and much more radical integration

of critical and ethical reflection into business education than what has been dis-

cussed as Level 5. It requires a critical perspective that enables a prioritization of

ethical reflection over the objective of financial performance maximization – and

its necessity according to the selection argument – in the way business scholars

theorize-, business educators teach- and business students and professionals

learn to think about organizational purpose.

Though this sixth level of prioritizing ethical reflection cannot be fully developed

here, its contours can be sketched in terms of the following requirements.

1. Organizational purpose is transformed into an open-ended ethical question

The dominant approach to business that is currently taught by business

schools (implicitly) assumes that businesses have to maximize their individual

financial performance. Prioritizing ethical reflection in business education

turns organizational purpose into an ethical question that cannot be subjec-

ted to any prior necessity.

2. This open-ended ethical question defines problem-identification

The problem-identification stage of problems-solving processes (figure 3)

is currently defined by problems that traditional courses teach to be most

relevant for the financial performance of individual firms. Prioritizing ethical

reflection in business education expands this set of problems – and reprioriti-

zes them – based on ethical reflections on the functions that firms fulfil in the

broader economy, the environment and society.

3. Ethical considerations inform problem analysis and option generation

Traditional theories tend to represent and rationalize reality in ways that are

defined and shaped by the implicit assumption of financial performance maxi-

mization. Prioritizing ethical reflection in business education seeks to inform

the problem-analysis and option-generation stages of problem-solving proces-

ses (figure 3) with ethical reflections on the broader economic, environmental

and social effects of organizational functioning.

144

4. Ethical considerations act as the overriding criterion for decision-making

The objective of financial performance maximization currently overrides all

other criteria in the decision-making phase of problem-solving processes (figure

3). Prioritizing ethical reflection in business education teaches organizational

decision-making that is based on normative judgements first and foremost.

Realizing such a radical prioritization of ethical reflection in business education

seems impossible, to be sure. Any push in this direction is likely to encounter

many obstacles and problems. All the possible objections and criticisms against

its proposition therefore simply cannot be exhaustively addressed here.

Yet one problem has to be addressed, if only in a tentative and exploratory way.

If this sixth level of prioritizing ethical reflection in business education is to be

taken seriously at all, the selection argument – which unambiguously precludes

the possibility of ethical prioritization – would somehow need to be displaced.

Though such a displacement, again, cannot be fully developed here, it is possible

to indicate three lines along which such a displacement could take place.

1. Entrepreneurship over economics

A first line of displacement would be to recast the question of organizational

purpose into an entrepreneurial, rather than an economic problem. This line

would free thinking, theorizing and teaching about organizational purpose from

the positive necessity of the selection argument, as it shifts the focus to an

entrepreneurial position, prior to any selection pressures, where ethical reflecti-

ons about which firms ought to- and ought not to be founded can be prioritized.

2. Denaturalizing competition

A second line would be to denaturalize the selection pressures that are cur-

rently assumed to necessitate financial performance maximization at every

external cost. This line would affirm that these pressures are not natural

givens, but the outcome of complex historical interactions between socio-eco-

nomic factors and legal frameworks. Such an affirmation subjects the nature

of selection pressures to a (politico-juridical) order of organizational decision-

making. This denaturalizes their necessity and reverses the relation in a way

that ethical reflections can be prioritized.

3. Critical displacement

A third line of displacement would be to extend the mode of critical reflection

developed under Level 5 to the selection argument itself. This line would treat

the selection argument as one way to represent and rationalize the way the

world works and challenge its assumptions based on ethical reflection on its

effects. Such a critical displacement would dissolve the epistemic structure

145

that supports the selection argument’s use of the ought-implies-can card.

This, too, opens up the possibility to prioritize the question how the-world-

(of-business)-ought-to-be in thinking, theorizing and teaching about business

and organizational decision-making.

These three lines of displacement are just brief sketches of ways in which the big-

gest obstacle to a more responsible role for business schools in our society could

be displaced. Each of them has a different degree of difficulty, focus and expected

effect to it.

The first line is probably the “easiest” way to reach the sixth level of prioritizing

ethical reflection in business education. It draws on entrepreneurship, which is a

subject that is close to- and already present in parts of some traditional business

school curriculum. Here, the focus would be on aligning the entire curriculum with

the notion of social entrepreneurship. This line could have significant effect on

the broader economic, environmental and social functioning of organizations that

will be founded in the future. Yet its scale is limited as long as the prioritization of

ethical reflection cannot be transferred to extant organizations or loses its grip

when firms that were founded based on ethical reflections mature.

The second line is more difficult, as it requires macro-level changes that are

outside the traditional scope and reach of business education and the field of

work for business(wo)men. If business schools would somehow play an active role

in its pursuit, this would require a partial reorientation on the intersect of public

policy and corporate governance with a particular focus on the governmental and

regulatory end. Though this indicates a possibility to displace the necessity of the

selection argument in theory, its efficacy is questionable in practice. Government

regulation has an unpromising track-record. More importantly, following this line

is also likely to distract from the presence of a driver behind the production of

these crises in business education itself.

The third line of displacement is the most difficult, as it requires a profound and

elaborate philosophical critique of the assumptions and the epistemic structure

upon which the selection argument and the necessity of financial performance

maximization are built. This line would shift the focus of business education to

an integration of different branches of philosophy (in order to open up ethical

reflection) and – quite possibly – other disciplines from the humanities in its wake

(in order to cultivate and inform ethical reflection). But although this line is dif-

ficult, it is also the most promising in terms of its expected effect. For if such a

critical displacement of the necessity of financial performance maximization and

a prioritization and cultivation of ethical reflection would succeed in business

schools, business education could truly succeed at changing the broader econo-

mic, environmental and social effects of business in positive ways.

146

8. Conclusion

Reformers and critics are more than right to target business schools in their

search for ways to stop our production of economic, environmental and social

crises. The content of business school curricula exercises tremendous influence

on the way organizational decisions are made. This does not merely make busi-

ness education a promising site to plug solutions to these crises. Business schools

are also deeply responsible for the past and current functioning of businesses

in the production of economic, environmental and social crises. The principle of

shareholder value maximization, which is (implicitly) adopted as the underlying

assumption about organizational purpose throughout traditional business school

curricula, actively drives organizational problem-solving and decision-making to

externalize negative economic, environmental and social effects whenever this

maximizes the financial performance of an individual firm.

The various steps that business schools have taken to integrate ethics, sustainabi-

lity and corporate social responsibility content in their curricula, so far, are neces-

sary to address this problem. But more needs to be done if business education is

to change the broader economic, environmental and social effects of organizatio-

nal decision-making in positive ways. The next step is to develop a critical reflec-

tions course that extends ethical reflection and integrates it more radically into

the problem-solving and decision-making methods that are taught by business

schools. Beyond such a critical reflections course, business schools should even

go as far as to prioritize ethical reflection on the broader economic, environmen-

tal and social effects of organizational functioning in their thinking, theorizing and

teaching about organizational purpose.

These much more radical ways of integrating ethical reflection into business edu-

cation are demanding and challenging, to be sure. But they are much needed and

even necessary if business schools are to truly change the broader economic,

environmental and social effects of organizational decision-making in positive

ways.

147

148

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